Holding

The Supreme Court held that the companies were resident in India because their control and management were exercised de facto in Delhi, making the Income Tax Act, 1961 applicable, and that the notices and statutory interest were valid.

Summary

The appellants, five companies incorporated under the Sikkim Companies Act, claimed to be residents of Sikkim and argued that their income from cardamom commissions for assessment years 1987-88 to 1989-90 was taxable only under the Sikkim State Income‑Tax Manual, 1948, as the Income Tax Act, 1961 had not yet been extended to Sikkim. The Revenue contended that the real control and management of the companies lay with their chartered accountant, R. Gupta, whose office was in Delhi, making the companies resident in India under Section 6(3) of the Income Tax Act. After a search at Gupta’s premises seized books and cheques, notices under Section 148 were issued; the Assessing Officer, the Commissioner (Appeals) and the Delhi High Court upheld the finding of de facto control in Delhi, while the ITAT had reversed it. The Supreme Court affirmed the lower courts’ findings, holding that control and management must be shown by actual de facto exercise of power, not merely registration, and that the burden of proof lay on the assessee to establish income earned in Sikkim. It also held that interest under Section 234A is mandatory and that the notices were valid. Consequently, the appeals were dismissed.

Issues considered

Whether the companies were resident in India under Section 6(3) of the Income Tax Act, 1961 based on the control and management test.
Whether the notices issued under Section 148 (and served on the chartered accountant) were valid.
Whether the income earned by the companies was accrued in Sikkim and thus exempt from the Income Tax Act.
Whether interest under Sections 234A, 234B and 234C is payable despite the absence of a specific order in the assessment order.
Whether the Assessing Officer had jurisdiction to issue notices under Section 148.

Legislation cited

Constitution (Thirty‑Sixth Amendment) Act, 1975s. Art. 371‑F
Income Tax Act, 1961s. 131, s. 147, s. 148, s. 234A, s. 234B, s. 234C, s. 2(35)(a), s. 2(35)(b), s. 260A, s. 271(1)(a), s. 271(1)(c), s. 273, s. 274, s. 6(3)
Sikkim (Collection of Taxes and Prevention of Evasion of Payment of Taxes) Act, 1987

Subjects

control and managementresidence of companyIncome Tax Act 1961Section 6(3)Sikkimnotice servicestatutory interestassessment under Section 148de facto controljurisdiction

Judgment

452 [2023]REPORTS
SUPREME COURT 8 S.C.R. 452 [2023] 8 S.C.R.

A MANSAROVAR COMMERCIAL PVT. LTD.
v.
COMMISSIONER OF INCOME TAX, DELHI
(Civil Appeal No. 5769 of 2022)
B APRIL 10, 2023
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Constitution of India – The Constitution (Thirty Sixth
Amendment) Act, 1975 – Art. 371-F – Sikkim State Income-Tax
Manual, 1948 – Sikkim (Collection of Taxes and Prevention of
C
Evasion 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 the
Constitution, the Income Tax Act, 1961 were extended to the State of
Sikkim – The case of the assessees (incorporated under the
D Registration of Companies (Sikkim) Act, 1961) was that each of
them was a resident of Sikkim, carrying on business in Sikkim and
not elsewhere and that till 31.03.1990, each of them were governed
by the Sikkim Manual, 1948 and not the Income Tax Act, 1961 –
Therefore, the stand of the assessees was that the income earned by
them till that date was income earned in Sikkim from the business
E
conducted/done in Sikkim – On the other hand, the case of the
Revenue was that the control and management of each of the assessee
companies 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 was
F conducted on 15.03.1990 at the premises of Chartered Accountant
at New Delhi and during the course of the search, books of account,
cheque books, signed blank cheques, vouchers and other income
documents of the assessees were found – Notices were issued by the
ACIT (Investigation), to each of the assessees u/s 148 of the Act, in
respect of Assessment Years 1987-88, 1988-89 and 1989-90 – Held:
G
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 auditor (the chartered accountant, RG) 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
H and management of the affairs of the respective assessee companies
452
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 453
OF INCOME TAX, DELHI

– Once documents were seized and statements were recorded from A
various persons, the burden gets shifted to the assessees to produce
some evidence to counter the picture and, the court found that its
extremely unusual that the seals and the signed blank cheques would
be lying with the Chartered Accountant – The head and seat and
directing power of the affairs of the company and the control and
B
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 – 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 C
lies and therefore the findings recorded by the AO, confirmed by the
CIT(A), it was rightly concluded that the control and management
of the affairs of the respective assessees were with Chartered
Accountant in Delhi – It appears that the assessees with mala fide
intention and to evade the payment of tax under the Income Tax Act,
D
1961 came out with a case that they earned the income within Sikkim,
which has not been established and proved – It was an attempt to
wriggle out of the clutches of the Income Tax Act, 1961 – Further,
the levy of interest u/s. 234A for default in furnishing the return of
income is mandatory and automatic – s. 234A of the Act provides
that where the return of income for any assessment year is furnished E
after the due date or is not furnished, the assessee shall be liable to
pay simple interest.
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 F
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] G
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
H
454 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 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
B
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
C 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
D
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
E 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
F 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
G 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
H have proceeded to draw an adverse inference as the burden was
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 455
OF INCOME TAX, DELHI

heavy on the revenue. Once, the AO issued summons to those A
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
B
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 C
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
D
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 E
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 F
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 G
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]
H
456 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 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
B 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
C 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
D 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 –
E 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.
F 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
G 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 –
H referred to.
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 457
OF INCOME TAX, DELHI

Case Law Reference A
[2018] 3 SCR 875 referred to para 3.6
[1955] SCR 117 referred to para 3.10
[2000] 1 SCR 863 referred to para 3.12
(2016) 14 SCC 634 referred to para 3.12 B
[2001] 4 Suppl. SCR 303 followed para 3.18
(2016) 15 SCC 738 relied on para 3.18
[1950] SCR 1961 relied on para 4.2
C
[1992] 1 Suppl. SCR 732 referred to para 4.7
(2012) 13 SCC 802 referred to para 4.9
[2008] 7 SCR 631 referred to para 4.11
[2020] SCR 874 referred to para 4.13
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5769 of
2022.
From the Judgment and Order dated 22.02.2016 of the High Court
of Delhi at New Delhi in ITA No. 162 of 2022.
With E
Civil appeal Nos. 5773, 5772, 5771 and 5770 of 2022.
Arvind P. Datar, G. Umapathy, Sr. Advs., Venkat Subramanian,
Rohit K. Singh, Suvin Kumaran, Advs. for the Appellant.
N. Venkataraman, ASG, H.R. Rao, Devashish Bharukha, Sughosh F
Subramanyam, Rajat Nair, Bhuvan Kapoor, Pranay Ranjan, Vikrant Yadav,
S.A. Haseeb, Ms. Gargi Khanna, Ram Narayan, Ms. Amritha
Chandramouli, V. Chandrashekara Bharathi, Raj Bahadur Yadav, Advs.
for the Respondent.
The Judgment of the Court was delivered by G
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned common
judgment and order dated 22.02.2016 passed by the High Court of Delhi
at New Delhi in Income Tax Appeal Nos. 162/2002, 164/2002,
165/2002, 167/2002 & 168/2002, by which the High Court has allowed H
458 SUPREME COURT REPORTS [2023] 8 S.C.R.

A the said appeals preferred by the Revenue and has quashed and set
aside the common order dated 08th January, 2002 passed by the Income
Tax Appellate Tribunal, New Delhi (for short, ‘ITAT’) for Assessment
Years 1987-88, 1988-89 and 1989-90 and restored the orders passed by
the Assessing Officer, upheld by the Commissioner of Income Tax
(Appeals) (for short, ‘CIT(A)), the respective assessees have preferred
B
the present appeals.
Facts:
2. The facts leading to the present appeals in nutshell are as under:
The respective assessees, namely, Mansarovar Commercial Private
C Limited, Sovereign Commercial Private Limited, Swastik Commercial
Private Limited, Trishul Commercial Private Limited and Pasupati Nath
Commercial Private Limited were incorporated under the Registration
of Companies (Sikkim) Act, 1961. Each of the assessee companies claim
to be carrying on the business of commercial agents in cardamon and
D other agricultural products.
2.1 Sikkim became part of India in April, 1975. The Constitution
(Thirty Sixth Amendment) Act, 1975 inserted Article 371-F into 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
E force immediately before the appointed day, i.e., 26th 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 Income Tax Act, 1961
(hereinafter referred to as the ‘Act’) was not made straightway applicable
to the State of Sikkim. Till such extension of the Act to Sikkim by a
F notification issued under Article 371-F(n), income tax was to be charged
and collected under the Sikkim State Income-tax Manual, 1948 (for short,
‘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.
G 2.2 By a notification No. S.O. 1028E 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. 148E dated 23rd February, 1989, the 1st of
April, 1989 as the date on which the Act would come into force in the
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 459
OF INCOME TAX, DELHI [M. R. SHAH, J.]

