Decided on July 20,1993

STATE Respondents


- (1.) THE point for decision at the moment in all these six writ petitions is whether this court has territorial jurisdiction to decide these petitions. THE facts in the first five petitions bearing Nos. 9 of 1990, 10 of 1990, 11 of 1990, 12 of 1990 and 13 of 1990 are identical and so in respect thereof, it shall be sufficient to refer to the facts of only one of them, viz., Writ Petition No. 9 of 1990. THE point of law involved is the same and arguments have been heard together and so all of them are being disposed by this common judgment. In Writ Petition No. 9 of 1990, petitioner No. 1, Messrs. of Mansarover Commercial Pvt. Ltd., a private limited company registered under the Registration of Companies Act, Sikkim, 1961, has its registered office at Gangtok in Sikkim and is carrying on business, inter alia, as commission agents in cardamom and other agricultural products in the State of Sikkim. It has asserted that all its activities and transactions have been initiated and finalised in the State of Sikkim and it has no office or establishment outside the State of Sikkim. Petitioner No. 2 is its director.
(2.) INITIALLY, the State of Sikkim was under a hereditary monarch, subject to British paramountcy. Later, a treaty was entered into between Sikkim and the Government of India and the latter took responsibility with regard to defence, external affairs and communications of Sikkim. Thus it became a protectorate of the Union of India. Thereafter, the constitution (Thirty-Sixth Amendment) Act, 1975, was passed whereby Sikkim was admitted into the Union of India as a State. The said amendment inserted article 371F in the Constitution of India incorporating some special provisions with respect to the State of Sikkim. the relevant clauses of article 371F run as under : "371F. Special provisions with respect to the State of Sikkim. - Notwithstanding anything in this Constitution, -. (k) all laws in force immediately before the appointed day in the territories comprised in the State of Sikkim or any part thereof shall continue to be in force therein until amended or repealed by a competent Legislature or other competent authority;. (n) the President may, by public notification, extend with such restrictions or modifications as he thinks fit to the State of Sikkim any enactment which is in force in a State in India at the date of the notification;" By virtue of the powers under clause (n) of article 371F of the Constitution, the President, vide his notification dated November 7, 1988 (see , [1989]176ITR222(All) ), extended the Income-tax Act, 1961, to the State of Sikkim. Later, the Central Government issued notification dated February 23, 1989 (see , [1989]176ITR223(Cal) ), appointing April 1, 1989, as the date on which the Income-tax Act, 1961 (hereinafter referred to as "the 1961 Act"), came into force in the State of Sikkim in relation to the previous year relevant to the assessment year commencing on April 1, 1989. Thereafter, a press note (see , [1989]176ITR223(Cal) ) was released by the Government of India which stated that in view of certain difficulties, an amendment was proposed in the Finance Bill, 1989, to extend the Income-tax Act to the State of Sikkim from April 1, 1990, i.e., in relation to the assessment year 1990-91 and subsequent years. It further stated that any law corresponding to the Income-tax Act, 1961, which immediately before such commencement was in force in the State of Sikkim, would continue to be in force for and up to the previous year beginning with April 1, 1988, and ending March 31, 1989. Thereafter, the Income-tax Act, 1961, was extended to the State of Sikkim by virtue of section 26 of the Finance Act, 1989, with effect from the previous year relevant to the assessment year commencing on April 1, 1990. Before the extension of the said 1961 Act, the subjects of Sikkim including the petitioner-company were governed by the Sikkim State Income-tax Manual, 948 (hereinafter referred to as "the manual 1948"). According to the petitioner-company, it was an assessee under the said Manual of 1948. The petitioner-company received a letter from its chartered accountant in the month of August, 1990, enclosing therewith photocopies of the printed notices dated July 10, 1990, under section 148 of the 1961 Act calling upon the company to submit its returns for the assessment year 1986-87 to 1989-90. The notices were addressed as under : "Messrs. Mansarover Commercial Pvt. Ltd., C/o Shri Rattan Gupta (CA), 4356/4, Ansari Road, Daryaganj, New Delhi-110 002." The petitioners allege that they had requisitioned the services of Shri Rattan Gupta, chartered accountant, for providing professional services in connection with company law matters, accounts reconciliation, reconciliation of bank accounts, assistance in finalisation of accounts of the company and reconciliation of the other parties. On