Mansarovar Commercial Pvt. Ltd v. Commissioner Of Income Tax, Delhi

452 SUPREME COURT REPORTS[2023] 8 S.C.R. 452 [2023] 8 S.C.R. MANSAROVAR COMMERCIAL PVT. LTD. COMMISSIONER OF INCOME TAX, DELHI (Civil Appeal No. 5769 of 2022) APRIL 10, 2023 [M. R. SHAH AND B. V. NAGARATHNA, JJ.] Constitution of India – The Constitution (Thirty SixthAmendment) Act, 1975 – Art. 371-F – Sikkim State Income-TaxManual, 1948 – Sikkim (Collection of Taxes and Prevention ofCEvasion of Payment of Taxes) Act, 1987 – Income Tax Act, 1961 –ss. 2(35)(a), 2(35)(b), 6(3), 148, 271(1)(a), 271(1)(c), 273, 274,271-B – By a notification dated 07.11.1988 issued u/Art. 371-F(n) of theConstitution, the Income Tax Act, 1961 were extended to the State ofSikkim – The case of the assessees (incorporated under theDRegistration of Companies (Sikkim) Act, 1961) was that each ofthem was a resident of Sikkim, carrying on business in Sikkim andnot elsewhere and that till 31.03.1990, each of them were governedby the Sikkim Manual, 1948 and not the Income Tax Act, 1961 –Therefore, the stand of the assessees was that the income earned bythem till that date was income earned in Sikkim from the businessEconducted/done in Sikkim – On the other hand, the case of theRevenue was that the control and management of each of the assesseecompanies was wholly with their auditor, RG, Chartered Accountants,who had their offices in New Delhi and therefore, were companies’resident in India in terms of Section 6(3) of the Act – A search wasFconducted on 15.03.1990 at the premises of Chartered Accountantat New Delhi and during the course of the search, books of account,cheque books, signed blank cheques, vouchers and other incomedocuments of the assessees were found – Notices were issued by theACIT (Investigation), to each of the assessees u/s 148 of the Act, inrespect of Assessment Years 1987-88, 1988-89 and 1989-90 – Held:GOn appreciation of the entire evidence on record, the AO, CIT(A)and the High Court have specifically held against the assesseesthat in fact auditor (the chartered accountant, RG) did not merelyrender professional services but had a vital say in the control andmanagement of the assessee companies and in fact he was in controlHand management of the affairs of the respective assessee companies – Once documents were seized and statements were recorded fromvarious persons, the burden gets shifted to the assessees to producesome evidence to counter the picture and, the court found that itsextremely unusual that the seals and the signed blank cheques wouldbe lying with the Chartered Accountant – The head and seat anddirecting power of the affairs of the company and the control andmanagement is must be shown is not merely theoretical control andpower, i.e., not de jure control and power, but de facto control andpower actually exercised in the course of the conduct andmanagement of the affairs of the firm – The domicile or theregistration of the company is not at all relevant and the determinatetest is where the sole right to manage and control of the companylies and therefore the findings recorded by the AO, confirmed by theCIT(A), it was rightly concluded that the control and managementof the affairs of the respective assessees were with CharteredAccountant in Delhi – It appears that the assessees with mala fideintention and to evade the payment of tax under the Income Tax Act,1961 came out with a case that they earned the income within Sikkim,which has not been established and proved – It was an attempt towriggle out of the clutches of the Income Tax Act, 1961 – Further,the levy of interest u/s. 234A for default in furnishing the return ofincome is mandatory and automatic – s. 234A of the Act providesthat where the return of income for any assessment year is furnishedafter the due date or is not furnished, the assessee shall be liable topay simple interest. Dismissing the appeals, the Court 452 [2023] 8 453 Section: CONCLUSION HELD: 1. On appreciation of the entire evidence on record,the AO, CIT(A) and the High Court have specifically held againstthe assessees that in fact RG, Chartered Accountant in Delhi didnot merely render professional services but had a vital say in thecontrol and management of the assessee companies and in facthe was in control and management of the affairs of the respectiveassessee companies. [Para 7][483-A-B] 2. Where the head and seat and directing power of the affairsof the company and the control and management is must be shownis not merely theoretical control and power, i.e., not de jure controland power, but de facto control and power actually exercised in Athe course of the conduct and management of the affairs of thefirm; that the domicile or the registration of the company is not atall relevant and the determinate test is where the sole right tomanage and control of the company lies. Applying the aboveprinciples of law to the facts of the case at hand, and the findingsrecorded by the AO, confirmed by the CIT(A), it is rightlyBconcluded that the control and management of the affairs of therespective assessees were with RG, Chartered Accountant inDelhi. The findings of fact recorded by the AO, confirmed by theCIT(A) that the control and management of the affairs of theassessee companies was with RG are based on the entire materialCon record. In light of the aforesaid