State of Sikkim in relation to the previous year relevant to the Assessment A
Year commencing on the 1st 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
Assessment Year commencing from 1st April, 1990, thereby extending
the date of applicability of the Act by one year from the date specified in
B
the notification dated 23rd February, 1989.
2.3 The case of the assessees was that each of them was a resident
of Sikkim, carrying on business in Sikkim and not elsewhere and that till
31st March, 1990, each of them were governed by the Sikkim Manual,
1948 and not the Act. Therefore, the stand of the assessees was that the
income earned by them till that date was income earned in Sikkim from C
the business conducted/done in Sikkim. On the other hand, the case of
the Revenue was that the control and management of each of the assessee
companies was wholly with their auditor, M/s Rattan Gupta & Co.,
Chartered Accountants, who had their offices in Karol Bagh, New Delhi
and therefore, were companies’ resident in India in terms of Section 6(3) D
of the Act.
2.4 A search was conducted on 15th March, 1990 at the premises
of M/s Rattan Gupta & Co., Chartered Accountant at Daryaganj, New
Delhi and during the course of the search, books of account, cheque
books, signed blank cheques, vouchers and other income documents of E
the assessees were found. The statements of the partners, former and
current, of M/s Rattan Gupta & Co., CA were recorded.
2.5 On 10th July, 1990, following the search conducted on 15 th
March, 1990 at the premises of M/s Rattan Gupta & Co., CA at
Daryaganj, New Delhi, notices were issued by the Assistant Commissioner F
of Income Tax (for short, ‘ACIT’) (Investigation), Circle 7(1), New Delhi
to each of the assessees under Section 148 of the Act, in respect of
Assessment Years 1987-88, 1988-89 and 1989-90 (Assessment Years
under consideration). An order was passed on 12 th July, 1990 by ACIT
(Investigation), Circle 13(1), New Delhi in respect of M/s Rattan Gupta
& Co. under section 132(5) of the Act. It appears that the said Rattan G
Gupta informed the assessees about notices under section 148 of the Act
issued to each of them at the address of M/s Rattan Gupta & Co. at
Daryaganj, New Delhi and affixed at the said premises of M/s Rattan
Gupta & Co.
H
460 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 2.6 Meanwhile, each of the assessees filed return of income in
terms of the Sikkim Manual, 1948 for the Assessment Years in question
on 27th April, 1990. A demand notice was issued to each of them in
respect thereof on 23rd July, 1990.
2.7 The respective assessees filed writ petitions in the High Court
B of Sikkim, challenging the notices issued under section 148 of the Act.
The Sikkim High Court initially passed an interim order staying further
proceedings. The said interim order was modified in terms of which 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
C and also to file returns and produce the books of accounts before the
Assessing Officer, New Delhi in compliance of the notices under section
148 of the Act. Thereafter, the Sikkim High Court dismissed the writ
petitions holding that it had no jurisdiction to entertain the said writ petitions
since no part of the cause of action had arisen in the State of Sikkim. It
D was observed that as the notices were issued by the ACIT (Investigation),
Circle 7(1), New Delhi and served on the assessees in New Delhi, it had
no jurisdiction over the actions of that authority. It appears that the Sikkim
High Court also observed that “mere fact that the companies have
registered offices in Sikkim does not confer jurisdiction on this Court.”
E 2.8 It appears that in the meanwhile, on the basis of the returns
filed by the assessees in Sikkim, the Income and Sales Tax Department
of Government of Sikkim raised a revised demand on 30th November,
1990, cancelling the earlier demand raised on 30 th July, 1990.
2.9 After the dismissal of the writ petitions by the Sikkim High
F Court on 20th July, 1993, the assessees filed writ petitions before the
Delhi High Court being Writ Petition Nos. 5565 to 5569 of 1993. Initially,
the Delhi High Court passed an interim order staying the proceedings.
However thereafter on 13th August, 1998, an order was passed by the
Delhi High Court directing the AO to frame the assessment subject to
outcome of the writ petitions.
G
2.10 That thereafter on 24th August, 1998, notices were issued to
the assessee companies under section 148 of the ACT by ACIT, Company
Circle 2, New Delhi.
2.11 That on 09th October, 1998, separate assessment orders were
passed by the ACIT, Company Circle 2(2), New Delhi for each of the
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 461
OF INCOME TAX, DELHI [M. R. SHAH, J.]

Assessment Years in question. The Assessing Officer concluded that A
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 Assessing Officer also rejected the objections raised
by the assessees as to the jurisdiction. The Assessing Officer made
additions to the income of the assessees for the aforesaid three Assessment
B
Years in question under different heads of income, namely, (i) income
from commission (ii) unsecured loan from Dengzong Charitable Trust
(iii) interest accrued/paid on the unsecured loans and (iv) provision for
income tax (which was disallowed). Separate penalty proceedings were
initiated under sections 271(1)(a). 271(1)(c), 273/274 and 271-B of the
Act. C
2.12 The assessees then preferred appeals before the CIT(A).
Subsequently on 08th December, 2000, the writ petitions filed by the
assessees came to be dismissed by the High Court as the respective
assessees moved the Appellate Authority prescribed under the statute.
The appeals preferred by the assessees before the CIT(A) came to be D
dismissed vide order(s) dated 30th March, 2001.
2.13 Feeling aggrieved by the order(s) passed by the CIT(A)
dismissing the appeals, the respective assessees preferred appeals before
the ITAT. The ITAT observed and held that notices under Section 148 of
the Act could not have been served on Mr. Rattan Gupta as the said Mr. E
Rattan Gupta cannot be said to be a “Principal Officer” of the assessees
within the meaning of section 2(35)(a) of the Act and the AO did not
serve any notices of his intention of treating Mr. Rattan Gupta as the
“Principal Officer” for the purposes of section 2(35)(b) of the Act. On
the refusal of Mr. Rattan Gupta to receive notices, ITAT observed and
opined that if Mr. Rattan Gupta refused to receive such notices, he was F
justified in doing so and his refusal did not authorise the AO to resort to
substituted service within the meaning of Rule 20 of Order V of CPC.
The order(s) passed by the ITAT allowing the appeals preferred by the
assessees was/were the subject matter of appeals before the High Court
at the instance of the Revenue. G
2.14 The High 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?
H
462 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 2. Whether the order made by the ITAT is perverse based on
conjectures and surmises and ignorance of evidence and material
and has relied upon incorrect facts?
3. Whether the income of the assessee is taxable in India?”
At the instance of the Assessees, an additional question was
B 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
C 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.”
2.15 By the impugned common judgment and order, the High Court
D has answered all the questions in favour of the Revenue and against the
assessees and consequently has allowed the appeals preferred by the
Revenue. The High Court in the impugned judgment and order has dealt
with and considered the following main issues and both the parties were
heard on the said issues.
E 1. Objection to the jurisdiction by the ACIT, Circle 7(1), New Delhi
who issued notices to the assessees under Section 148 of the Act;
2. Control and management in New Delhi;
3. No income accrued or was earned in Sikkim;
F 4. Service of notice;
5. Limitation for issuance of notice under section 147 of the Act;
6. Merits of the reopening of the assessments; and
7. Interest
G By the impugned common judgment and order, the High Court has
summarised the conclusion in paragraph 91 as under:
(i) The Assessees, incorporated under the company law of
Sikkim, are resident Indian companies. If any income
accrued to them or was earned by them in India prior to
H 1st April 1990, then such income is taxable under the Act.
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 463
OF INCOME TAX, DELHI [M. R. SHAH, J.]

(ii) The Revenue is justified in contending that the Assessees A
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.
(iii) Mr. Rattan Gupta was not only doing the audit work of the B
five Assessee companies, but determining who should be
the directors of the said companies. This coupled with the
fact that the blank signed cheque books of all the five
companies together with rubber seals, the letter heads, the
blank signed cheques and other records were also found in
the office of Rattan Gupta & Co., the factual determination C
by the AO that the management and the control of the five
companies was actually wholly situated in Delhi gets
fortified. The exhaustive evidence gathered by the Revenue,
without being countered by the Assessees despite opportunity
being afforded, serves to substantiate the case of the D
Revenue that the management and the control of the five
Assessee companies was in fact located in Delhi.
(iv) The findings of the AO that the Assessees failed to prove
that the commission payments were earned by them
exclusively in Sikkim has not been dislodged by the E
Assessees by producing any tangible material.
(v) There was an implied authority of Mr. Rattan Gupta to
receive such notices even in terms of Section 252(2) of the
Act, read with Order V Rule 20 CPC. Consequently, the
Court is unable sustain the finding of the ITAT that notice F
was not properly served on the Assessees through Rattan
Gupta & Co. There was no need for the Department to
have gone in for substituted service and the refusal by Rattan
Gupta & Co. to receive the notice was sufficient to consider
it as a deemed service of notice.
G
(vi) The plea of the Assessees that the proceedings under Section
148 of the Act gets vitiated in the absence of a specific
order vesting the ACIT with the powers under Section 127
of the Act to issue notice under Section 148 of the Act is
rejected.
H
464 SUPREME COURT REPORTS [2023] 8 S.C.R.

A (vii) The plea of the Assessees that the notices under Section
142(1) and 143(2) of the Act were issued for the first time
in 1998 and were time barred is rejected.
(viii) On merits there were sufficient grounds for exercising the
power under Section 148 of the Act.
B
(ix) The ITAT’s conclusion that the interest under Sections 234
A and 234 B of the Act could not be charged since a specific
notice in that behalf was not issued by the AO is unsustainable
in law and is overruled.”

C Concluding as above, the High Court has accordingly answered
the questions framed in favour of the Revenue and against the assessees.
The impugned common judgment and order passed by the High Court is
the subject matter of present appeals.
Submissions:
D 3. Shri Arvind P Datar and Shri G. Umapathy, learned senior
counsel have appeared on behalf of the respective assessee companies
and Shri N. Venkataraman, learned Additional Solicitor General of India
has appeared on behalf of the Revenue.
3.1 Shri Arvind P Datar, learned senior counsel appearing on behalf
E of the assessee companies has submitted that the issue involved in the
present appeals is, as to whether the provisions of Income Tax Act, 1961
shall be applicable to the assessee companies which are registered under
the Sikkim Companies Act and amenable to Sikkim Tax Manual, 1948 in
respect of three Assessment Years, i.e., 1987-88, 1988-89 and 1989-90
F when Income Tax Act, 1961 was not extended to the State of Sikkim. It
is submitted that the further issue is, whether jurisdiction on the authorities
in Delhi can be conferred solely based on the alleged effective place of
control and management of the assessee companies for the purpose of
applicability of Income Tax Act, 1961.

