Commr.of Income Tax-Delhi v. Sovereign Commercial P Ltd

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 7[th] January, 2016 Date of Decision: 22[nd] February, 2016 + ITA 162/2002 COMMR.OF INCOME TAX-DELHI ..... Appellant Through: Mr. Kamal Sawhney, Senior Standing Counsel, Mr. Raghvendra Singh, Junior Standing Counsel and Mr. Shikhar Garg & Mr. Sharad Agarwal, Advocates. versusMANSAROVAR COMMERCIAL P LTD ..... Respondent Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar and Mr. Suhail Malik, Advocates. With+ ITA 164/2002 COMMR.OF INCOME TAX-DELHI ..... Appellant Through: Mr. P. Roy Choudhary, Senior Standing Counsel. versus SOVEREIGN COMMERCIAL P LTD ..... Respondent Through: Mr.C.S.Aggarwal, Senior Advocate with Mr. Prakash Kumar and Mr. Suhail Malik, Advocates. With + ITA 165/2002 COMMR.OF INCOME TAX-DELHI ..... Appellant Through: Mr.Kamal Sawhney, Senior Standing Counsel, Mr. Raghvendra Singh, Junior Standing Counsel and Mr. Shikhar Garg & Mr. Sharad Agarwal, Advocates. versus SWASTIK COMMERCIAL P LTD ..... Respondent Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar and Mr. Suhail Malik, Advocates. With+ ITA 167/2002 COMMR.OF INCOME TAX-DELHI ..... Appellant Through: Mr. Rohit Madan, Senior Standing Counsel with Mr. Zoheb Hossain, Advocate. versusTRISHUL COMMERCIAL P LTD ..... Respondent Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar and Mr. Suhail Malik, Advocates. And+ ITA 168/2002 COMMR.OF INCOME TAX-DELHI ..... Appellant Through: Mr. Kamal Sawhney, Senior Standing Counsel, Mr. Raghvendra Singh, Junior Standing Counsel and Mr. Shikhar Garg & Mr. Sharad Agarwal, Advocates. versus PASUPATI NATH COMMERCIAL P LTD ..... Respondent Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar and Mr. Suhail Malik, Advocates. CORAM:JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU J U D G M E N T% 22.02.2016 Dr. S. Muralidhar, J.: 1. These five appeals under Section 260A of the Income Tax Act, 1961 (‘the Act’) by the Revenue are against a common order dated 8[th] January, 2002, passed by the Income Tax Appellate Tribunal (‘ITAT’) for Assessment Years (‘AYs’) 1987-88, 1988-89 and 1989-90. Introduction 2. The Assessees - Mansarover Commercial Private Limited (MCPL) (the Respondent in ITA No. 162 of 2002), Sovereign Commercial Private Limited (SCPL) (the Respondent in ITA No. 164 of 2002), Swastik Commercial Private Limited (SWCPL) (the Respondent in ITA No. 165 of 2002), Trishul Commercial Private Limited (TCPL) (the Respondent in ITA No. 167 of 2002) and Pasupati Nath Commercial Private Limited (PNCPL) ((the Respondent ITA No. 168 of 2002) are companies incorporated under the Registration of Companies (Sikkim) Act, 1961. Each of the Assessee companies claims to be carrying on the business of commercial agents in cardamom and other agricultural products and having bank accounts with UCO Bank, Gangtok and State Bank of India (SBI), Gangtok and Kasturba Gandhi Marg, New Delhi. 3. Sikkim became part of India in April 1975. The Constitution (Thirty sixth Amendment) Act, 1975 inserted Article 371-F in the Constitution of India, in terms of which not all the laws of India were extended to the new State of Sikkim. Under Article 371-F (k) all laws in force immediately before the appointed day, i.e., 26[th] April, 1975, in the territories comprising the State of Sikkim or any part thereof were to continue to be in force therein until amended or repealed by a competent legislature or other competent authority. The Act was not made straightaway applicable to the State of Sikkim. Till such extension of the Act to Sikkim by a notification issued under Article 371- F (n), income tax was to be charged and collected under the Sikkim State Income-tax Manual 1948 (Sikkim Manual 1948). The recovery of tax was under the scheme of the Sikkim (Collection of Taxes and Prevention of Evasion of Payment of Taxes) Act, 1987. 4. By a Notification No. S.O. 1028 E dated 7[th] November, 1988 issued under Article 371-F(n) of the Constitution, the Act, the Wealth Tax Act, 1957 and the Gift Tax Act, 1958 were extended to the State of Sikkim. In terms of para 2 of the said Notification, the Central Government appointed, by Notification S.O. 148 E dated 23[rd] February 1989, the 1[st] of April, 1989 as the date on which the Act would come into force in the State of Sikkim in relation to the previous year relevant to the AY commencing on the 1[st] day of April, 1989. However, subsequently by virtue of Section 26 of the Finance Act, 1989 the Act was made applicable to the State of Sikkim from the previous year relevant to the AY commencing from 1[st] April 1990, thereby extending the date of applicability of the Act by one year from the date specified in the notification dated 23[rd] February, 1989. 5. The case of the Assessees is that each of them was a resident of Sikkim, carrying on business in Sikkim and not elsewhere and that till 31[st] March, 1990, each of them were governed by the Sikkim Manual, 1948 and not the Act. The stand of the Assessees is that the income earned by them till that date was income earned in Sikkim from the business conducted done in Sikkim. 6. The case of the Revenue, on the other hand, is that the control and management of each of the Assessee companies was wholly with their auditor, M/s. Rattan Gupta & Company, Chartered Accountants (CAs), who had their offices in Karol Bagh, New Delhi and, therefore, were companies resident in India in terms of Section 6 (3) of the Act. Search 7. A search was conducted on 15[th] March 1990 at the premises of M/s Rattan Gupta & Co. Chartered Accountant (‘CA’) at Daryaganj, New Delhi and during the course of the search books of account, check books, signed blank cheques, vouchers and other income documents of the Assessees, were found. The statements of Mr. Rattan Gupta, Mr. Ravinder Singh (a former partner of M/s Rattan Gupta & Co.) and a few other partners, both current and former, were recorded. 