2023 (4) TMI 419 - SC - Income Tax

Supreme Court affirms High Court decisions on Income Tax Act issues

The Supreme Court upheld the High Court's rulings on various issues, including the jurisdiction of the Assessing Officer to issue notices under the Income ... Determination of residential status and place of earning the income of the company - Sikkim or Delhi (India) - place of control and management at Delhi - the business conducted/done in Sikkim - the case of the Revenue was that the control and management of each of the assessee companies was wholly with their auditor (CA) 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. HELD THAT:- The sum and substance of the above decisions of this Court as well as various High Courts would be that where the head and seat and directing power of the affairs of the company and the control and management is must be shown is not merely theoretical control and power, i.e., not de jure control and power, but de facto control and power actually exercised in the course of the conduct and management of the affairs of the firm; that the domicile or the registration of the company is not at all relevant and the determinate test is where the sole right to manage and control of the company lies. Applying the above principles of law to the facts of the case at hand, and the findings recorded by the AO, confirmed by the CIT(A), it is rightly concluded that the control and management of the affairs of the respective assessees were with Rattan Gupta, Chartered Accountant in Delhi. The findings of fact recorded by the AO, confirmed by the CIT(A) that the control and management of the affairs of the assessee companies was with Rattan Gupta are based on the entire material on record. Genuineness of Comession Income earned in the state of Sikkim - HELD THAT:- In fact, the AO issued notices/summons to different persons who had allegedly paid amounts as commission, however, those persons had not responded. Therefore, the AO as such has rightly drawn an adverse inference. At this stage, it is required to be noted that as such the assessees did not produce any worthwhile evidence to prove the genuineness of the commission received. Once, the AO issued summons to those who had allegedly paid the commission to the assessees and the summons were issued under Section 131 which were not complied with and it was the assertion on behalf of the respective assessees that they earned the income of commission within Sikkim, the burden to prove the same was upon the assessees. Under the circumstances, the ITAT wrongly and erroneously shifted the burden upon the AO to prove the contrary. It appears that the assessees with mala fide intention 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 a clear attempt on the part of the respective assessees to wriggle out of the clutches of the Income Tax Act, 1961. Validity of Re-assessment proceedings - It was submitted that as there was no original assessment under the Income Tax Act, 1961, there could not have been the re-assessment under sections 147/148 of the Act, 1961 - HELD THAT:- the same has no substance in view of the binding decision of this Court in the case of Sun Engineering Works P. Ltd. [1992 (9) TMI 1 - SUPREME COURT]. Levy of interest u/s 234A, 234B, 234C - HELD THAT:- when the interest is levied as per the workings mentioned in ITNS 150 which is forming part of the assessment order, it is rightly held to be sufficient and good enough to charging interest. See [2015 (8) TMI 621 - SUPREME COURT] Issues Involved:1. Jurisdiction of the Assessing Officer (ACIT, Circle 7(1), New Delhi)2. Control and Management in New Delhi3. Income Accrued or Earned in Sikkim4. Service of Notice5. Limitation for Issuance of Notice under Section 147 of the Income Tax Act6. Merits of Reopening the Assessments7. Levy of InterestSummary:1. Jurisdiction of the Assessing Officer (ACIT, Circle 7(1), New Delhi):The High Court ruled that the ACIT, Circle 7(1), New Delhi, had jurisdiction to issue notices under Section 148 of the Income Tax Act. The respective assessees did not raise objections at the first available opportunity and thus were barred from challenging the jurisdiction later.2. Control and Management in New Delhi:The High Court upheld the findings of the AO and CIT(A) that Mr. Rattan Gupta was in de facto control and management of the assessee companies from Delhi. The evidence, including blank signed cheques, rubber seals, letterheads, and statements from various individuals, supported this conclusion.3. Income Accrued or Earned in Sikkim:The High Court found that the assessees failed to prove that the income earned was exclusively in Sikkim. The AO's findings that the commission payments were not genuine and that the income was earned in India were upheld. The ITAT's contrary findings were deemed perverse and unsustainable.4. Service of Notice:The High Court concluded that service of notice upon Mr. Rattan Gupta was valid. The court held that there was implied authority for Mr. Rattan Gupta to receive such notices, and his refusal to accept the notices was sufficient to consider it as deemed service.5. Limitation for Issuance of Notice under Section 147 of the Income Tax Act:The High Court rejected the plea that notices under Sections 142(1) and 143(2) of the Act were time-barred, holding that there were sufficient grounds for exercising the power under Section 148 of the Act.6. Merits of Reopening the Assessments:The High Court upheld the reopening of assessments, finding that there were sufficient grounds for doing so. The court rejected the assessees' contention that reassessment was impermissible in the absence of any original assessment orders under Section 143(3) of the Act.7. Levy of Interest:The High Court overruled the ITAT's conclusion that interest under Sections 234A and 234B of the Act could not be charged due to the absence of a specific notice by the AO. The court held that the interest is mandatory and automatic, as per the Constitution Bench decision in Anjum M.H. Ghaswala.Conclusion:The Supreme Court agreed with the High Court's findings on all issues, including the jurisdiction of the AO, control and management of the assessee companies by Mr. Rattan Gupta from Delhi, applicability of the Income Tax Act, 1961, and the levy of interest. The appeals were dismissed.