G 3.2 Challenging the impugned judgment and order passed by the
High Court, Shri Arvind P Datar, learned senior counsel appearing on
behalf of the assessee companies has vehemently submittedthat the
impugned judgment is based on an erroneous assumption that the effective
control of the companies vested with one Mr. Rattan Gupta, a resident of
Delhi, who was rendering accounting and auditing services.
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 465
OF INCOME TAX, DELHI [M. R. SHAH, J.]

3.3 It is submitted that the impugned judgment has erroneously A
allowed the Department to levy interest on the assessee companies
without framing the issue as a specific question of law as mandated by
Section 260A of the Act.
3.4 In support of his submission that the Income Tax Act, 1961
shall not be applicable for the period during the relevant assessment years, B
it is vehemently submitted by Shri Datar, learned senior counsel appearing
on behalf of the assessee companies that the Income Tax Act, 1961
came to be extended to the State of Sikkim only on and after 1st April,
1990. That therefore, the AO exceeded his jurisdiction.
3.5 It is contended that the assessee companies having been C
assessed to tax under the Sikkim Manual, 1948 and having paid and
discharged income tax under the said law cannot be subjected to tax
once over again by applying the “head and brain” rule in the absence of
an express provision under the Income Tax Act, 1961, more so in view of
the well settled law that “a taxing statute should not be interpreted in
D
such a manner that its effect will be to cast a burden twice over for the
payment of tax on the taxpayers unless the language of the statute is so
compelling that the Court has no alternative than to accept it.” That in a
case of reasonable doubt, the construction most beneficial to the taxpayer
is to be adopted.
3.6 It is further contended that as such the present case is squarely E
covered by the decision of this Court in the case of Mahaveer Kumar
Jain v. CIT, Jaipur, reported in (2018) 6 SCC 527, wherein this Court
considered a question whether the appellant, who was a resident of
Rajasthan and had won a lottery from Sikkim during the Assessment
Year 1986-87 was liable to be taxed in India where Income Tax Act, F
1961 was in force, notwithstanding that the said income had accrued or
arisen to him at a place where Income Tax Act, 1961 was not in force,
i.e., Sikkim, more particularly when the said income had already been
taxed in the State of Sikkim under the Sikkim Manual, 1948. Reliance is
placed on certain observations made in paragraphs 13 to 15 of the said
G
decision.
3.7 It is next submitted that the assessee companies filed income
tax returns before the appropriate authority as per Sikkim Manual, 1948
and a demand was raised by the said authority, which was paid. That the
fact that the appropriate Income Tax Authority under the Sikkim Manual,
H
466 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 1948 accepted the income tax returns filed by the assessee companies
and raised demand based on such returns establish the bona fides of the
assessee companies beyond reproach. Therefore, the allegation that the
assessee companies have no real business in Sikkim is absolutely baseless,
unfounded and untenable.
B 3.8 Making above submissions, it is urged that the Income Tax
Act, 1961 shall not be made applicableso far as the assessee companies
are concerned for the relevant assessment years.
3.9 It is further submitted that as such the ACIT, Delhi had no
territorial jurisdiction to assess the assessee companies and therefore
C clearly exceeded in his jurisdiction in issuing notices under section 148 of
the Act on the assumption that the assessee companies were carrying on
business in India, on the basis of availability of books of accounts of the
assessee companies at the premises of the Chartered Accountant of the
assessee companies, i.e., M/s Rattan Gupta & Co. It is submitted that
such an approach is wholly untenable in law, besides being perverse.
D
3.10 It is further submitted that as observed and held by this Court
in the cases of Ajay Kumar v. State of Uttarakhand, 2021 SCC OnLine
SC 48 and Kiran Singh v. Chaman Paswan, AIR 1954 SC 340, an
order passed by the authority without jurisdiction is a nullity.

E 3.11 It is contended that the exercise of territorial jurisdiction by
CIT, Delhi is also wholly untenable in law in view of section 6(3) of the
Act as it was at the relevant point of time. That Mr. Rattan Gupta was a
practising Chartered Accountant and providing accounting and auditing
services to several corporates and individuals and could have never been
the “head and brain” behind the assessee companies.
F
3.12 It is further contended that even otherwise the re-assessment
was impermissible in law in the absence of any original orders passed
under section 143(3) of the Act. Reliance is placed on the decision of this
Court in the case of trustees of H.E.H, the Nizam’s Supplemental
Family Trust v. CIT, reported in (2000) 3 SCC 501 (paragraphs 10
G & 11). It is submitted that the said decision was subsequently followed
and affirmed by this Court in the case of Standard Chartered Finance
Limited v. CIT, Bangalore, (2016) 14 SCC 634 (Civil Appeal No.
1101 of 2016 dated 9.2.2016).
3.13 It is further submitted by Shri Datar, learned senior counsel
H appearing on behalf of the assessee companies that as such there was
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 467
OF INCOME TAX, DELHI [M. R. SHAH, J.]

no material to substantiate that the assessee companies’ control and A
management was situated wholly in India. That the High Court has
proceeded on an erroneous presumption that the assessee companies
were controlled by one Rattan Gupta, who was rendering accounting
and auditing services, simply because books of accounts had been found
in his office. It is submitted that no evidence was produced to the effect
B
that he ever appointed any person as the Director of the assessee
companies or dictated the manner in which such Directors were to
discharge duties towards assessee companies. That the finding of the
High Court that the control over management vested with Rattan Gupta
and therefore the assessee companies were situated in India, is therefore
wholly untenable and consequently to draw such presumption is legally C
unsustainable.
3.14 It is further submitted that there was no cogent material at
the time of issuance of notices under section 148 of the Act to form a
belief that income was chargeable under the Income Tax Act, 1961 and
that the burden to prove that the control and management of assessee D
companies was situated wholly in India lie with the Department. That
the law is well settled that the onus was on the Revenue, which has not
been discharged. That on the contrary the High Court has erred in shifting
the onus on the assessee companies to prove that they had legitimate
business interest and income arising from the State of Sikkim.
E
3.15 It is contended that the impugned order is based solely on an
erroneous supposition that Mr. Rattan Gupta was in control of the
management of the assessee companies. That as such until the
Assessment Years 1988-89, the audit and accounts of the assessee
companies were being handled by one Ravinder Singh & Co. That the
High Court has committed an error in treating the said Ravinder Singh to F
be the partner of M/s Rattan Gupta & Co. It is submitted that therefore,
the impugned order is based on a flawed presumption of a critical fact
and therefore the impugned judgment deserves to be set aside by this
Court.
3.16. Shri Datar further submitted that in the absence of framing G
of any substantial question of law under Section 260A of the Act on levy
of interest, the liability of interest could not have been fastened upon the
assessee companies. That section 260A of the Income Tax Act is
analogous to Section 100 CPC which mandates framing of question of
law before exercising its jurisdiction on the said issue. It is submitted that H
468 SUPREME COURT REPORTS [2023] 8 S.C.R.

A as such no issue of levy of interest was framed by the High Court. That
therefore the High Court has committed a jurisdictional error in recording
a finding that ITAT’s conclusion that interest under section 234 A & B of
the Act could not be charged since a specific notice in that behalf was
not issued by the Assessing Officer, is unsustainable in law.
B 3.17 In addition, it is submitted on the aspect on territorial jurisdiction
of the authorities at Delhi that the assessee companies were having their
registered offices in Sikkim. Therefore, the issuance of notices under
Section 148 of the Act is beyond jurisdiction. That on the issue of territorial
jurisdiction, the ITAT found that since the business premises of the
assessees were in Sikkim, the territorial jurisdiction to assess vested with
C the ACIT, Gangtok. Therefore, the ITAT rightly held that the ACIT Delhi
who issued notices under section 148 of the Act had no territorial
jurisdiction. That the proper course for the Department was to have the
matter entrusted to ACIT, Gangtok after complying with the mandate of
section 127 of the Act for transferring jurisdiction of ACIT, Gangtok to
D New Delhi. It is submitted that though the Revenue in its appearance
before the High Court raised a question of law on the finding recorded
by the ITAT on territorial jurisdiction of the authorities at Delhi, while
framing question(s) of law, the High Court did not frame an issue with
regard to territorial jurisdiction. Thus, the finding with regard to lack of
territorial jurisdiction by ITAT had attained finality.
E
3.18 Insofar as the levy of interest is concerned, it is submitted
that the ITAT specifically observed that no direction was made by the
AO for levy of interest. Therefore relying upon the decision of this Court
in the case of CIT v. Ranchi Club Limited, (2001) 247 ITR 209 taking
the view that levy of interest was under Section 234A, B & C of the Act,
F without a direction by the AO in the assessment order is not legally
sustainable. It is further submitted that the High Court, while upsetting
the finding recorded by the ITAT on levy of interest, has erred in relying
upon the decisions of this Court in the cases of Commissioner of Income
Tax, Mumbai v. Anjum M.H. Ghaswala, (2002) 1 SCC 633 and
G Commissioner of Income Tax, Delhi v. Bhagat Construction
Company Private Limited, (2016) 15 SCC 738.
3.19 Shri Datar, learned senior counsel appearing on behalf of the
assessee companies contended that as such there was no notice served
upon the proper person and the notice served upon Rattan Gupta cannot
H be said to be a valid service of notice. That under section 2(35)(b) of the
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 469
OF INCOME TAX, DELHI [M. R. SHAH, J.]