8. On 10[th] July 1990, following the search conducted, notices were issued by the Assistant Commissioner of Income Tax (‘ACIT’) (Investigation) Circle 7 (1), New Delhi to each of the Assessees under Section 148 of the Act, in respect of AYs 1987-88, 1988-89 and 1989-90. An order was passed on 12[th]July 1990 by ACIT (Investigation), Circle 13(1) in respect of the M/s Rattan Gupta & Co. under Section 132 (5) of the Act. Mr. Rattan Gupta informed the Assessees that the aforementioned notice under Section 148 of the Act had been issued to each of them at the address of M/s. Rattan Gupta & Co. at Daryaganj and had been affixed at the said premises of M/s. Rattan Gupta & Co. 9. Meanwhile, each of the Assessees filed returns of income in terms of the Sikkim Manual, 1948 for the three AYs in question on 27[th] April 1990. A demand notice was issued to each of them in respect thereof on 23[rd] July 1990. Writ petitions in the Sikkim High Court 10. The Assessees filed writ petitions in the High Court of Sikkim, challenging the notices issued under Section 148 of the Act. An interim order was passed by the Sikkim High Court in the said writ petitions staying further proceedings. The said interim order was modified on 26[th] February 1991, 9th April 1991 and on 30[th] November 1991 in terms of which the Income Tax Department ('the Department') was permitted to continue with its enquiry and seek facts and information from the Directors of the Assessee companies. The Assessee companies were required to furnish the necessary information and also file returns and produce the books of accounts before the Assessing Officer (‘AO’), New Delhi in compliance of the notices under Section 148 of the Act. Writ petitions in the Sikkim High Court 10. The Assessees filed writ petitions in the High Court of Sikkim, challenging the notices issued under Section 148 of the Act. An interim order was passed by the Sikkim High Court in the said writ petitions staying further proceedings. The said interim order was modified on 26[th] February 1991, 9th April 1991 and on 30[th] November 1991 in terms of which the Income Tax Department ('the Department') was permitted to continue with its enquiry and seek facts and information from the Directors of the Assessee companies. The Assessee companies were required to furnish the necessary information and also file returns and produce the books of accounts before the Assessing Officer (‘AO’), New Delhi in compliance of the notices under Section 148 of the Act. 11. Ultimately, on 20[th] July 1993, by the decision in Mansarover Commercial Pvt. Ltd. (1994) 209 ITR 716 (Sikkim), the Sikkim High Court dismissed all the writ petitions holding that it had no jurisdiction to entertain the said petitions since no part of the cause of action had arisen in the State of Sikkim. It was stated that inasmuch as the notices were issued by the ACIT, (Investigation) Circle 7(10), New Delhi, and served on the Assessees in New Delhi, it had no jurisdiction over the actions of that authority. The Sikkim High Court declined to examine if such notices were validly issued. The Sikkim High Court observed that “mere fact that the companies have registered offices in Sikkim does not confer jurisdiction on this Court”. 12. In the meanwhile, on the basis of the returns filed by the Assessees in Sikkim, the Income & Sales Tax Department of Government of Sikkim raised a revised demand on 30[th] November 1990, cancelling the earlier demand raised on 30[th] July 1990. Writ petitions in this Court 13. Consequent upon the dismissal of their writ petitions by the Sikkim High Court on 20[th] July 1993, the Assessees filed writ petitions being W.P. (C) Nos. 5565 to 5569 of 1993 in this Court. In the said writ petitions an interim order was passed by the High Court staying the proceedings. On 13[th] August 1998 an order was passed by the High Court directing the AO to frame the assessment subject to outcome of the writ petition. The High Court directed that the Department may conclude the proceedings and pass orders thereon, but the orders would not be given effect to unless permitted by the Court. Assessment orders 14. Following this, on 24[th] August 1998, notices were issued to the Assessee companies under Section 143 of the Act by the ACIT, Company Circle 2 (2), requiring the Assessee to appear in the office of the ACIT on 7[th]September 1998. This was in respect of the AY 1987-88. Similar notices were issued in respect of each of the other two AYs i.e. 1988-89 and 1989-90. 15. On 9[th] October 1998, separate assessment orders were passed by the ACIT, Company Circle 2 (2), New Delhi for each of the AYs 1987-88, 1988-89, 1989-90, in which it was concluded that each of the Assessees were “intentionally trying to take advantage of the prevailing laws at Sikkim by routing money through Sikkim and ploughing back in India.” The objections raised by the Assessees as to jurisdiction were rejected. The additions made to the income of the Assessees for the three AYs in question were on the following heads of income: (i) income from commission (ii) unsecured loan from Dengzong Charitable Trust (DCT) (iii) interest accrued/paid on the unsecured loans and (iv) provision for income tax (which was disallowed). Separate penalty proceedings were initiated under Section 271(1)(a), 271(1)(c), 273/274 and 271-B of the Act. 16. The