Mansarovar Commercial Pvt. Ltd. vs Commissioner of Income Tax, Delhi

Dismissing the appeals, the Court

HELD: 1. On appreciation of the entire evidence on record, the AO, CIT(A) and the High Court have specifically held against the assessees that in fact RG, Chartered Accountant in Delhi did not merely render professional services but had a vital say in the control and management of the assessee companies and in fact he was in control and management of the affairs of the respective assessee companies. [Para 7][483-A-B]

2. 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 RG, 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 RG are based on the entire material on record. In light of the aforesaid findings, the High Court has not committed any error in reversing the contrary findings recorded by the ITAT and it is rightly observed and held that service of notice upon RG treating him as the principal officer and/or as a principal officer for and on behalf of the assessee companies were valid notices and the High Court has rightly held that the AO at New Delhi was having the jurisdiction to issue notice 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 assessees that the entire income was earned in Sikkim by way of commission on sale of cardamom and therefore such income shall not be liable to be taxed under the Income Tax Act, 1961 is concerned, at the outset, it is required to be noted that there are concurrent findings recorded by the AO and the CIT(A), as approved by the High Court, that no income by way of commission, as claimed by the assessees, has been established and proved by the assessees. 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. Despite the above, the ITAT reversed the findings of fact recorded by the AO and the CIT(A) by observing that the AO did not proceed further (after issuing the summons/notices) and that since no adverse material has been brought on record the AO could not have proceeded to draw an adverse inference as the burden was heavy on the revenue. 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. Therefore, in absence of any material on record that the commission was earned only in Gangtok, the assessees cannot be permitted to say that they were liable to pay the tax under the Sikkim Manual, 1948 and not under the Income Tax Act, 1961. 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. [Para 10][492-D-H; 493-A-B]

4. In the case of Anjum M.H. Ghaswala, while dealing with the interest under the provisions of Sections 234A, 234B and 234C of the Income Tax Act, 1961, it is observed and held that the interest contemplated under the said provisions is mandatory in nature and the power of waiver or reduction has not been expressly conferred on the Commission. The same indicates that insofar as the payment of statutory interest is concerned, the same is outside the purview of the settlement contemplated in Chapter XIX-A of the Act. In the present case also, the levy of interest under Section 234A for default in furnishing the return of income is mandatory and automatic. Section 234A of the Act provides that where the return of income for any assessment year is furnished after the due date or is not furnished, the assessee shall be liable to pay simple interest. Thus, interest under section 234A is statutory interest leviable and payable and therefore the decision of this Court in the case of Anjum M.H. Ghaswala shall be applicable with full force. Therefore, 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. [Para 12.1][494-C-F] Commissioner of Income Tax, Mumbai v. Anjum M.H. Ghaswala (2002) 1 SCC 633 : [2001] 4 Suppl. SCR

303 – followed.

Commissioner of Income Tax, Delhi v. Bhagat

Construction Company Private Limited (2016) 15 SCC 738; V.V.R.N.M. Subbayya Chettiar v. CIT, Madras, AIR 1951 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 Uttarakhand 2021 SCC OnLine SC 48; Kiran Singh v. Chaman

Paswan, AIR 1954 SC 340 : [1955] SCR 117; Trustees of H.E.H, the Nizam’s Supplemental Family Trust v. CIT (2000) 3 SCC 501 : [2000] 1 SCR 863; Standard Chartered Finance Limited v. CIT, Bangalore (2016) 14 SCC 634; Erin Estate v. CIT 1959 SCR 573;

Commissioner of Income Tax v. Sun Engineering Works P. 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 Gupta v. CIT, Delhi AIR 2020 SC 3556 : [2020] SCR 874 – referred to.

Narottan and Pereira Ltd. v. CIT, Bombay City 1953 23 ITR 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 ITR 124; CIT v. Ranchi Club Limited (2001) 247 ITR 209 – referred to.

A.M.M. Firm v. Reserve Bank of India 1982 SCC OnLine Mad. 187; Commissioner of Income Tax v. Bank of China 1985 SCC OnLine Cal. 24; Universal Cargo Carriers Inc. v. Commissioner of Income Tax 1990 SCC OnLine Cal. 385; India Glycols Ltd. v. Commissioner of Income Tax 2004 SCC OnLine Cal. 736 – referred to. San Paulo v. Carter (1896) AC 31 Lord Halsbury – referred to.