Act, the Assessing Officer is required to serve a notice only on persons A
who are connected with the management or administration of the
assessee companyto treat them as Principal Officer. That Rattan Gupta
was never connected with the management or administration of the
assessee companies so as to treat him as a Principal Officer. That Rattan
Gupta was not the Secretary, Treasurer, Manager or Agent of the assessee
B
companies under section 2(35)(a) of the Act. Therefore, the AO ought
to have served a notice on Rattan Gupta informing him of his intention to
treat him as the Principal Officer of the assessee companies on the ground
that he was a person connected with the management or administration
of the assessee companies under section 2(35)(b) of the Act. However,
in the present case, the AO never served a notice on Rattan Gupta under C
section 2(35)(b) of the Act expressing his intention to treat him as the
Principal Officer of the assessee companies. Therefore, this failure vitiates
the entire proceedings.
3.20 It is submitted that there is adequate evidence on record to
establish that: D
(a) the business was managed from Gangtok in Sikkim where the
business was carried on by one Mr. Ajay Kumar Agarwal, Local
Director and Mr. H.L. Verma,
(b) the income was earned and assessed to income tax in Sikkim
as per the Sikkim Manual, 1948, and E

(c) income tax was paid in Sikkim under Sikkim Manual, 1948.
3.21 That further, seized vouchers and records clearly establish
that commission payments were received into the bank accounts of these
companies from identified traders of large cardamom and that department F
had no material in its possession to disbelieve that these traders had
made the commission payments only on sale of cardamom.
3.22 It is submitted that books of accounts, ledgers etc. which
were found at the office premises of Mr. Rattan Gupta’s office at
Daryaganj, Delhi were handed over to Mr. Rattan Gupta for providing
G
professional accounting services as he was a practising Chartered
Accountant. He had clearly stated that the books of accounts, ledgers
etc. were handed over to him for providing professional services and
that the business operations were carried out from Gangtok in Sikkim by
Mr. Ajay Kumar Agarwal, Local Director and Mr. H.L. Verma and that
he had nothing to do with the business operations of the assessee H
470 SUPREME COURT REPORTS [2023] 8 S.C.R.

A companies. A mere allegation that he is in charge of the conduct of the
company is not sufficient to hold that he is the Principal Officer. There
should be credible material to how his active involvement in the conduct
and management of the business.
3.23 It is next submitted that assumption of jurisdiction based on
B the seizure of books of accounts from the office premises of the practising
Chartered Accountant Mr. Rattan Gupta at New Delhi and treating him
as the Principal Officer or “head and brain” of the companies incorporated
under the Sikkim Companies Registration Act, 1961 when the said
Chartered Accountant had categorically stated on oath that he was
rendering professional accounting and reconciliation services to the
C
companies in question, is without jurisdiction, perverse and deserves to
be set aside. The failure of same would set a very bad precedent and
have far reaching consequences on the rights of Chartered Accountants
to carry on their profession.
3.24 Making above submissions and relying upon the aforesaid
D
decisions, it is prayed that the present appeals be allowed.
4. The present appeals are vehemently opposed by Shri N.
Venkataraman, learned Additional Solicitor General of India appearing
on behalf of the Revenue. He has taken us through the findings recorded
by the Assessing Officer in the Assessment Order, findings of the CIT(A)
E
vide order dated 30th March, 2001, findings recorded by the ITAT vide
order dated 8th January, 2002 and the findings recorded by the High
Court including the findings recorded regarding the issue pertaining to
service of notice and levy of interest.
4.1 Insofar as the submission on behalf of the appellants on control
F
and management of affairs of the companies is concerned, it is submitted
that section 6 of the Act defines residence in India. That the relevant
provision is section 6(3) of the Act. That this principle of control and
management of its affairs is not something which had originated for the
first time in the Income Tax Act, 1961. This expression had existed even
G under the Income Tax Act, 1922. It is submitted that under the erstwhile
Income Tax Act, 1922, Section 4A defined residence in taxable territories.
Section 6 of the Act deals with residence in India and the relevant provision
would be Section 6(3) pre-amendment in 2017 and post-amendment 2017
w.e.f. 01.04.2017. He has taken us through the relevant provisions under
H the Income Tax Act, 1922 (Section 4A), Section 6(3) of the Act (existed
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 471
OF INCOME TAX, DELHI [M. R. SHAH, J.]

prior to 01.04.2017) and Section 6(3) of the Act substituted by Finance A
Act w.e.f. 01.04.2017.
4.2 On the interpretation on the control and management of affairs,
Shri N. Venkataraman, learned ASG has relied upon the following English,
Supreme Court and High Court judgments both under the Act, 1922 and
Act, 1961: B
i) San Paulo v. Carter (1896) AC 31 Lord Halsbury;
ii) V.V.R.N.M. SubbayyaChettiar v. CIT, Madras, AIR 1951
SC 101;
iii) Erin Estate v. CIT, 1959 SCR 573;
C
iv) Narottan and Pereira Ltd. v. CIT, Bombay City, 1953 23
ITR 454 (paragraphs 3 & 4) (Bombay High Court Judgment);
v) Estate of A. Mohammed Rowther v. CIT, Madras, 1963 49
ITR 39, (Madras High Court Judgment);
vi) CIT v. Chitra Palayakat Co., 1985 156 ITR 730 (Madras D
High Court Judgment);
vii) Commissioner of Income Tax v. Nandlal Gandalal, 1960
40 ITR 1 (SC);
viii) A.M.M. Firm v. Reserve Bank of India, 1982 SCC OnLine
Mad. 187 (Madras High Court Judgment); E
ix) Commissioner of Income Tax v. Bank of China, 1985 SCC
OnLine Cal. 24 (Calcutta High Court Judgment); and
x) Universal Cargo Carriers Inc. v. Commissioner of Income
Tax, 1990 SCC OnLine Cal. 385 (Calcutta High Court
F
Judgment)
4.3 Relying upon the aforesaid decisions, it is submitted as under:
a) Holding lands, receipt of payments and carrying on trade is of
no consequence as long as the control of the commercial venture
and directions governing the commercial venture are given from G
elsewhere.
b) Domicile or registration of the company is not relevant. The
making, maintaining, managing and working is insufficient.
c) Directors authorised to manage the work and employees
rendering service again are insufficient. H
472 SUPREME COURT REPORTS [2023] 8 S.C.R.

A d) The determinative test is where the sole right to manage and
control every department of its affairs lies. Managers and directors
whose services are merely remunerated is not a relevant criterion.
The profits although received by the employees as remuneration,
do not belong to them and are not in their disposal. Incurring of
B debts or payment to agents are of no consequence.
e) The test is, where the head and seat and directing power of the
affairs of the company is, which works with some degree of
permanence while the expression ‘wholly’ would seem to recognize
the possibility of the seat of such power being divided between
C two distinct and separate places.
f) The question to be asked is from where the person or group of
persons control or direct the business.
g) Mere activity by the company does not create residence.
h) In case of dual residence, it is necessary to show that the
D
company performs some of the vital organic functions incidental
to its existence in both the places so that there are in fact two
centres of management.
i) Control and management which must be shown is not merely
theoretical control and power, or de jure control and power but
E
the de facto control and power actually exercised in the course of
the conduct and management of the affairs of the firm. Mere
presence of directors or vesting of power in them is insufficient
unless otherwise they had exercised the power elsewhere in the
territory under question.
F
j) Even acting under a power of attorney is not sufficient as the
same can be cancelled at any moment and as a power of attorney
holder they must submit to the principal an explanation of what
they have been doing and the principal has the right of keeping a
vigilant eye over their work from the board room and the power
G exercised by the power of attorney holder is only de jure control
and not de facto control and management.
k) The intrinsic test is where the central control and management
actually abides. Mere presence of even the managing partner or
mere delegation of power is insufficient.
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 473
OF INCOME TAX, DELHI [M. R. SHAH, J.]