Assessees then filed appeals before the Commissioner of Income Tax (Appeals) [CIT (A)]. Subsequently on 8[th] December 2000, the writ petitions filed by the Assessee were dismissed by the High Court by the following order: 16. The Assessees then filed appeals before the Commissioner of Income Tax (Appeals) [CIT (A)]. Subsequently on 8[th] December 2000, the writ petitions filed by the Assessee were dismissed by the High Court by the following order: "Heard counsel for the parties. Petitioner claims to have moved Appellate authority prescribed under the statute. An apprehension is raised that question whether income Tax Act 1961 is applicable to a company registered in Sikkim may not be within the domain of the appellate authority to decide. Learned counsel for the Revenue states that this apprehension is misconceived because the Appellate Authority has jurisdiction to decide all the aspects of fact and question of law. It shall be open to the Petitioner to raise additional grounds, if any, before the Appellate Authority. In view of the above position we dispose of the writ petition. Interim order stand vacated. Dasti." Order of the CIT (A) 17. The conclusions of the CIT (A) in the orders dated 30[th] March 2001 dismissing the Assessees' appeals were as under: (a) The Assessees failed to furnish information to substantiate that the persons who claimed to have given huge amounts of commissions were “genuine parties or that the basis of earning commission is genuine or that the assessee has rendered any work alleged by it in Sikkim to earn the commission income in Sikkim.” (b) Although the commission income was more than a crore of rupees, none of the Assessees had incurred any worthwhile expenses and that the whole payment of the commission itself is highly improbable. (c) No record of the Assessee maintained in terms of the applicable company law was produced despite specific requests of the AO. (d) The summons sent to different persons who had been paying commission had not been responded to by any of them. The Assessees also did not produce any worthwhile evidence to prove the genuineness of the commission received. (e) The complete books of accounts of each of the Assessee companies was found in the office of their CA at New Delhi. It was admitted, in the statements recorded, that the head and brain of each the companies was in India. (f) The Assessees were unable to produce the present Directors or furnish the name and address of all the Directors from the days of incorporation despite being asked to do so by the AO. (g) Mr. Rattan Gupta, CA, in his statement recorded on 5[th] October 1998, claimed not to know anything about the business operations at Sikkim or Delhi of the Assessee. He maintained that he had only rendered some professional services through M/s Rattan Gupta & Co. in October/November 1998. (h) Mr. U.P. Karma, one of the working Directors of the five companies stated during his examination on 8[th] October 1998 that he had no idea about the business in which the five Assessees’ companies were involved. He claimed that he never gone to Sikkim and yet asserted that books of the companies were present at the Gangtok registered office. His evidence did not inspire confidence. (i) It appeared that the amount alleged to be earned in Sikkim had factually “surfaced in India and invested in closely held companies of Dalmia Group in India”. The Assessee did not produce any evidence to substantiate its case that the commission income had accrued in Sikkim and had neither accrued nor arisen in India. Therefore, the commission income had accrued in India and not in Sikkim. 18. The additions made by the AO were confirmed by the CIT (A). As regards the interest under Sections 234 A and 234 B of the Act, the CIT(A) held that the interest under Section 139(8) and 215/217 of the Act have been correctly charged for the three AYs in question. While confirming the above additions, the CIT(A) also affirmed disallowance of the sums paid by the Assessees on account of the State income tax. Impugned order of the ITAT 19. The Appeals by the Assessees against the orders of the CIT(A) were dismissed by the ITAT which came to the following conclusion in the impugned order: 18. The additions made by the AO were confirmed by the CIT (A). As regards the interest under Sections 234 A and 234 B of the Act, the CIT(A) held that the interest under Section 139(8) and 215/217 of the Act have been correctly charged for the three AYs in question. While confirming the above additions, the CIT(A) also affirmed disallowance of the sums paid by the Assessees on account of the State income tax. Impugned order of the ITAT 19. The Appeals by the Assessees against the orders of the CIT(A) were dismissed by the ITAT which came to the following conclusion in the impugned order: (i) The burden was on the Revenue to prove that the control and management of the Assessee companies was situated wholly in India in the three AYs in question. At the time the AO proposed to issue notice under Section 148 of the Act, there was no cogent material to enable him have reason to believe that the control and management of the affairs of the Assessee was wholly situated in India. (ii) Mr. Rattan Gupta came to be associated with the Assessee companies in 1988. Although he stated that he was handling their investments in India, there was nothing to show that he was the brain behind the working and the control and management of the Assessees as a whole. Mere availability of the books of accounts with him, in no manner establishes that the said place was the business premises of the assessee company from where it was