Income Tax Act| Domicile Or Registration Of Company Is Irrelevant, Seat Of Control & Management Must Be Shown- SC Emphasises

A Supreme Court Bench of Justice MR Shah and Justice BV Nagarathna has emphasised that to evaluate whether a business will come under the Income Tax Act, 1961, the domicile or the registration of the company is not at all relevant and that where the head and seat and directing power of the affairs of the company and the control and management is must be shown.

Senior Counsel Arvind P Datar and Senior Counsel G Umapathy appeared for the assessee companies, while ASG N Venkataraman appeared for the Revenue.

In this case, the assessees contended that each of them was a resident of Sikkim carrying on business in Sikkim and that till 31st March, 1990, each of them was governed by the Sikkim State Income-tax Manual, 1948, as opposed to the Income Tax Act, 1961.

The stand of the assessees was that the income earned by them till that date was income earned in Sikkim from the business conducted/done in Sikkim. On the other hand, the Revenue contended that the control and management of each of the assessee companies was wholly with their auditor, who had their office in New Delhi, and therefore, were companies’ resident in India in terms of Section 6(3) of the Act.

The Supreme Court perused a catena of judgments to observe that "where the head and seat and directing power of the affairs of the company and the control and management is must be shown is not merely theoretical control and power, i.e., not de jure control and power, but de facto control and power actually exercised in the course of the conduct and management of the affairs of the firm; that the domicile or the registration of the company is not at all relevant and the determinate test is where the sole right to manage and control of the company lies."

In light of the same, the Court concluded that the control and management of the affairs of the respective assessees was with their Chartered Accountant in Delhi. In furtherance, the Court observed that "It appears that the assessees with mala fide intention and to evade the payment of tax under the Income Tax Act, 1961 came out with a case that they earned the income within Sikkim, which has not been established and proved. It was a clear attempt on the part of the respective assessees to wriggle out of the clutches of the Income Tax Act, 1961".

Therefore, the appeals were dismissed.No order was passed as to costs.

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

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