l) The expression control and management of its affairs is much A
wider than the expression used in some treatises ‘Control and
Management of the business.’
4.4 It is further submitted that in light of the principles laid down in
the aforesaid decisions, it is well settled that a question, as to where the
control and management lies is to be decided in light of the actual or the B
factual exercise of control, inasmuch as the Courts consistently have
taken the view that mere presence of a partner firm in India even when
he happens to be the managing partner, is not conclusive of the issue.
4.5 It is further submitted that to cull out the meaning of
management and control under the old Section 6(3) pre-amendment 2017, C
which shall be applicable in the present case, section 6(3) post 1 st April,
2017 is also required to be considered. That the test under the new law
post 1st April, 2017 is “Key management and commercial decisions
necessary for the conduct of the business as a whole or in substance.” It
is submitted that the place of effective management (POEM) is the new
standard prescribed by the Parliament, w.e.f. 1st April, 2017, in alignment D
with the global needs and business practices.
4.6 Taking us to the findings recorded by the AO, CIT(A) and the
High Court which are on appreciation of evidence/material on record, it
is vehemently submitted by Shri N. Venkataraman, learned ASG that it
was rightly concluded that the control and management of the companies E
was in Delhi and that it was a clear design on the part of the respective
assessees to treat the income as arising from Sikkim to avoid the payment
of tax under the Act, 1961. It is submitted that the control and management
of the companies was being done by Rattan Gupta from his Delhi office.
Therefore, the assessees can be said to be residence in India and therefore F
liable to pay tax under the Income Tax Act, 1961.
4.7 Insofar as the submission on behalf of the appellants that in
the absence of any original assessment, there shall not be any re-
assessment under sections 147/148 of the Act, Shri N. Venkataraman,
learned ASG has heavily relied upon the decision of this Court in the G
case of Commissioner of Income Tax v. Sun Engineering Works P.
Ltd. (1992) 4 SCC 363 (paragraph 14). It is submitted that in the said
decision, it is observed and held by this Court that under section 147, the
AO has been vested with the power to ‘assess or reassess’ the escaped
income of an assessee. That the term ‘escaped assessment’ includes
both “non-assessment” as well as “under assessment.” H
474 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 4.8 Insofar as the submission on behalf of the appellants on service
of notice is concerned, it is submitted that the principal place of business
is the seat of control and therefore notice sent to Delhi is sufficient. On
the service of notice at Delhi, Shri N. Venkataraman, learned ASG has
heavily relied upon the observations/findings recorded by the High Court
in the impugned judgment and order in paragraphs 78 to 83. Thereafter,
B
relying upon the decision of the Calcutta High Courtin the case of India
Glycols Ltd. v. Commissioner of Income Tax, 2004 SCC OnLine
Cal. 736, it is submitted that notices sent/served at Delhi can be said to
be valid notice/service.
4.9 As regards levy of interest under Section 234A of the Act is
C concerned, it is urged by Shri N. Venkataraman, learned ASG that interest
levied under Section 234A is mandatory and there is no discretion with
the AO and therefore there is no question of non-compliance of principles
of natural justice. It is submitted that so far as the penalty leviable under
section 271 of the Act is concerned, the same is discretionary, however
D the interest is not discretionary. Therefore, for imposing penalty, principles
of natural justice are required to be complied with, however in case of
interest, the same being mandatory in nature and automatic there is no
requirement of following principles of natural justice and/or even if in the
assessment order there is no specific order to levy the interest but the
interest charged is indicated in the ITNS 150 accompanying the
E assessment order and the same would be sufficient compliance for
demanding interest. Heavy reliance is placed on the Constitution Bench
decision of this Court in the case of Anjum M.H. Ghaswala (supra) as
well as subsequent decision in the case of Karanvir Singh Gossal v.
Commissioner of Income Tax, (2012) 13 SCC 802 and the decision
F of this Court in the case of Bhagat Construction Company Private
Limited (supra).
4.10 It is submitted that the ITAT has relied upon the decision of
this Court in the case of Ranchi Club Ltd. (supra). However, the said
decision has been subsequently overruled and/or held not to be good law
G in view of the subsequent decisions in the cases of Anjum M.H.
Ghaswala (supra) and Bhagat Construction Company Private
Limited (supra).
4.11 Insofar as the submission regarding non-framing of the
substantial question of law on levy of interest is concerned, heavy reliance
H is placed on the decision of this Court in the case of State Bank of India
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 475
OF INCOME TAX, DELHI [M. R. SHAH, J.]

v. S.N. Goyal, (2008) 8 SCC 92 (paragraph 13). It is submitted that A
as observed and held by this Court in the aforesaid decision, when a
question of law arises incidentally or collaterally, having no bearing on
the final outcome, it will not be a substantial question of law. It is submitted
that in the present case, the Constitution Bench in Anjum M.H. Ghaswala
(supra) has held that the interest is both mandatory and automatic and
B
the decision of this Court and various High Courts had concluded that it
does not require a separate notice, hearing and an independent order. It
is submitted that this Court in the case of Bhagat Construction Company
Private Limited (supra) had in no uncertain terms made the legal position
clear by holding that should the assessing authority enclose an ITNS 150
form computing the interest liability and annexed the same with the C
assessment order, the same would constitute adequate compliance for
sustaining the interest and upholding it. That the aforesaid judgment makes
it evidently clear that when an issue is incidental or collateral then it does
not give rise to a substantial question of law. Once the tax liability is
upheld, interest become automatic, mandatory and collateral. D
4.12 It is next submitted that the final outcome of the tax liability
or the final outcome of the substantial questions raised and decided by
the High Court, had been decided without any sense of dependence on
the issue of interest. That the final legal outcome of the substantial
questions raised and decided is not dependent or contingent upon a decision
E
on interest. On the contrary, the moment the tax liability gets upheld, if
the AO had imposed interest at the first instance, (which in this case is
not under dispute) then interest would get added to the tax liability as it
does not require an independent and stand alone consideration as to
whether the same is leviable.
F
4.13 As regards the reliance placed upon the decision of this Court
in the case of Shiv Raj Gupta v. CIT, Delhi, AIR 2020 SC 3556, by
the learned senior counsel appearing on behalf of the appellants on non-
framing of substantial question of law in terms of Section 260A of the
Act so far as the interest liability is concerned, it is submitted that the
said decision shall not be applicable to the facts of the case at hand and G
more particularly in case of an interest which is automatic and mandatory.
It is submitted that in the said case, the dispute was with respect to
capital gains which by its very nature is a separate head of income and
the issue relates to the very taxability. That therefore, failure to raise a
question of taxability of capital gains in a particular case may tantamount
H
476 SUPREME COURT REPORTS [2023] 8 S.C.R.

A to a failure in raising a substantial question of law in terms of Section
260A of the Act. However, the same may not apply on interest as the
interest is automatic and mandatory.
4.14 Making above submissions and relying upon the aforesaid
decisions, it is prayed that the present appeals be dismissed.
B Consideration:
5. We have heard learned counsel for the respective parties at
length.
We have also gone through the orders passed by the Assessing
C Officer, CIT(A), ITAT and the impugned judgment and order passed by
the High Court in great detail.
At the outset, it is required to be noted that the AO held against
the respective assessees on all points including Rattan Gupta being the
main person in management and control of the respective companies
D situated in Delhi as well as the jurisdiction of the AO in Delhi. The findings
shall be referred to hereinbelow. The findings recorded by the AO have
been upheld by the CIT(A), which are also against the respective
assessees. However, the ITAT reversed the order passed by the CIT(A),
which order has been reversed by the High Court by holding that the
decision of the ITAT is perverse both, on facts and in law.
E
6. While appreciating the correctness of the impugned judgment
and order passed by the High Court and while appreciating the submissions
made by the learned counsel appearing for the respective parties, the
findings recorded by the AO, CIT(A), ITAT and the High Court in the
impugned judgment and order are required to be referred to, which are
F as under:
Findings record by the AO while passing the Assessment
Order:
i) The directors are all from outside Sikkim and had never
G been to Sikkim, and the lone director Mr. Ajay Agarwal
was projected as a resident of Gangtok, Sikkim, which could
not be sustained as no proof or identity was shown;
ii) The entire books of accounts were found and seized at New
Delhi at the address of Mr. Rattan Gupta, Chartered
Accountant, 4556/4, Ansari Road, Darya Ganj, New Delhi.
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 477
OF INCOME TAX, DELHI [M. R. SHAH, J.]

Returns were filed without audit reports and auditors have A
not signed balance sheets and the auditors were also based
out of Delhi. Though bank accounts were available both in
Delhi and Sikkim, the authorized signatories, to operate both
the accounts were located only in Delhi;
iii) The statutory books, registers and the shareholders were B
all located in Delhi;
iv) No evidence was ever produced for having conducted board
meetings in Sikkim;
v) When it came to earning of commission from various agents,
C
the genuineness of the addresses given at Sikkim could not
be proved. When notices were issued under Section 131 of
the Act, no response was forthcoming and, from the
memorandum and articles of association it was clear that
the agents were kith and kin of the directors;
D
vi) Shockingly, the total commission alleged to have been earned
was more than the sale of cardamom and what could have
been produced by the State of Sikkim in a year. These facts
have been corroborated by the intelligence wing of the
department;
E
vii) There were no employees and no expenses incurred at
Sikkim;
viii) At the time of search and seizure on 15.03.1990 at the
premises of Mr. Rattan Gupta & Co., the following things
were seized:
F
1) Books of accounts
2) Funds
3) Memorandum and Articles of Association
4) Blank cheque books of the bank accounts held both in G
New Delhi, Gangtok and Sikkim
5) Pass books of all the 5 companies both Delhi and
Gangtok
6) Blank printed letter pads and rubber stamps
H
478 SUPREME COURT REPORTS [2023] 8 S.C.R.

A ix) Mr. Rattan Gupta in his statement dated 15th March, 1990,
confirmed that as part of reconciliation, the persons
contacted were Dalmia Resorts International Private Limited
and Gujarat Heavy Chemicals Limited and other entities.
He further confirmed that Mr. Rajiv Jain became a director
in 3 companies on his instructions and he had also made
B
directors in all the 5 Sikkim companies and named a few of
them. It was conceded clearly that though these persons
became directors at his behest no work was performed by
these persons except signing papers;
x) Mr. Rajiv Jain in his statement dated 15th March, 1990
C confirmed that cheque books and pass books were found at
the office of Mr. Rattan Gupta and so is the case with rubber
stamps and blank printed letter heads;
xi) Mr. Ravinder Singh in his statement confirmed that he had
been looking after the day-to-day affairs of these companies
D from Delhi till March, 1998, after which Rattan Gupta took
over the position as the only director and the other directors
were his nominees, and Rattan Gupta functioned and
operated only from Delhi and no office expenses have been
incurred in Sikkim;
E xii) The AO also entered a finding that there has been a fund
transfer from Delhi into the bank accounts at Sikkim to claim
exemption and these have been round tripping of money
going from Delhi to Sikkim and getting remitted back into
Delhi and claiming exemption in Sikkim; and
F xiii) This was done till 31st March, 1989 and the moment Income
Tax Act was extended in 1990 the whole apparatus erased
and no commission was shown by any of the companies.
Findings recorded by the CIT(A):
1) That the appellate authority upheld the findings of the AO,
G
more specifically regarding commission alleged to have been
received by reiterating that the summons sent to different
persons who had allegedly paid amounts as commission had
not responded to him and that the assessees had also not
produced any worthwhile evidence to prove the genuineness
H of commission received.
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 479
OF INCOME TAX, DELHI [M. R. SHAH, J.]