carrying on any business. Further, apart from the statement of Mr. Ratan Gupta, the other statements and certain other documents relied on were not confronted to the Assessee for rebuttal and hence could not be considered. (iii) The CIT (A) erred in proceeding on the basis that the Assessees could not challenge the notices under Section 148 of the Act on the ground of non- existence of reasons to believe since the two High Courts had dismissed the Assessee's writ petitions. The orders of the two High Courts did not determine the pleas raised by the Assessees on merits. Further, the Delhi High Court had specifically permitted the Assessees to raise all pleas before the CIT (A). The AO drew inferences without actually referring to the material before him. (iv) The service of notice under Section 148 of the Act was a jurisdictional issue. The said notice could not be served on any person readily available without being satisfied that such person had the legal authority to accept the notice. Neither the statement of Mr. Rattan Gupta, nor the fact that the books of accounts and papers pertaining to the Assessees were found at his office established that he was a ‘principal officer’ of the Assessees within the meaning of Section 2 (35) (a) of the Act. The AO did not serve an notice of his intention of treating Mr. Rattan Gupta as the principal officer for the purposes of Section 2(35)(b). The AO also did not proceed under Section 163 (b) of the Act or in the manner provided in Section 51 of the Companies Act 1956. Hence those provisions could not be relied on for proving effective service. (v) The substituted service under Rule 20 (1) of Order V CPC was also legally ineffective, because of refusal of the notice by Mr. Rattan Gupta, who was not authorized to accept service of the notice on behalf of the Assessee companies. The address simply stated ‘C/o Ratan Gupta’, and C/o merely meant that the addressee "in the present case, the appellant, was to be found at the said address." Therefore, if Mr. Rattan Gupta refused to receive such a notice, he was justified in doing so and his refusal did not authorize the AO to resort to substituted service within the meaning of Rule 20 of the Order V of CPC. Act 1956. Hence those provisions could not be relied on for proving effective service. (v) The substituted service under Rule 20 (1) of Order V CPC was also legally ineffective, because of refusal of the notice by Mr. Rattan Gupta, who was not authorized to accept service of the notice on behalf of the Assessee companies. The address simply stated ‘C/o Ratan Gupta’, and C/o merely meant that the addressee "in the present case, the appellant, was to be found at the said address." Therefore, if Mr. Rattan Gupta refused to receive such a notice, he was justified in doing so and his refusal did not authorize the AO to resort to substituted service within the meaning of Rule 20 of the Order V of CPC. (vi) On the question of whether the income could be deemed to accrue or arise in India, it was held that from the perusal of the reasons recorded and noted, there was no such material available with the AO to reopen the assessment. The monies claimed to have been transferred to Gangtok were not even claimed to belong to the Assessee companies and as observed by the CIT (A) it had not been established, even till the final stages of assessment, that the monies transferred to Sikkim in fact belonged to the Assessees. The Revenue failed to show the existence of any source of income from which the monies could be available to the Assessees in India and which, the Assessees could transfer to Sikkim. (vii) On the existence of commission agents, in response to the Revenue’s contention that none responded to the AO’s letters, the ITAT observed that since no adverse material had been brought on record, the ACIT could not have proceeded to draw adverse inference, as the burden was heavy on the Revenue. (viii) Therefore, the notices under Section 148 of the Act were not validly served on the Assessees. The AO, therefore, did not acquire any jurisdiction under Section 148 of the Act to proceed with the assessments. (ix) With reference to the addition of the sum of Rs. 30,75,000/-in the account of the assessee in the name of M/s. Dengzong Charitable Trust, Gangtok which according to the assessee is a loan raised by it from the said trust, it was held that the payment was admittedly received through account payee cheque issued by the trust, confirmation letter from the lender was also filed and the details of the bank account of the trust were also available with the AO. There was thus prima facie proof of the loan and the existence and capacity of the lender and the addition was liable to be deleted. (x) On the question of the interest claimed in relation to the above mentioned loan, as a consequence of the finding that the credit of loan from the aforesaid trust was genuine, the disallowance could not be sustained and was deleted. Questions of law 20. On 21[st] September 2004, while admitting these appeals, the Court framed the following questions of law: “1. Whether the Tribunal was right in holding that the ACIT exceeded his jurisdiction in issuing notices under Section 148 of the Act and the notices were not served in accordance with law? 2. Whether the order made by the ITAT is perverse based on conjectures and surmise and ignorance of evidence and material and has relied upon incorrect facts? 3. Whether the income of the assessee is taxable in India?” 