| Headnote |
Constitution of India – The Constitut ion (Thirty SixthAmendment) Act, 1975 – Art. 371-F – Sikkim State Income-TaxManual, 1948 – Sikkim (Collection of Taxes and Prevention ofEvasion of Payment of Taxes) Act, 1987 – Income Tax Act, 1961 –ss. 2(35)(a), 2(35)(b), 6(3), 148, 271(1)(a), 271(1)(c), 273, 274,271-B – By a notification dated 07.11.1988 issued u/Art. 371-F(n) of theConstitution, the Income Tax Act, 1961 were extended to the State ofSikkim – The case of the assessees (incorporated under theRegistration of Companies (Sikkim) Act, 1961) was that each ofthem was a resident of Sikkim, carrying on business in Sikkim andnot elsewhere and that till 31.03.1990, each of them were governedby the Sikkim Manual, 1948 and not the Income Tax Act, 1961 –Therefore, the stand of the assessees was that the income earned bythem till that date was income earned in Sikkim from the businessconducted/done in Sikkim – On the other hand, the case of theRevenue was that the control and management of each of the assesseecompanies was wholly with their auditor, RG, Chartered Accountants,who had their offices in New Delhi and therefore, were companies’resident in India in terms of Section 6(3) of the Act – A search wasconducted on 15.03.1990 at the premises of Chartered Accountantat New Delhi and during the course of the search, books of account,cheque books, signed blank cheques, vouchers and other incomedocuments of the assessees were found – Notices were issued by theACIT (Investigation), to each of the assessees u/s 148 of the Act, inrespect of Assessment Years 1987-88, 1988-89 and 1989-90 – Held:On appreciation of the entire evidence on record, the AO, CIT(A)and the High Court have specifically held against the assesseesthat in fact auditor (the chartered accountant, RG) did not merelyrender professional services but had a vital say in the control andmanagement of the assessee companies and in fact he was in controland management of the affairs of the respective assessee companies Once documents were seized and statements were recorded fromvarious persons, the burden gets shifted to the assessees to producesome evidence to counter the picture and, the court found that itsextremely unusual that the seals and the signed blank cheques wouldbe lying with the Chartered Accountant – The head and seat anddirecting power of the affairs of the company and the control andmanagement is must be shown is not merely theoretical control andpower, i.e., not de jure control and power, but de facto control andpower actually exercised in the course of the conduct andmanagement of the affairs of the firm – The domicile or theregistration of the company is not at all relevant and the determinatetest is where the sole right to manage and control of the companylies and therefore the findings recorded by the AO, confirmed by theCIT(A), it was rightly concluded that the control and managementof the affairs of the respective assessees were with CharteredAccountant in Delhi – It appears that the assessees with mala fideintention and to evade the payment of tax under the Income Tax Act,1961 came out with a case that they earned the income within Sikkim,which has not been established and proved – It was an attempt towriggle out of the clutches of the Income Tax Act, 1961 – Further,the levy of interest u/s. 234A for default in furnishing the return ofincome is mandatory and automatic – s. 234A of the Act providesthat where the return of income for any assessment year is furnishedafter the due date or is not furnished, the assessee shall be liable topay simple interest. |