findings, the High Court hasnot committed any error in reversing the contrary findingsrecorded by the ITAT and it is rightly observed and held thatservice of notice upon RG treating him as the principal officerand/or as a principal officer for and on behalf of the assesseecompanies were valid notices and the High Court has rightly heldDthat the AO at New Delhi was having the jurisdiction to issuenotice under the Income Tax Act, 1961. [Paras 8, 9][491-G-H;492-A-C] 3. Insofar as the case on behalf of the respective assesseesthat the entire income was earned in Sikkim by way of commissionEon sale of cardamom and therefore such income shall not be liableto be taxed under the Income Tax Act, 1961 is concerned, at theoutset, it is required to be noted that there are concurrent findingsrecorded by the AO and the CIT(A), as approved by the HighCourt, that no income by way of commission, as claimed by theFassessees, has been established and proved by the assessees. Infact, the AO issued notices/summons to different persons whohad allegedly paid amounts as commission, however, those personshad not responded. Therefore, the AO as such has rightly drawnan adverse inference. At this stage, it is required to be noted thatas such the assessees did not produce any worthwhile evidenceGto prove the genuineness of the commission received. Despitethe above, the ITAT reversed the findings of fact recorded by theAO and the CIT(A) by observing that the AO did not proceedfurther (after issuing the summons/notices) and that since noadverse material has been brought on record the AO could notHhave proceeded to draw an adverse inference as the burden was 2022. heavy on the revenue. Once, the AO issued summons to thosewho had allegedly paid the commission to the assessees and thesummons were issued under Section 131 which were not compliedwith and it was the assertion on behalf of the respective assesseesthat they earned the income of commission within Sikkim, theburden to prove the same was upon the assessees. Under thecircumstances, the ITAT wrongly and erroneously shifted theburden upon the AO to prove the contrary. Therefore, in absenceof any material on record that the commission was earned only inGangtok, the assessees cannot be permitted to say that they wereliable to pay the tax under the Sikkim Manual, 1948 and not underthe Income Tax Act, 1961. It appears that the assessees withmala fide intention and to evade the payment of tax under theIncome Tax Act, 1961 came out with a case that they earned theincome within Sikkim, which has not been established and proved.It was a clear attempt on the part of the respective assessees towriggle out of the clutches of the Income Tax Act, 1961. [Para10][492-D-H; 493-A-B] 4. In the case of Anjum M.H. Ghaswala, while dealing withthe interest under the provisions of Sections 234A, 234B and234C of the Income Tax Act, 1961, it is observed and held thatthe interest contemplated under the said provisions is mandatoryin nature and the power of waiver or reduction has not beenexpressly conferred on the Commission. The same indicates thatinsofar as the payment of statutory interest is concerned, the sameis outside the purview of the settlement contemplated in ChapterXIX-A of the Act. In the present case also, the levy of interestunder Section 234A for default in furnishing the return of incomeis mandatory and automatic. Section 234A of the Act providesthat where the return of income for any assessment year isfurnished after the due date or is not furnished, the assessee shallbe liable to pay simple interest. Thus, interest under section 234Ais statutory interest leviable and payable and therefore thedecision of this Court in the case of Anjum M.H. Ghaswala shallbe applicable with full force. Therefore, when the interest is leviedas per the workings mentioned in ITNS 150 which is forming partof the assessment order, it is rightly held to be sufficient and goodenough to charging interest. [Para 12.1][494-C-F] Commissioner of Income Tax, Mumbai v. Anjum M.H.Ghaswala (2002) 1 SCC 633 : [2001] 4 Suppl. SCR303 – followed. Commissioner of Income Tax, Delhi v. BhagatConstruction Company Private Limited (2016) 15 SCC738; V.V.R.N.M. Subbayya Chettiar v. CIT, Madras, AIR1951 SC 101 : [1950] SCR 1961 – relied on. Mahaveer Kumar Jain v. CIT, Jaipur (2018) 6 SCC 527: [2018] 3 SCR 875; Ajay Kumar v. State of Uttarakhand2021 SCC OnLine SC 48; Kiran Singh v. ChamanPaswan, AIR 1954 SC 340 : [1955] SCR 117; Trusteesof H.E.H, the Nizam’s Supplemental Family Trust v. CIT(2000) 3 SCC 501 : [2000] 1 SCR 863; StandardChartered Finance Limited v. CIT, Bangalore (2016) 14SCC 634; Erin Estate v. CIT 1959 SCR 573;Commissioner of Income Tax v. Sun Engineering WorksP. Ltd. (1992) 4 SCC 363 : [1992] 1 Suppl. SCR 732;Karanvir Singh Gossal v. Commissioner of Income Tax(2012) 13 SCC 802; State Bank of India v. S.N. Goyal(2008) 8 SCC 92 : [2008] 7 SCR 631; Shiv Raj Guptav. CIT, Delhi AIR 2020 SC 3556 : [2020] SCR 874 –referred to. Narottan and Pereira Ltd. v. CIT, Bombay City 1953 23ITR 454; Estate of A. Mohammed Rowther v. CIT,Madras 1963 49 ITR 39; CIT v. Chitra Palayakat Co.1985 156 ITR 730; Commissioner of Income Tax v.Nandlal Gandalal 1960 40 ITR 1 (SC); B.R. Naik v.Commissioner of Income Tax, Bombay (1945) 13 ITR124; CIT v. Ranchi Club Limited (2001) 247 ITR 209 –referred to.