21. At the instance of the Assessees, an additional question was also framed as under by the same order: “4. Whether the ITAT was right in law in holding that the assessee is not a resident of India within the meaning of Section 6 (3) (ii) of the Income-Tax Act, 1961 and whether the said finding of the ITAT is not also vitiated and perverse as it ignores relevant admissible evidence and materials and relies upon incorrect facts and has not given due consideration to several important materials and evidence relevant for determination of residence of the assessee” Are the Assessees resident Indian companies? 3. Whether the income of the assessee is taxable in India?” 21. At the instance of the Assessees, an additional question was also framed as under by the same order: “4. Whether the ITAT was right in law in holding that the assessee is not a resident of India within the meaning of Section 6 (3) (ii) of the Income-Tax Act, 1961 and whether the said finding of the ITAT is not also vitiated and perverse as it ignores relevant admissible evidence and materials and relies upon incorrect facts and has not given due consideration to several important materials and evidence relevant for determination of residence of the assessee” Are the Assessees resident Indian companies? 22. The first question that Court proposes to answer is whether the Assessee is a resident of India within the meaning of Section 6(3) (ii) of the Act, since this would be crucial for determining some of the other issues that arise in the case. 23. In terms of Section 6(3)(ii), a company is said to be a resident in India if, during any previous year, “the control and management of its affairs is situated wholly in India”. In the present case, inasmuch as each of the Assessees was incorporated under the Registration of Companies Act, Sikkim 1961, none of them was an Indian company and therefore the applicability of Section 6 (3) (i) of the Act did not arise. It is in this context, the question arises whether their management and control was wholly situated in India. 24. In the decision in the Assessees’ petitions the Sikkim High Court analysed Article 371 F (k) and (n) of the Constitution of India and concluded that: “The combined effect of both these clauses on the present controversy is that so long as the Act of 1961 was not extended to Sikkim, the Sikkim law of income-tax continued to be in force in respect of all incomes earned in Sikkim, notwithstanding the other provisions of the Constitution, and the provisions of theIndian Income-tax Actwould not apply to such incomes irrespective of the length of stay in that part of India where theIndian Income-tax Actwas in force. That is the natural consequence of the State law being inapplicable in a part of India to which part the Central law did not apply. But the Sikkim law being a State law cannot have extra-territorial operation so as to apply to incomes earned outside Sikkim. So, the only effect of the special provisions contained inArticle 371Fis that so long as theIndian Income-tax Actdid 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”. 25. The determination of the issue to the above extent by the High Court of Sikkim has become final as far as the Assessees are concerned, since that decision was not challenged further. It is for this reason that the question of the Act being extended to the State of Sikkim by the notifications issued on 7[th] November 1988 and 28[th] February 1989, and later by Section 26 of the Finance Act 1989 make it applicable with effect from AY 1990-91 may notbe relevant as far as the present case is concerned. Here, we are concerned with three AYs i.e., 1987-88, 1988-89 and 1989-90 during which period the Act did not apply to income earned and accrued in Sikkim. Therefore, as far as AYs 1987-88, 1988-89 and 1989-90 are concerned, the relevant question would be whether for the purposes of Section 6 (3) (ii) of the Act, it can be said, as contended by the Revenue, that the control and management of the affairs of the Assessees’ companies was “situated wholly in India”. This, therefore, is essentially a question of fact and not so much a question of law. Therefore, as far as AYs 1987-88, 1988-89 and 1989-90 are concerned, the relevant question would be whether for the purposes of Section 6 (3) (ii) of the Act, it can be said, as contended by the Revenue, that the control and management of the affairs of the Assessees’ companies was “situated wholly in India”. This, therefore, is essentially a question of fact and not so much a question of law. 26. On this question of fact, the concurrent findings of the AO and the CIT (A) have been upset by the ITAT. Therefore, the Court is called upon to determine whether the decision of the ITAT on this aspect can be said to be perverse and therefore unsustainable in law. The case concerning Alankar Commercial Pvt. Ltd. 27. There was another company, Alankar Commercial Pvt. Ltd. (‘ACPL’), in respect of which proceedings under Section 148 were initiated by the Revenue and which company was also incorporated in Sikkim. In the case of ACPL also, the notices were served at the address of Rattan Gupta & Co. and refused, on the ground that no office of ACPL was running from the said address i.e. 4556/4, Ansari Road, Daryaganj. Challenging the said notice, ACPL filed a writ petition in the High Court of Sikkim. In Alankar Commercial Pvt. Ltd. v. Assistant Commissioner of Income Tax (2000) 243 ITR 626 (Sikkim), the Division Bench of the High Court of Sikkim held that it had territorial jurisdiction to entertain the petition since a part of cause of action did arise therein. It was found that notices were served both at theaddress of Rattan Gupta & Co. in New Delhi (which notice was refused to be accepted) as well as at the address of ACPL at