2) That even U.P. Karma was examined on 8th October, 1998 A
and he confirmed that he had joined in 1998 and had no idea
of earlier annual general body meetings and could not produce
any minutes. He also confirmed that he did not have any idea
about the business in which all the 5 companies were involved
earlier. That he is a working director claiming that he had
B
never visited Gangtok, which shows that Sikkim has been
merely used without actual rendition of any affairs.
3) As regards the charging of interest, the CIT(A) gave a finding
that the interest was charged as per the workings mentioned
in ITNS 150 which was forming part of the assessment order,
which is sufficient and good enough to uphold interest in terms C
of the decision of this Court.
Findings recorded by the ITAT:
1) After confirming the fact that the notices were dispatched
only in the name of the respective companies in c/o Rattan D
Gupta, Chartered Accountant, it was observed that Rattan
Gupta would not qualify as a principal officer within the
meaning of section 2(35)(a) of the Act. At this stage, it is
required to be noted that the High Court has observed that
in any event the authorised representative of the assessee
appeared before the AO and accepted that the notices has E
been issued. In that view of the matter, thereafter it is not
open for the assessees to make a grievance with respect to
non-service of the notice;
2) On the aspect relating to the control and management of the
affairs, the ITAT recorded the findings as under: F
i) It is important to highlight that the ITAT had neither
reserved nor found the findings of the AO as upheld by
the CIT(A), as not maintainable or factually erroneous
or perverse.
G
ii) The findings of fact rendered by the AO as upheld by
the CIT(A) remain undisturbed and unquestioned.
iii) The entire discussion by the ITAT has only been an
analysis of various case law on this point without
questioning the underlying findings.
H
480 SUPREME COURT REPORTS [2023] 8 S.C.R.

A iv) The ITAT finally came to a conclusion that since all the
5 companies had been registered in Sikkim, Sikkim will
get the jurisdiction to tax.
Thereafter, the ITAT concluded that the revenue could not
discharge its burden and, therefore, control and management was only in
B Sikkim and the income had accrued only in Sikkim.
6.1 While reversing the finding of the AO on whether the
commission was not earned in Gangtok, though the AO found that the
notices were sent to those who had allegedly paid the commission to the
assessees and the summons under Section 131 had not been complied
C with, the ITAT gave a finding that the AO did not proceed further and
thus, since no adverse material has been brought on record, the AO
could not have proceeded to draw adverse inference as the burden was
heavily on the revenue.
6.2 On the levy of interest, the ITAT concluded that the interest
D could not have been levied since the AO had not applied his mind before
levying interest following the decision of the Patna High court in the case
of Ranchi Club Limited (supra).
Findings recorded by the High Court:
1. That a company, though incorporated in Sikkim, if it had earned
E any income outside Sikkim and within India, Income Tax Act,
1961 would apply to such income and the jurisdiction of the
income tax authorities would not get excluded as long as what
is sought to be brought to take is the income of the company
incorporated in Sikkim, which income accrued to it and was
F earned in India.
2. While referring to the various statements made by the directors
who are all stationed in Delhi, the High Court has given the
following findings:
i) Rattan Gupta had not acted merely as an auditor giving
G professional advice to the 5 entities;
ii) His own employees are appointed as directors;
iii) The explanation offered for signed cheque books, rubber
seals and letter heads being available in his office is not
convincing;
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 481
OF INCOME TAX, DELHI [M. R. SHAH, J.]

iv) Rattan Gupta had tried to shift the entire responsibility A
of handling of cheques to Mr. Verma; Mr. Verma was
never produced by the assessee;
v) The burden of proof could not be discharged in the instant
case and therefore, the High Court upheld the findings
of the AO that the precise role of Mr. Rattan Gupta as B
being in de facto control of the 5 entities appears to be
correct;
vi) That two persons who had been identified to have handled
the business and supervised it, namely, H.L. Verma and
Uma Shankar Sitani were produced by the assessees C
for their statements to be recorded. The High Court found
that Mr. R.K. Goswami, Mr. Vedant Mehta and Mr. Rajiv
Jain had all become directors on the request of Mr. Rattan
Gupta, a fact which was not disproved or found to be
incorrect.
D
6.3 Thereafter, the High Court concluded that the control and
management of affairs was wholly in India for the following reasons:
a) Rattan Gupta was not only doing audit work but determining
who should be the directors of the said companies.
b) The rubber seals, letter heads, blank signed cheques and other E
records were all found in the office of Rattan Gupta. The factual
determination by the AO remains undisputed and this fortifies that
the control and management was in Delhi.
c) The statement of Rattan Gupta suggesting that H.L. Verma or
Uma Shankar Sitani were actually handling the affairs of the 5 F
entities could not be made good by offering either of them for
examination.
d) Once documents were seized and statements were recorded
from various persons, the burden gets shifted to the assessees to
produce some evidence to counter the picture and, the court found G
that its extremely unusual that the seals and the signed blank
cheques would be lying with the Chartered Accountant.
e) The High Court in paragraph 70 held that the revenue is right as
there can be no presumption in law that control and management
is at the registered office. H
482 SUPREME COURT REPORTS [2023] 8 S.C.R.

A f) In paragraph 71, the High Court held that “it appears to the
Court that the ITAT has not upset the factual finding of the AO,
which was confirmed by the CIT(A). The above exhaustive
evidence gathered by the revenue, without being countered by the
assessee despite opportunity being afforded, serves to substantiate
the case of the revenue that the management and control of the 5
B
assessee companies was in fact located in Delhi. The finding by
the ITAT in this regard is plainly perverse and unsustainable in
law.”
g) On commission and accrual of income, the High Court concluded
as under:
C
i) The findings by the AO that the assessee had failed to prove
that the commission payments earned by them is exclusively in
Sikkim had not been dislodged by the assessee by producing
any tangible material;

D ii) The evidence produced by the assesses are only copies of
bills and vouchers and receipt of money from such agents at
Sikkim in its bank accounts and assessments have been made
under the Sikkim Manual, 1948;
iii) The High Court in para 76 held that “none of the 5 entities
E named by the assessees as having paid the commission to them
appeared in the course of assessment proceedings to confirm
the payments having been made to the assessees.” The High
Court also recorded that the rate of commission paid was
unrealistic and beyond human probabilities, non-existence of
any employees in Sikkim, non-incurring of any expenditure in
F Sikkim as found in the P&L account and finally the balance
sheet showing that notwithstanding that the income was from
commission the assets were in the form of investments in Dalmia
Group would stare at the face of the assessees and remains
unrebutted. The High Court concluded that the findings by the
G ITAT in this regard is contrary to the record and is based on
surmises and unsustainable in law.
6.4 In light of the above findings, the submissions made by the
learned counsel for the respective parties on service of notice upon Rattan
Gupta being in the control and management of the respective assessees;
the control and management of the affairs of the assessee companies;
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 483
OF INCOME TAX, DELHI [M. R. SHAH, J.]

the applicability of the Income Tax Act, 1961; jurisdiction of the AO and A
levy of interest are required to be considered.
7. 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 Rattan Gupta did not merely render professional services but
had a vital say in the control and management of the assessee companies B
and in fact he was in control and management of the affairs of the
respective assessee companies.
7.1 On control and management of business, few decisions on
interpretation of Section 4A of the erstwhile Income Tax Act, 1922 and
interpretation of Section 6(3) of the Income Tax Act, 1961 are required C
to be referred to, which are as under:
i) In the case of V.V.R.N.M. SubbayyaChettiar (supra), it is
observed in paragraph 10 as under:
“10. The principles which are now well established in England
and which will be found to have been very clearly enunciated D
in Swedish Central RailwayCo. Ltd. v. Thompson (Inspector
of Taxes) [Swedish Central Railway Co. Ltd. v. Thompson
(Inspector of Taxes), 1925 AC 495 : 9 TC 373 (HL)] , which
is one of the leading cases on the subject, are:
(1) That the conception of residence in the case of a E
fictitious “person”, such as a company, is as artificial as the
company itself, and the locality of the residence can only be
determined by analogy, by asking where is the head and
seat and directing power of the affairs of the company. What
these words mean have been explained by M. Patanjali F
Sastri, J. with very great clarity in the following passage
where he deals with the meaning of Section 4-A(b) of the
Income Tax Act:
“4-A. (b) ‘Control and management’ signifies, in the
present context, the controlling and directive power, ‘the head G
and brain’ as it is sometimes called, and ‘situated’ implies the
functioning of such power at a particular place with some de-
gree of permanence, while ‘wholly’ would seem to recognise
the possibility of the seat of such power being divided between
two distinct and separated places.”
H
484 SUPREME COURT REPORTS [2023] 8 S.C.R.