inquiries made by the petitioners from Shri Gupta, it appeared that the office premises of Shri Gupta had been searched by the Income-tax authorities and the account books which had been submitted to him for reconciliation had been seized by them. Though the account books so seized would show the address of the registered office of the company in Sikkim, still notices were not sent to the company at its registered office at Gangtok, Sikkim. The petitioners have sought a writ of prohibition, prohibiting the respondents from taking, initiating or pursuing any further action directly or indirectly against the petitioner-company under the 1961 Act in pursuance of the notices dated July 10, 1990, mainly on the ground that the Income-tax authorities at Delhi had no territorial jurisdiction issue such notices to the petitioner-company registered in Sikkim and also that there was non-compliance with section 282 of the 1961 Act, inasmuch as notices should have been served on the company through its principal officer at its registered office. The petitioner-company has also submitted that it is not liable to pay Income-tax as it is registered in Sikkim and is governed by the Sikkim State Income-tax Manual, 1948. It has further submitted that the Act of 1961 was made applicable to Sikkim only on and from April 1, 1989, and since the impugned notices relate to the period prior to April 1, 1989, the petitioner was not liable to pay Income-tax under that Act. The petitioners have also prayed for quashing and setting aside the impugned notices dated July 10, 1990.
(3.) THE writ petition was filed on August 18, 1990. THE same admitted on August 20, 1990, and notices were issued. Further proceedings in pursuance of the impugned notices dated July 10, 1990, were stayed by way of an interim order. On February 26, 1991, after the counter-affidavit on behalf of respondents Nos. 1 to 3 had been filed, the interim stay order was modified to the extent that "the respondents may continue with their enquiry, but, subject to further orders of this court, the petitioners shall not be required to file returns in respect of the relevant assessment years and, further, the respondents shall not proceed to assess or raise any demand against the petitioner nor proceed to recover tax for the relevant assessment years". THE stay order was further modified on April 9, 1991, to the extent that "the respondents may continue with their enquiry and in course of the enquiry, if necessary, seek factual information from the directors of the company whose addresses shall be furnished by leaned counsel for the petitioners to respondent No. 4 by April 12, 1991, and on receipt of such requisition, the directors of the company shall furnish the necessary information and, further, in course of the enquiry, it shall be open to respondent to summon and examine witnesses relevant for the purpose of the enquiry in accordance with law". THE stay order was further modified by order dated November 30, 1991, directing the petitioners to file the returns along with the accounts and also to furnish such information as may be called for by the Department. THE assessment proceedings were to continue but the final assessment orders were not to be signed nor demands raised in respect of the said assessments until further orders of the court. It was further observed that in case of failure by the petitioners to comply with any statutory requirements in course of the assessment proceedings, it was open to the concerned officer to proceed against the petitioners in accordance with law. Rejoinder to the counter-affidavit was filed by the petitioner on April 25, 1991. Respondents Nos. 1 to 3 in their counter have taken several preliminary objections. One of them is that this court has no jurisdiction to proceeds with the writ petition as the whole of the cause of action has arisen within the jurisdiction of the High Court at New Delhi and no part of it has arisen within the territorial jurisdiction of this court. THEy have further submitted that the petitioners have an adequate efficacious alternative remedy by taking these objections before the tax authorities. Moreover, the writ petition involves determination of complex disputed questions of fact which cannot be gone into by this court in writ jurisdiction. On the merits also, they have filed a detailed reply and have submitted that the petitioner-company has dummy-director except one Sri Ravindra Singh, chartered accountant, functioning from Delhi, the Department got the statement on oath of Shri Ravinder Singh, and during the course of search proceedings of his premises under section 132 of the Act wherein he admitted that he used to look after the day-to-day affairs of the company and that he was in charge of and responsible to the petitioner-company till March, 1988, and, thereafter Shri Rattan Gupta, chartered accountant, took over as the only working director, the