Gangtok. The High Court of Sikkim made a reference to a letter dated 7th April 1994 addressed on behalf of the ACPL by its Advocate Mr. T.P. Thapa to the ACIT, New Delhi in which inter alia it was stated that notice under Section 142(1) of the Act had been received by ACPL through Rattan Gupta &Co. The High Court of Sikkim declined to draw an inference from the above letter that Rattan Gupta was authorized to receive notice on behalf of the ACPL. It was factually determined that: “There is no other document on record to prove that Rattan Gupta and Company was the principal officer or the authorised agent of the petitioner-company”. It was in the above context held that notice under Section 148 was served at Gangtok and that the service of notice at the address of Rattan Gupta & Co. by refusal of registered posts “did not amount to service of notices on the company”. It was held that “under Section 282(2)(b) of the Income-tax Act notice is required to be served in the case of a company on its principal officer”. Since the notice was served only in Gangtok it was held that the part of cause of action did arise within the territorial jurisdiction of the Sikkim High Court and it had jurisdiction to entertain the petition. 28. In Alankar Commercial Pvt. Ltd. v. Assistant Commissioner of Income Tax (supra) the High Court held that the jurisdiction of the ACIT, Delhi to issue notice under Section 148 of the Act was not ousted by Article 371 F of the Constitution of India . Consistent what was earlier held by it in the case of Assessees herein, i.e., Mansarover Commercial Pvt. Ltd. (supra), the High Court of Sikkim held that the said provision could not "stultify theoperation of the central law of income-tax with respect to a company registered in Sikkim concerning its income which accrued or was received outside Sikkim. Further, law of income-tax is not a personal law which a person may carry with him wherever he goes or functions.” It was held that if ACPL had carried on its business activities or had received income outside Sikkim but within India, the same would be liable to tax under the Act. Sikkim. Further, law of income-tax is not a personal law which a person may carry with him wherever he goes or functions.” It was held that if ACPL had carried on its business activities or had received income outside Sikkim but within India, the same would be liable to tax under the Act. 29. The third question that was addressed by the Sikkim High Court in Alankar Commercial Pvt. Ltd. v. Assistant Commissioner of Income Tax (supra)was whether it was open to the High Court to exercise jurisdiction under Article 226 of the Constitution of India to determine whether the ACIT had rightly formed “reason to believe for the purposes of Section 148 of the Act that the Assessee’s (ACPL) income had escaped assessment." Here, the Sikkim High Court was of the view that from the document seized as a result of search and seizure operations in terms of 15[th] March 1990, the AO had reason to believe that the income shown in the notice under Section 148 was chargeable to tax and had escaped assessment. This was because the AO entertained the plea that although the ACPL was registered in Sikkim “income had accrued and arisen in Delhi and the head and brain of the company was situated in Delhi”. It was also found that no office existed in fact at Sikkim. There was only a signboard at the address and the office remained mostly locked. Consequently the notice issued under Section 148 of the Act was not interfered with. 30. The above decision of the High Court of Sikkim was upheld by the Supreme Court in Alankar Commercial Pvt. Ltd. v. ACIT (2000) 244 ITR 31(SC). In a short order, the Supreme Court held as under: "It is contended that Sikkim was not a part of India and at that time the Income-tax Act was not applicable in respect of the assessment year for which notice was served at New Delhi. Learned counsel for the petitioner relies upon the decision of this court in State of Sikkim v. Surendra Prasad Sharma AIR 1994 SC 2342. The aforesaid decision in Surendra Prasad Sharma’s case related to the employees employed in a company in Sikkim and the question which arose there was whether the Indian law applied or not. The question of applicability of the Income-tax Act did not arise in that case, therefore, the said decision has no relevance. The Indian Income-tax Act, inter alia, taxes income which accrues or arises in India. It is immaterial whether the petitioner company has its head office in Sikkim or may be carrying on business activities there. The impugned notice under section 148 of the Income-tax Act has been issued in relation to the income which is stated to have arisen in India and this can be done even if the petitioner has a company registered in Sikkim. The decision of the High Court calls for no interference. The petition for special leave is dismissed." 31. On this aspect, a reference may also be made to the decision of the High Court of Sikkim in Sikkim Manipal University v. State of Sikkim (2014) 369 ITR 57 (Sikkim). The High Court discussed the notifications dated 7th November 1988 and 28th February 1989 and Section 26 of the Finance Act 1989 and held that by necessary implication the Sikkim State Manual 1948 stood repealed on 1st April 1990. 32. To summarize the legal position as far as the applicability of the Act was concerned: (i) even though a company may have been incorporated under the Companies Act of Sikkim, in the period prior to 1[st] April 1989, if it earned any income outside Sikkim but within India, the Income Tax Act 1961 would apply to such income (ii) the jurisdiction of the Indian income tax authorities would not get excluded as long as what is sought to be brought to tax is the income of a company incorporated in Sikkim which income accrued to it and was earned in India. 