A As a general rule, the control and management of a business
remains in the hand of a person or a group of persons, and the
question to be asked is wherefrom the person or group of per-
sons controls or directs the business.
(2) Mere activity by the company in a place does not
B create residence, with the result that a company may be “re-
siding” in one place and doing a great deal of business in an-
other.
(3) The central management and control of a company
may be divided, and it may keep house and do business in more
C than one place, and, if so, it may have more than one resi-
dence.
(4) In case of dual residence, it is necessary to show
that the company performs some of the vital organic functions
incidental to its existence as such in both the places, so that in
D fact there are two centres of management.”
ii) Thereafter, in the case of Erin Estate (supra), it is observed in
paragraphs 6 & 9 as under:
“6. There is no doubt that the question raised for our decision is a
question of law. Whether or not the appellant is a resident firm
E under Section 4-A(b) would depend upon the legal effect of the
facts proved in the case. The status of the appellant which has to
be determined by reference to the relevant section of the Act is a
mixed question of fact and law and in determining this question
the principles of law deducible from the provisions of the said
F section will have to be applied. This position has not been disputed
before us in the present proceedings. Section 4-A(b) provides in-
ter alia that “for the purpose of the Act, a firm is resident in the
taxable territories unless the control and management of its af-
fairs is situated wholly without the taxable territories”. This provi-
sion shows that, where the partners of a firm are residents of this
G country, the normal presumption would be that the firm is resident
in the taxable territories. This presumption is rebuttable and it can
be effectively rebutted by the assessee showing that the control
and management of the affairs of the firm is situated wholly with-
out the taxable territories. The onus to rebut the initial presump-
tion is on the assessee. The control and management contem-
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 485
OF INCOME TAX, DELHI [M. R. SHAH, J.]

plated by the section evidently refers to the controlling and direct- A
ing power. Often enough, this power has been described in judicial
decisions as the “head and brain”; the affairs of the firm which
are subject to the said control and management refer to the affairs
which are relevant for the purpose of taxation and so they must
have some relation to the income of the firm. When the section
B
refers to the control and management being situated wholly with-
out the taxable territories it implies that the control and manage-
ment can be situated in more places than one. Where the control
and management are situated wholly outside India the initial pre-
sumption arising under the section is effectively rebutted. It is true
that the control and management which must be shown to, be C
situated at least partially in India is not the merely theoretical con-
trol and power, not a de jure control and power but the de facto
control and power actually exercised in the course of the conduct
and management of the affairs of the firm. Theoretically, if the
partners reside in India they would naturally have the legal right to
D
control the affairs of the firm which carries on its operations out-
side India. The presence of this theoretical de jure right to control
and manage the affairs of the firm which inevitably vests in all the
partners would not by itself show that the requisite control and
management is situated in India. It must be shown by evidence
that control and management in the affairs of the firm is exer- E
cised, may be to a small extent, in India before it can be held that
the control and management is not situated wholly without the
taxable territories. (Vide B.R. Naik v. CIT [(1945) 13 ITR 124 :
(1946) 14 ITR 334] ). The effect and scope of the provisions of
Section 4-A(b) has been considered by this Court in V.V.R.N.M.
F
Subbayya Chettiar v. CIT [1950 SCC 971 : (1950) SCR 961, 965]
. After examining the relevant decisions on this point, Fazi Ali, J.,
who delivered the judgment of the Court, has observed “(1) that
the conception of residence in the case of a fictitious ‘person’
such as a company, is as artificial as the company itself and the
locality of the residence can only be determined by analogy, by G
asking where is the head and seat and directing power of the
affairs of the company. …(2) Mere activity by the company in a
place does not create residence, with the result that the company
may be residing in one place and doing a great deal of business in
another. (3) The central management and control of a company
H
486 SUPREME COURT REPORTS [2023] 8 S.C.R.

A may be divided and it may keep house and do business in more
than one place, and, if so, it may have more than one residence.
(4) In case of dual residence, it is necessary to show that the
company performs some of the vital organic functions incidental
to its existence as such in both the places so that in fact there are
two centres of management”. It is in the light of these principles
B
that Section 4-A(b) has to be construed. Thus, the only question
which remains to be considered is whether the High Court of
Madras was right in holding that the appellant was resident in
India under Section 4-A(b).
xxx xxx xxx
C
9. Mr Kolah then raised a further point which had not been urged
before the High Court. He contended that the control and man-
agement mentioned in Section 4-A(b) must be control and man-
agement valid and effective in law. Under Section 12 of the Part-
nership Act, it is only the majority of partners who could have
D given effective directions to the superintendent and since there is
no evidence that the alleged control and management has been
exercised by the majority of partners acting in concert it would not
be possible to hold that any control and management of the firm’s
affairs resided in India. We do not think there is any substance in
E this argument. Under Section 12(a), every partner has a right to
take part in the conduct of the business and it is only where differ-
ence arises as to ordinary matters connected with the business of
the firm that the same has to be decided by majority of partners
under sub-section (c) of the said section. It has not been sug-
gested or shown that there was any difference between the part-
F ners in regard to the matters covered by the individual partner’s
letters of instruction to the superintendent. Indeed the course of
conduct evidenced by these letters shows that Andiappa Pillai who
holds the maximum number of individual shares has purported to
act for the partnership and usually gave instructions in regard to
G the conduct and management of the firm’s affairs. On the record
we see no trace of any protest against, or disagreement with, this
conduct of Andiappa Pillai. Besides, it was never suggested dur-
ing the course of the enquiry before the Income Tax Officers that
the directions given by Andiappa Pillai were not valid or effective
and had not been agreed upon by the remaining partners. That is
H why we think this technical point raised by Mr Kolah must fail.”
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 487
OF INCOME TAX, DELHI [M. R. SHAH, J.]

iii) That thereafter the Bombay High Court in the case of Narottam A
and Pareira Ltd. (supra) through Justice M.C. Chagla, as His
Lordship then was, observed and held in paragraphs 3 and 4 as
under:
“3. It is also necessary that the control and management of the
affairs of the company should be situated wholly in the taxable B
territories. Therefore, if any part of the control and management
is outside the taxable territories then the company would not be
resident. In this connection it is perhaps necessary to look at the
converse definition for a Hindu undivided family, firm or other
association of persons. In their case they are resident unless the
control and management of its affairs is situated wholly without C
the taxable territories. Therefore; whereas in the case of a Hindu
undivided family or firm or association of persons any measure of
control and management within the taxable territories would make
them resident, in the case of a company any measure of control
and management of its affairs outside the taxable territories would D
make it non-resident. In construing the expression “control and
management” it is necessary to bear in mind the distinction between
doing of business and the control and management of business.
Business and the whole of it may be done outside India and yet
the control and management of that business may be wholly within
India. In this particular case considerable emphasis is placed upon E
the fact that the whole of the business of the company is done in
Ceylon and the whole of the income which is liable to tax has been
earned in Ceylon. But that is not a factor which the Legislature
has emphasised, It is entirely irrelevant where the business is done
and where the income has been earned. What is relevant and F
material is from which place has that business been controlled and
managed. “Control and management” referred to in Section 4A(c)
is, as we shall presently point out on the authorities, central control
and management. The control and management contemplated by
this sub-section is not the carrying on of day to day business by
servants, employees or agents. The real test to be applied is, where G
is the controlling and directing power, or rather, where does the
controlling and directing power function or to put it in a different
language there is always a seat of power or the head and brain,
and what has got to be ascertained is, where is this seat of power,
or the head and brain. A company or for the matter of that a firm H
488 SUPREME COURT REPORTS [2023] 8 S.C.R.

A or an undivided Hindu family has got to work through servants
and agents, but it is not the servants and agents that constitute the
seat of power or the controlling and directing power. It is that
authority to which the servants, employees and agents are subject,
it is that authority which controls and manages them, which is the
central authority, and it is at the place where the central authority
B
functions that the company resides. It’ may be in some cases that
like an individual a company may have residence in more than one
place. It may exercise control and management not only from one
fixed abode, but it may have different places. That would again be
a question dependent upon the circumstances of each case. But
C the contention which Mr. Kolah has most strongly pressed before
us is entirely unacceptable that a company controls or manages at
a particular place because its affairs are carried on at a particular
place and they are carried on by people living there appointed by
the company with large powers of management. A company may
have a dozen local branches at different places outside India, it
D
may send out agents fully armed with authority to deal with and
carry on business at these branches, and yet it may retain the
central management and control in Bombay and manage and control
all the affairs of these branches from Bombay and at Bombay. It
would be impossible to contend that because there are authorised
E agents doing the business of the company at six different places
outside India, therefore the company is resident not only in Bombay
but at all these six different places.
4. ….It is perfectly true that these two managers do all the business
of the company in Ceylon and in doing that business naturally a
F large amount of discretion is given to them and a considerable
amount of authority. But the mere doing of business does not
constitute these managers the controlling and directing power. Their
power-of-attorney can be cancelled at any moment, they must
carry out any orders given to them from Bombay, they must submit
to Bombay an explanation of what they have been doing, and
G throughout the time that they are working in Ceylon a vigilant eye
is kept over their work from the directors’ board room in Bombay.
The correspondence which has also been relied upon between the
company here and its office in Colombo also goes to show and
emphasises the same state of affairs. Mr. Kolah is right again
H when he puts emphasis upon the fact that what we have to consider
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 489
OF INCOME TAX, DELHI [M. R. SHAH, J.]

in this case is not the power or the capacity to manage and control, A
but the actual control and management, or, in other words, not the
dejure control and management but thede facto control and
management, and in order to hold that the company is resident
during the years of account it must be established that the company
de facto controlled and managed its affairs in Bombay. Mr. Kolah
B
says that the two powers-of-attorney go to show that whatever
legal or juridical control and management the company might have
had, in fact the actual management was exercised by the two
managers in Ceylon. In our opinion this is not a case where the
company did nothing with regard to the actual management and
control of its affairs and left it to some other agency. As we said C
before, the two managers were the employees of the company
acting throughout the relevant period under the control and
management of the company, and therefore in the case we are
considering there was not only a dejure control and management,
but also a de facto control and management.”
D
That thereafter, Justice Kania, as His Lordship then was, after
referring to the decision in the case of B.R. Naik v. Commissioner of
Income Tax, Bombay, (1945) 13 ITR 124 has observed and held that
the expression “control and management” means where the central control
and management actually abides.
E
iv) The Calcutta High Court in the case of Bank of China (supra)
has specifically held that a company may be simultaneously resident
in more than one place, but the control and management is where
the head and brain is situated. While holding so, in paragraphs 7 to
9, it is observed and held as under:
F
“7. Under s. 6(3), a non-Indian company is said to be resident
in India in any previous year if during that year the control and
management of its affairs is situated wholly in India. The
determination as to at what place or places the control and
management of a particular company is situated is essentially a
question of fact to be determined on the facts and circumstances G
of the particular case. A company can be simultaneously resident
in more than one place but the question is whether the control
and management is situated wholly in India during the relevant
previous year. The expression “control and management”
signifies the controlling and directive power, “the head and brain”, H
490 SUPREME COURT REPORTS [2023] 8 S.C.R.

