TMI Blog1993 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... office at Gangtok in Sikkim and is carrying on business, inter alia, as commission agents in cardamom and other agricultural products in the State of Sikkim. It has asserted that all its activities and transactions have been initiated and finalised in the State of Sikkim and it has no office or establishment outside the State of Sikkim. Petitioner No. 2 is its director. Initially, the State of Sikkim was under a hereditary monarch, subject to British paramountcy. Later, a treaty was entered into between Sikkim and the Government of India and the latter took responsibility with regard to defence, external affairs and communications of Sikkim. Thus it became a protectorate of the Union of India. Thereafter, the Constitution (Thirty Sixth Amendment) Act, 1975, was passed whereby Sikkim was admitted into the Union of India as a State. The said amendment inserted article 371F in the Constitution of India incorporating some special provisions, with respect to the State of Sikkim. The relevant clauses of article 371F run as under : 371F. Special provisions with respect to the State of Sikkim.Notwithstanding anything in this Constitution,--.... (k) all laws in force immediately b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under : Messrs. Mansarover Commercial Pvt. Ltd., C/o Shri Rattan Gupta (CA), 4356/4, Ansari Road, Daryaganj, New Delhi-110 002. The petitioners allege that they had requisitioned the services of Shri Rattan Gupta, chartered accountant, for providing professional services in connection with company law matters, accounts reconciliation, reconciliation of bank accounts, assistance in finalisation of accounts of the company and reconciliation of the other parties. On inquiries made by the petitioners from Shri Gupta, it appeared that the office premises of Shri Gupta had been searched by the income-tax authorities and the account books which had been submitted to him for reconciliation had been seized by them. Though the account books so seized would show the address of the registered office of the company in Sikkim, still notices were not sent to the company at its registered office at Gangtok, Sikkim. The petitioners have sought a writ of prohibition, prohibiting the respondents from taking, initiating or pursuing any further action directly or indirectly against the petitioner-company under the 1961 Act in pursuance of the notices dated July 10, 1990, mainly on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch information as may be called for by the Department. The assessment proceedings were to continue but the final assessment orders were not to be signed nor demands raised in respect of the said assessments until further orders of the court. It was further observed that in case of failure by the petitioners to comply with any statutory requirements in course of the assessment proceedings, it was open to the concerned officer to proceed against the petitioners in accordance with law. Rejoinder to the counter-affidavit was filed by the petitioner on April 25, 1991. Respondents Nos. 1 to 3 in their counter have taken several preliminary objections. One of them is that this court has no jurisdiction to proceed with the writ petition as the whole of the cause of action has arisen within the jurisdiction of the High Court at New Delhi and no part of it has arisen within the territorial jurisdiction of this court. They have further submitted that the petitioners have an adequate efficacious alternative remedy by taking these objections before the tax authorities. Moreover, the writ petition involves determination of complex disputed questions of fact which cannot be gone into by this cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri Rattan Gupta who was looking after the day-to-day affairs of the company, the impugned notices were rightly served on him. The petitioners in their rejoinder have stated that the following issues are involved in the present writ petition : 2 . . . . . (a) Whether a company registered in the State of Sikkim and having its operation relating to generation/earning of income in Sikkim can be made subject to and proceeded against under the Income-tax Act, 1961, for the period during which the said Income-tax Act, 1961, was not applicable to the State of Sikkim ? (b) Whether under the facts and circumstances, a notice under section 148 of the Income-tax Act, 1961, can be issued to the respondent-company ? (c) Whether an assessee can be made to pay income-tax twice on its income against the established principles of law as also against various judgments of the Supreme Court of India where the Supreme Court has clearly laid down that double taxation is not permitted ? They have further asserted that the petitioner-company was registered in the State of Sikkim and has its registered office in the State of Sikkim ; it carried on its business in the State of Sikki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners have challenged the notices on the ground that the petitioner-company is engaged in carrying on the business of investment in Sikkim only and has no branch office or establishment carrying on business outside Sikkim except a liaison office at 34, Vasant Marg, Vasant Vihar, New Delhi, which is used partly as a place for the stay of the officers of the company who visit Delhi and also as the managing director's camp office as and when he is in Delhi and also that the company has a liaison office at Calcutta. The Income-tax Act was not in force in respect of the assessment years 1987-88, 1988-89 and 1989-90 and as such according to the petitioners whatever liability arose for income-tax that was as per the provisions of the Sikkim State Income-tax Manual, 1948, and not as per the Income-tax Act, 1961. Further, it is urged that since for the assessment year 1990-91 also, income arose only in Sikkim the income-tax authority in Sikkim would alone have jurisdiction and not the authorities in Delhi, but the Central Government has so far not set up any office in Sikkim. The petitioners have alleged that since under the State Income-tax Manual, income-tax is payable on turnover an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney was earned in Delhi and income was received in Delhi and then reinvested in Delhi. Besides, according to the respondents, the petitioners have a full-fledged office at 34, Vasant Marg, Vasant Vihar, New Delhi, management and control of the company was in Delhi and its managing director who is petitioner No. 2 was operating from Delhi but in order to avoid proper taxation, the company had nominally shown its registered office in Sikkim, and as such the respondents who are located at Delhi had the jurisdiction to initiate and make enquiries and investigations under sections 131 and 142. After several adjournments, arguments commenced on June 8, 1993. Principal arguments were submitted by Mr. Dastur, senior advocate, on behalf of the petitioners. During the course of arguments, Mr. Ahuja wanted to tender a copy of the reasons recorded by the Assistant Commissioner of Income-tax (Investigation) but Mr. Dastur objected, as they were not supported by an affidavit. On June 9, 1993, Mr. Ahuja tendered reasons duly supported by an affidavit giving a copy thereof to Mr. Dastur. This was also objected to by Mr. Dastur who also filed a written objection in this regard on June 10, 1993. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the issue of notices under section 148 of the Income-tax Act, 1961. Mr. Dastur has submitted that the impugned notices under section 148 purportedly seek to take action with regard to acts carried out wholly within the jurisdiction of this court by the companies that had been registered under the Registration of Companies Act, Sikkim, 1961, and the control and management of the affairs of these companies is situated within Sikkim. Further, in any event, he contends, the control and management of the affairs is not relevant at all, since the issues are with respect to the applicability of Sikkim law, as the whole income of the companies arose in Sikkim, and as such no enquiry or investigation could be carried out under the Income-tax Act, 1961. According to him, article 371F which was inserted by the Constitution (Thirty-sixth Amendment) Act, 1975, granted immunity to the residents of Sikkim from the operation of the Income-tax Act by protecting the continued validity of the Sikkim State Income-tax Manual, by virtue of clause (k) of that article and, as such, the residents of Sikkim were not, during the relevant years, liable to pay tax under the 1961 Act and whatever li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 371F is that so long as the Indian Income-tax Act did not become applicable to Sikkim, the 1961 Act could not apply to incomes earned in Sikkim, but in respect of the incomes earned in other parts of India where the 1961 Act was in force, the Sikkim law could not operate and the 1961 Act would apply. As such, there cannot be any occasion for double taxation of the same income both under the Sikkim State Income-tax Manual and under the Act. In this view of the matter, the question for decision is not about the operation of the Sikkim law but where the incomes in respect of the impugned notices issued under section 148 of the Act arose, accrued or were received. But that is a matter to be decided by the authority that has issued the notices. The jurisdiction of the writ court is not appellate but supervisory and with respect to a matter of the nature of the present five petitions the writ court has merely to decide whether the Assessing Officer had reason to believe that any income chargeable to tax under that Act had escaped assessment. The Supreme Court held in ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR 1, that the existence of reason to believe on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the material facts which culminated in the issue and service of the impugned notices and on the basis of which the impugned notices have been challenged, keeping in view the law applicable to the matter, took place in Delhi. The question whether the income arose in Sikkim or in Delhi is an issue concerning the merits to be determined by the appropriate income-tax authorities as per the provisions of the Act and not by a writ court and, as such, the allegations to show that the income was earned in Sikkim are not material. Mr. Dastur contended that notices should have been served under section 148 at the registered office of the companies and by serving notices on the chartered accountant of the companies at Delhi, the income-tax authorities at Delhi could not divest the Sikkim court of the jurisdiction which it would otherwise have, the notices being an integral part of the cause of action. However, the fact remains that the notices were served in Delhi. The question of jurisdiction is to be decided on the factual state that is found to exist and not as it should have been. Therefore, without going into the question whether service effected at Delhi was valid or not, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 102, it was held that the submission that the company will sustain loss or the shareholders will sustain loss does not form part of the cause of action which needs to be proved in order to succeed in the application that the impugned order is bad, arbitrary, unreasonable and illegal and not in accordance with the norms laid down in sub-section (3C) of section 3 of the Essential Commodities Act. In Kajaria Exports Ltd. v. Union of India, AIR 1985 Cal 70, the Calcutta High Court observed that merely having an office at Calcutta, without having anything more, does not and cannot mean that the Calcutta High Court has jurisdiction to entertain the writ petition when all the respondents are situated outside the jurisdiction of that court and no part of the cause of action arose within the jurisdiction of that court. The Allahabad High Court held in Rakesh Dhar Tripathi v. Union of India, AIR 1988 All 47, that where the petitioner filed a petition in the Allahabad High Court, but the grounds on which the reliefs were claimed did not show that the cause of action arose in Allahabad and by whatever the petitioner was aggrieved took place in New Delhi and all the respondents were also reside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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