33. It is not disputed that the Assessees, incorporated under the company law of Sikkim, are resident Indian companies. If any income has accrued to them or earned by them in India prior to 1st April 1990, then such income is taxable under the Act. Objections as to jurisdiction (i) even though a company may have been incorporated under the Companies Act of Sikkim, in the period prior to 1[st] April 1989, if it earned any income outside Sikkim but within India, the Income Tax Act 1961 would apply to such income (ii) the jurisdiction of the Indian income tax authorities would not get excluded as long as what is sought to be brought to tax is the income of a company incorporated in Sikkim which income accrued to it and was earned in India. 33. It is not disputed that the Assessees, incorporated under the company law of Sikkim, are resident Indian companies. If any income has accrued to them or earned by them in India prior to 1st April 1990, then such income is taxable under the Act. Objections as to jurisdiction 34. In the present case, the question whether the Assessee companies could be said to be a resident for the purposes of Section 6 (3) (ii) of the Act arose in the light of the categorical finding of the AO in the assessment orders dated 9[th] October 1998 for all three AYs 1987-88, 1988-89 and 1989-90 that although the Assessees had been registered in Sikkim and had been subject to tax in Sikkim “but most of factors so emanated later proved that the total management and control lies in India is liable to be taxed in India under Section 6 (3) (ii) of the Act”. 35. This finding was relevant for determining the validity of the exercise of jurisdiction by the ACIT, Circle 7 (1), New Delhi, who issued the notices to the Assessees under Section 148 of the Act. In other words, unless it was found as a matter of fact that the management and control of the Assessees was wholly situated in New Delhi, the ACIT Circle 7 (1), New Delhi, would not have jurisdiction, since otherwise the Assessees would be taken to be resident Indian companies located in Gangtok, Sikkim over which the Commissioner of Income Tax, West Bengal alone would have jurisdiction. 36. A notification was issued on 30[th] March 1998, by the Central Board of Direct Taxes (‘CBDT’), whereby in respect of the territorial area of the State of Sikkim, it was notified that the Chief Commissioner, Calcutta having office at Calcutta would have jurisdiction with effect from 1[st] April 1989. By notification dated 19[th] May 1989, the Chief Commissioner (Administration) notified that the jurisdiction over Chief Commissioner, Circle-1, Gangtok would be that of the Commissioner of Income Tax, West Bengal-1. 37. In the present case, it is sought to be urged by the Assessees that they had no income accruing to them in India and that their the source of income as stated in the return of income was at Sikkim. The ordinary jurisdiction vested on the basis of residential status with ACIT, Circle (1), Gangtok in terms of the CBDT Notification No. 1770, dated 19th May 1989. In as much as only the CIT West Bengal could exercise administrative control over the ACIT, Circle-1, Gangtok, no order could have been passed on 8[th] July 1993 by the CIT, Delhi-1 under Section 127 of the Act, transferring the case of the Assessees to the ACIT, ICC-4, New Delhi. For the same reason, it is contended that even the subsequent order dated 7[th] August 1996 under Section 127 of the Act by the CIT, Circle-1, New Delhi transferring the case from ACIT ICC-4 to the ACIT Circle 7(1) could not have been issued. A further point urged is that although the notice was issued by the ACIT, Circle 7(1), the assessment was in fact completed by the ACIT Coy. Cir 2(2) and was, therefore, bad in law. It is pointed out that the jurisdiction as far as M/s Rattan Gupta & Co. was concerned was vested with ACIT (Investigation) 13(1), New Delhi. It is however emphasised that the Assessees are not challenging the place of assessment but the jurisdiction of the AO. Reliance is placed on the decisions in Pannalal Binjraj v. Union of India 31 ITR 565(SC)Rai Bahadur Seth Teomal v. CIT 36 ITR 9 (SC) and Industrial Trust Ltd. v. CIT [1973] 91 ITR 550 (SC). It is contended that the Assessees have been challenging the jurisdiction of the ACIT, Investigation Circle 7(1), New Delhi and also of ACIT, Central Circle - 4, New Delhi. 38. An objection is raised by learned counsel for the Revenue to the Court permitting the Assessees to urge the above pleas on the ground that Section 124 (3) of the Act constituted a bar inasmuch as such objection was not raised at the first available opportunity in the assessment proceedings. It is submitted that the principal place of business of the Assessees was located in Delhi. It is submitted that by not raising the plea of jurisdiction at the earliest opportunity, the Assessees waived their right to raise such challenge by virtue of Section 124 (4) and by virtue of the fact that they urged that plea for the first time before the ITAT. Further it is pointed out that the objection raised was generally to the applicability of the Act. It is stated that the Assessees also had a right of appeal under Section 246 of the Act which he failed to exercise. On this aspect it is further submitted that this was only an irregularity at the highest and the ITAT ought to have remanded the matter and not set aside the assessments. Reliance is placed on the decisions in CIT v. SS Ahluwalia [2014] 46 Taxmann.com 169 (Delhi); Kanji Mai & Sons v. CIT, [1982] 138 ITR 391 (Delhi) and Hindustan Transport Co. v. Inspecting Asstt. CIT [1991] 189 ITR 326 (All). 