A as it is sometimes called, and “situated” implies the functioning
of such power at a particular place with some degree of
permanence. The word “wholly” as used in s. 6(3) would
indicate that the seat of such power may be divided between
two distinct and separate places. The expression “control and
management” means de facto control and management and
B
not merely the right or power to control and manage. In order
to hold that a non-Indian company is resident in India during
any previous year, it must be established that such company de
facto controls and manages its affairs in India. The principles
are by now well settled.
C 8. Lord Loreburn L.C. in De Beers Consolidated Mines Ltd.
v. Howe, [1906] 5 TC 198 (HL) at page 212, observed as
follows:
“Mr. Cohen propounded a test which had the merits of
simplicity and certitude. He maintained that a company
D resides where it is registered, and nowhere else…… I cannot
adopt Mr. Cohen’s contention. In applying the conception
of residence to a company, we ought, I think, to proceed as
nearly as we can upon the analogy of an individual. A
company cannot eat or sleep, but it can keep house and do
E business. We ought, therefore, to see whether it really keeps
house and does business. An individual may be of foreign
nationality, and yet reside in the United Kingdom. So may a
company. Otherwise, it might have its chief seat of
management and its centre of trading in England, under the
protection of English law, and yet escape the appropriate
F taxation by the simple expedient of being registered abroad
and distributing its dividends abroad. The decision of Chief
Baron Kelly and Baron Huddleston in Calcutta Jute Mills
Co. Ltd. v. Henry Nicholson, [1876] 1 TC 83 : [1876] 1 Ex
D 428 and Cesena Sulphur Co. Ltd. v. Henry Nicholson,
G [1876] 1 TC 83 : [1876] 1 Ex D 428, now thirty years ago,
involved the principle that a company resides for purposes
of income-tax where its real business is carried on. Those
decisions have been acted upon ever since. I regard that as
the true rule; and the real business is carried on where the
central management and control actually abides.”
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 491
OF INCOME TAX, DELHI [M. R. SHAH, J.]

9. Since that judgment, the words underlined have been A
taken as the test, although central management and control
has sometimes been stated in the form “head, seat and
directing power”. The question depends on the fact of the
management and not on the physical situation of the thing
that is managed. A company is managed by the board of
B
directors and if the meetings of the board of directors are
held within India, it may be said that the central control and
management is situated here. The direction, management
and control “the head and seat and directing power” of a
company’s affairs is, therefore, situate at the place where
the directors’ meetings are held and, consequently, a non- C
Indian company would be a resident in this country if the
meetings of the directors who manage and control the
business are held here. The word “affairs” means affairs
which are relevant for the purpose of the I.T. Act and which
have some relation to the income sought to be assessed. It
D
is not the bare possession of powers by the directors, but
their taking part in or controlling the affairs relating to the
trading, that is of importance in determining the question of
the place where the control is exercised. They must exercise
their power of control in relation to business or activity
wherefrom the profit is derived. (See Egyptian Hotels E
Ltd. v. Mitchell, [1915] 6 TC 542 (HL)).”
v) In the case of Nandlal Gandalal (supra), this Court has
held that the expression “control and management” in Section
4A(b) of the Income Tax Act, 1922, means de facto control
and management and not merely the right or power to control F
and manage.
8. 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, G
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.
H
492 SUPREME COURT REPORTS [2023] 8 S.C.R.

A 9. 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
B
was with Rattan Gupta 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 Rattan Gupta treating
him as the principal officer and/or as a principal officer for and on behalf
C 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.
10. 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
D 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 beenestablished and proved
by the assessees. In fact, the AO issued notices/summons to different
E 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
F 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
G 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.
H Therefore, in absence of any material on record that the commission
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 493
OF INCOME TAX, DELHI [M. R. SHAH, J.]

was earned only in Gangtok, the assessees cannot be permitted to say A
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
B
on the part of the respective assessees to wriggle out of the clutches of
the Income Tax Act, 1961.
11. As regards the submission on behalf of the respective assessees
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 is concerned, the same has no substance in view of C
the binding decision of this Court in the case of Sun Engineering Works
P. Ltd. (supra). In paragraph 14 of the said decision, it is observed and
held as under:
“14…..Thus, under Section 147, the assessing officer has been
vested with the power to ‘assess or reassess’ the escaped D
income of an assessee. The use of the expression “assess or
reassess such income or recompute the loss or depreciation
allowance” in Section 147 after the conditions for reassessment
are satisfied, is only relatable to the preceding expression in clauses
(a) and (b) viz., “escaped assessment”. The term “escaped E
assessment” includes both “non-assessment” as well as “under
assessment”. Income is said to have “escaped assessment” within
the meaning of this section when it has not been charged in the
hands of an assessee in the relevant year of assessment. The
expression “assess” refers to a situation where the assessment of
the assessee for a particular year is, for the first time, made by F
resorting to the provisions of Section 147 because the assessment
had not been made in the regular manner under the Act. The
expression “reassess” refers to a situation where an assessment
has already been made but the Income Tax Officer has, on the
basis of information in his possession, reason to believe that there G
has been under assessment on account of the existence of any of
the grounds contemplated by the provisions of Section 147(b) read
with the Explanation (1) thereto.”
12. Insofar as the submission on behalf of the respective assessees
regarding levy of interest and the submission on behalf of the assessees H
494 SUPREME COURT REPORTS [2023] 8 S.C.R.

A that in absence of any specific order passed in the assessment order to
levy interest, the interest could not have been levied, is concerned, the
said issue as such is concluded against the assessees in view of the
Constitution Bench decision of this Court in the case of Anjum M.H.
Ghaswala (supra) as well as the subsequent decision in the case of
Karanvir Singh Gossal (supra). The ITAT relied upon the decision of
B
the Patna High Court in the case of Ranchi Club Ltd. (supra), however,
the decision of the Patna High Court in the case of Ranchi Club Ltd.
(supra) is held to be not good law, in view of the Constitution Bench
decision of this Court in the case of Anjum M.H. Ghaswala (supra).
12.1 In the case of Anjum M.H. Ghaswala (supra), while dealing
C 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
D 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
E 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 (supra) 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
F to be sufficient and good enough to charging interest. (See decision of
this Court in the case of Bhagat Construction Company Private
Limited (supra)).
13. As regards the submission on behalf of the assessees that no
substantial question of law was framed on levy of interest, at the outset,
G it is required to be noted that both the parties made submissions on levy
of interest elaborately which have been dealt with and considered by the
High Court in light of the Constitution Bench decision of this Court in the
case of Anjum M.H. Ghaswala (supra). Even otherwise, the said issue
can be said to be incidental or collateral. Even otherwise, in view of the
decision of this Court in the case of Anjum M.H. Ghaswala (supra)
H
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER 495
OF INCOME TAX, DELHI [M. R. SHAH, J.]

holding that the levy of interest under Section 234A is statutory interest A
and mandatory and automatic, thereafter the said issue cannot be said to
be a question of law.
Conclusion:
14. In view of the above and for the reasons stated above and the
findings recorded by the AO, CIT(A), confirmed by the High Court, it B
cannot be said that the High Court has committed any error in upsetting
the findings recorded by the ITAT. We are in complete agreement with
the view taken by the AO, CIT(A) and the High Court on all issues
including the issue of control and management of the affairs of the
assessee companies by Rattan Gupta from Delhi; jurisdiction of the AO C
at New Delhi; applicability of the Income Tax Act, 1961; that the assessees
did not prove that the income was earned by way of commission in Sikkim
and therefore the tax was not liable to be paid under the Income Tax Act,
1961 and was liable to be paid under the Sikkim Manual, 1948. We are
also in agreement with the view taken by the High Court on levy of
interest in view of the binding decision of the Constitution Bench in the D
case of Anjum M.H. Ghaswala (supra), which has been subsequently
followed in the case of Karanvir Singh Gossal (supra).
15. In view of the above and for the reasons stated above, the
present appeals fail and the same deserve to be dismissed and are
accordingly dismissed. However, in the facts and circumstances of the E
case, there shall be no order as to costs.

Ankit Gyan Appeals dismissed.
(Assisted by : Mahendra Yadav, LCRA)
F

G

H