other directors being his nominees and dummies. THE statement on oath of Shri Rattan Gupta was also recorded by the Department. Shri Gupta operated and functioned from his office at 4316/4, Ansari road, Darya Ganj, New Delhi. Enquiries revealed that there was no employee engaged in Gangtok for the purpose of such a huge business. No office expenses have been incurred in Sikkim. Sustained enquiries made by the Department indicated that the petitioner-company had earned substantial income in New Delhi which through the medium of certain persons was siphoned into the bank accounts of these companies at Gangtok in the form of purported commission for purchase/sale of agricultural commodities especially cardamom obviously because at the relevant time the provisions of the 1961 Act were not applicable to the State of Sikkim. Since income had in fact accrued in Delhi, it was liable to tax in accordance with the 1961 Act. All the funds of these companies were received in Delhi where the companies had opened their bank accounts and all investments were made from Delhi. sustained enquiries made by the Department further revealed that a systematic racket was in operation whereby the undisclosed incomes of various persons earned in India were being introduced in the books of account of the company or in the books of account of its associates. It is further submitted that detailed information in this regard being confidential in nature cannot be disclosed in an affidavit."However, if the court so desires, the same would be furnished in sealed covers". THEy have further asserted that since the petitioner-company was indulging in these nefarious activities and since the books of account and other documents were found in the possession of Shri Rattan Gupta who as looking after the day-to-day affairs of the company, the impugned notices were rightly served on him. The petitioners in their rejoinder have stated that the following issues are involved in the present writ petition (a) Whether a company registered in the State of Sikkim and having its operation relating to generation/earning of income in Sikkim can be made subject to and proceeded against under the Income-tax Act, 1961, for the period during which the said Income-tax Act, 1961, was not applicable to the State of Sikkim (b) Whether under the facts and circumstances, a notice under section 148 of the Income-tax Act, 1961, can be issued to the respondent-company (c) Whether an assessee can be made to pay Income-tax twice on its income against the established principle of law as also against various judgments of the Supreme Court of India where the Supreme Court has clearly laid down that double taxation is not permitted " They have further asserted that the petitioner-company was registered in the State of Sikkim and has its registered office in the State of Sikkim; it carried on its business in the State of Sikkim and earned and received the whole of its income in the State of Sikkim, and has been subject to manual 1948; its bank accounts also were in the State of Sikkim wherein all the monies earned by the company were deposited and the money deposited outside the State of Sikkim was simply transferred from the bank account in Sikkim. Books of account which were found at the premises of Shri Rattan Gupta were sent to get his professional advice since at the relevant time no chartered accountant was available in Sikkim and hence this cannot lead to the conclusion that the head and brain or control and management of the company was based at the place where the books of account were found. With regard to the preliminary objections, it was submitted that the control and management of the affairs of the company was within the territorial jurisdiction of this court; no cause of action has arisen outside the jurisdiction of this court and since the reliefs sought for are with regard to the action proposed to be taken against the petitioner-company for the actions/transactions within the jurisdiction of this court, this court has the jurisdiction to entertain the present petition. It is further alleged that since the 1961 Act was not applicable to the petitioner, the action taken or contemplated b the respondents is wholly without jurisdiction and without the authority of law and the petitioner-company has no alternative remedy much less adequate or efficacious. They have further submitted that the petition does not involve any complex disputed questions of fact, as the whole matter could be decided on the admitted facts. Moreover, since the impugned notices have not been served on the petitioner, the respondents have no jurisdiction to proceed further in pursuance of the impugned notices and since this goes to the root of the matter, this court has the jurisdiction to decide the dispute. They have denied all other facts mentioned in the counter-affidavit. ;

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