Supreme Court Affirms Jurisdiction of AO in Control and Management of Assessee Companies
In a significant ruling, the Supreme Court has affirmed the jurisdiction of the Assessing Officer (AO) in determining the control and management of assessee companies. The bench comprising Justices M.R. Shah and B.V. Nagarathna delivered the judgment on 10th April 2023.
The case pertained to the control and management of various assessee companies and the applicability of the Income Tax Act, 1961. The AO, CIT(A), and the High Court had previously held that Rattan Gupta, a Chartered Accountant based in Delhi, had significant control and management over the affairs of the companies. The assessees contended that the income earned by way of commission in Sikkim was not liable to be taxed under the Income Tax Act, 1961.
The Supreme Court referred to several precedents in interpreting the concept of control and management, including V.V.R.N.M. Subbayya Chettiar v. CIT, Erin Estate, Narottam and Pareira Ltd., Bank of China, and B.R. Naik v. CIT. The court emphasized that control and management should be de facto control and management, not merely theoretical or de jure control. The determining factor is where the sole right to manage and control the company lies.
On the issue of jurisdiction, the court held that the notices issued by the AO to Rattan Gupta were valid, treating him as the principal officer of the assessee companies. The court further affirmed that the AO in New Delhi had the jurisdiction to issue notices under the Income Tax Act, 1961.
Regarding the income earned by way of commission in Sikkim, the court upheld the findings of the AO, CIT(A), and the High Court that the assessees failed to prove the genuineness of the commission received. The assessees did not produce sufficient evidence, and the non-compliance of summons issued to persons allegedly involved in paying the commission led to an adverse inference.
The court also addressed the argument that there was no original assessment under the Income Tax Act, 1961, and therefore, there could not have been reassessment under sections 147/148. The court relied on the decision in Sun Engineering Works P. Ltd., stating that reassessment can be done when there has been an escaped assessment or under-assessment.
On the issue of interest, the court followed the Constitution Bench decision in Anjum M.H. Ghaswala and held that the levy of interest under Section 234A is mandatory and automatic. The court clarified that the payment of statutory interest is outside the purview of settlement under Chapter XIX-A of the Income Tax Act, 1961.
Supreme Court upheld the findings of the AO, CIT(A), and the High Court, confirming the control and management of the assessee companies by Rattan Gupta. The court held that the Income Tax Act, 1961 was applicable, and the assessees failed to prove that the income was earned by way of commission in Sikkim. The court also affirmed the jurisdiction of the AO in issuing notices and upheld the levy of interest.
Date: 10th April 2023
Mansarovar Commercial Pvt. Ltd. VS Commissioner of Income Tax, Delhi