39. In Industrial Trust Ltd. v. CIT (supra), it was observed: "Ordinarily an assessee has to be assessed by the ITO within whose territorial jurisdiction he resides. But, it is open to the Central Board of Revenue to assign any particular class of assessees or any particular type of assessments to an ITO of its choice." In Hindustan Transport Co v. Inspecting Assistant Commissioner of Income Tax (supra), it was explained that the stage of raising an objection on the grounds of jurisdiction was prior to the completion of the assessment. It was held: "As provided in Section 124(5)(a), the right is lost as soon as the assessment has been completed. Even where the right is exercised before the assessment is completed, the question is to be decided by the Commissioner or by the Board. Courts do not come into the picture." 40. The decision in Pannalal Binjraj v. Union of India (supra) holds that the principles of natural justice must be followed while transferring cases from one jurisdiction to another. However the objection as to place of assessment has to be raised at the earliest stage. In Rai Bahadur Seth Teomal v. CIT (supra) it was held that the objection as to the place of assessment having not been raised before the ITO (of Calcutta in that case) could not be raised thereafter in an appeal to the Appellate Assistant Commissioner and then before the ITAT. Therefore, the Revenue is justified in contending that the Assessees not having raised such objection at the first available opportunity should not be permitted to urge the ground of lack of jurisdiction of the Delhi officers to issue notices to them under Sections 147/148 of the Act. 41. Nevertheless the Court proposes to examine if the management and control of the Assessee companies could be said to be situated wholly in New Delhi. This question also becomes relevant to the issue concerning service of notice on the Assessees in terms of Section 148 read with Section 282 (2) of the Act. Statement of Rattan Gupta jurisdiction of the Delhi officers to issue notices to them under Sections 147/148 of the Act. 41. Nevertheless the Court proposes to examine if the management and control of the Assessee companies could be said to be situated wholly in New Delhi. This question also becomes relevant to the issue concerning service of notice on the Assessees in terms of Section 148 read with Section 282 (2) of the Act. Statement of Rattan Gupta 42. The Court has examined the statement recorded by the Department of Mr. Rattan Gupta, CA, on 24[th] April 1990 under Section 131 of the Act. He first confirmed what he had stated in his previous statement recorded on 15[th]March 1990 under Section 132 (4) of the Act. He stated that he had gone to Sikkim only once during last two years, where he got to meet one Mr. Bansal. In regard to the books and documents of the Assessees which were found in the premises, Mr. Gupta sought to explain as under: “We are rendering professional services to these companies. These records were in our office premises in connection with the professional services. The professional services which we render are finalization of accounts, reconciliation of bank accounts, reconciliation with various parties accounts, company law formalities etc.”. 43. Mr. Rattan Gupta stated that the professional work for the Assessees was taken up by Rattan Gupta & Co. somewhere during the year 1987-88 from Mr. Ravinder Singh, CA. When asked with whom he was corresponding on behalf of the companies, Mr. Rattan Gupta stated: “The persons to be contacted in Dalmia Resorts International Pvt. Ltd. and Gujarat Heavy Chemicals Ltd. were from Accounts Department and I never noted or remember the names”. 44. Specific to five Assessee companies, when asked with whom he had been in touch, Mr. Rattan Gupta stated: “There was one person Sh. H.L. Verma who used to come to our office and handover the papers sometime he sent by the courier/post also”. However, he claimed not to know the whereabouts of Mr. Verma for the last one year. When asked how he was doing the work of reconciliation of the accounts of the five Assessee companies, Mr. Rattan Gupta stated: “There is hardly any transaction in the above 5 companies namely Pashupatinath, Swastik, Trishul, Sovereign and Mansarover during the last one year or even more than one year. Mr. H.L. Verma had handed over the entire record and from which we finalized the accounts, reconciled the banks and accounts with the partner”. 45. Mr. Rattan Gupta admitted that Mr. Rajeev Jain became “Director in 3 companies on my asking”. He further stated that I also made directors in these 5 Sikkim companies. I do not remember all but Mr. S.P. Sethi, Mr. Vijay Goswami, Mr. Rajesh Goswami, Mr. Vedant Mehta are there”. The next question was whether the above persons were working in the office of Rattan Gupta & Co. and what work was performed by them in their capacity as Directors, Mr. Rattan Gupta categorically stated that “These persons became directors on my asking and there was no work performed by these persons except signing papers etc.” When asked what kind of papers were signed by them, he mentioned “papers relating to bank accounts and copies of resolution and statement of accounts”. 46. Mr. Rattan Gupta did not deny that Mr Rajeev Jain resigned at his 46. Mr. Rattan Gupta did not deny that Mr Rajeev Jain resigned at his instance. Instead he stated that he discussed with Rajeev Jain about the directorship