My company is registered outside the taxable territory but run from Delhi. Where is it resident?
Where it is actually run. The Supreme Court held that the residence of a company turns on de facto control and management, not on the place of registration: five companies incorporated under the Registration of Companies (Sikkim) Act, 1961 were resident in India because the management and control of all five was wholly situated in Delhi, at the office of a chartered accountant. The appeals were dismissed and the Delhi High Court's decision affirmed.
Decided by the Supreme Court (Supreme Court of India - M.R. Shah and B.V. Nagarathna, JJ., Civil Appeal Nos. 5769 to 5773 of 2022) on 2023-04-10, reported as (2023) 453 ITR 661 / 293 Taxman 312 / 332 CTR 137 / 224 DTR 305 (SC). It bears on section 6(3), section 6(3)(ii), section 2(35), section 4, section 131, section 147, section 148, section 234A, section 260A of the Income Tax Act 1961, in Residence & Treaty Benefit, Assessment & Scrutiny and Reassessment & Reopening matters.
It is the modern Supreme Court authority a practitioner needs when the department says the registered office is a shell. The department's material is usually the same as it was here — the seal, blank signed cheques, the books and the statutory registers all sitting with someone in India — and the case establishes that professional services rendered by a chartered accountant are one thing while a vital say in control and management is another. It also matters for what it does not settle: the assessment years were governed by the old control-and-management test, not by the place of effective management test that s.6(3)(ii) now carries.
Binding on every court and authority in India.
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Mansarovar Commercial Private Limited, Sovereign Commercial Private Limited, Swastik Commercial Private Limited, Trishul Commercial Private Limited and Pasupati Nath Commercial Private Limited were registered under the Registration of Companies (Sikkim) Act, 1961. Each said it was resident in Sikkim, carried on business there as a commission agent on the sale of cardamom, and so was governed for assessment years 1987-88 to 1989-90 by the Sikkim State Income-tax Manual, 1948 rather than by the Income-tax Act, 1961, which was not extended to Sikkim until 1 April 1990. The Assessing Officer found that the directors were all from outside Sikkim and had never been there, that the single director projected as a Gangtok resident could not be shown to be one, and that the entire books of account had been found and seized in New Delhi at the office of Rattan Gupta, chartered accountant. The rubber seals, letter heads, blank signed cheques and other records of all five companies were in the same office. The Assessing Officer held the control and management to be in Delhi and the assessees to be liable under the 1961 Act, and the Commissioner (Appeals) confirmed that. The Tribunal then reversed and decided in the companies' favour. On the department's appeals the Delhi High Court held the Tribunal's decision perverse on facts and in law, answered every question against the companies and restored the position taken by the Assessing Officer. The companies appealed to the Supreme Court.
The appeals were dismissed with no order as to costs and the Delhi High Court's judgment affirmed. On residence, the test is where the head and seat and directing power of the company's affairs lie, and the control and management that must be shown is de facto and actually exercised, not merely de jure; the domicile or registration of the company is not relevant at all. Applying that, the concurrent findings of the Assessing Officer and the Commissioner (Appeals) that Rattan Gupta had the control and management of the five companies were based on the whole material on record, so the High Court had not erred in reversing the Tribunal, service of notice on Rattan Gupta as principal officer was valid, and the Assessing Officer at New Delhi had jurisdiction. On the commission income, the burden of proving that the commission was earned in Sikkim lay on the companies who asserted it; the persons said to have paid it did not answer summons under s.131, and the Tribunal wrongly shifted the burden to the Assessing Officer. In the absence of material that the commission was earned only in Gangtok, the companies could not say they were taxable under the Sikkim Manual, 1948 and not under the 1961 Act. The absence of an original assessment under s.143(3) did not bar reassessment under s.147/148. Interest under s.234A for default in furnishing the return is statutory, mandatory and automatic, and it is enough that it is levied as per the working in ITNS 150 forming part of the assessment order; the argument that no substantial question of law had been framed on interest was rejected.
The Court read the orders of the Assessing Officer, the Commissioner (Appeals), the Tribunal and the High Court in detail and set out the findings at each stage before deciding anything. It then surveyed the decisions on s.4A of the 1922 Act and s.6(3) of the 1961 Act and drew the test from them: what must be shown is not theoretical or de jure control and power but de facto control and power actually exercised in conducting and managing the company's affairs, and the domicile or registration of the company is not relevant, the determinate test being where the sole right to manage and control lies. Applying that to the findings of fact, it agreed that control and management lay with Rattan Gupta in Delhi and that those findings rested on the entire material on record, so the High Court was right to reverse the Tribunal and right to hold service on Rattan Gupta as principal officer good and the Delhi Assessing Officer competent. On the commission, the Court's route was one of burden: the assessees asserted the income was earned in Sikkim, the alleged payers did not comply with summons under s.131, no worthwhile evidence of genuineness was produced, and the Tribunal had erred in putting the burden on the department to bring adverse material. Without material that the commission was earned only in Gangtok, the claim to be taxed under the Sikkim Manual could not stand, and the Court described the claim as an attempt to escape the 1961 Act. The reassessment point was answered by Sun Engineering Works, whose paragraph 14 the Court reproduced, to the effect that 'escaped assessment' covers non-assessment as well as under-assessment, so an assessment made for the first time under s.147 is within the section. On interest, the Court applied the Constitution Bench decision in Anjum M.H. Ghaswala and the later decision in Karanvir Singh Gossal, recorded that the Patna High Court decision in Ranchi Club on which the Tribunal had relied is not good law after Ghaswala, and held that levy as per the ITNS 150 working forming part of the assessment order is sufficient, following Bhagat Construction Co. Finally it held the framing point to be incidental or collateral and in any event not a question of law once interest under s.234A is mandatory and automatic.
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 ... 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.
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Handle my notice → Ask a CA on WhatsAppWhere it is actually run. The Supreme Court held that the residence of a company turns on de facto control and management, not on the place of registration: five companies incorporated under the Registration of Companies (Sikkim) Act, 1961 were resident in India because the management and control of all five was wholly situated in Delhi, at the office of a chartered accountant. The appeals were dismissed and the Delhi High Court's decision affirmed. This was decided by the Supreme Court (Supreme Court of India - M.R. Shah and B.V. Nagarathna, JJ., Civil Appeal Nos. 5769 to 5773 of 2022) and bears on section 6(3), section 6(3)(ii), section 2(35), section 4, section 131, section 147, section 148, section 234A, section 260A of the Income Tax Act 1961. It is reported as (2023) 453 ITR 661 / 293 Taxman 312 / 332 CTR 137 / 224 DTR 305 (SC). It is the modern Supreme Court authority a practitioner needs when the department says the registered office is a shell. The department's material is usually the same as it was here — the seal, blank signed cheques, the books and the statutory registers all sitting with someone in India — and the case establishes that professional services rendered by a chartered accountant are one thing while a vital say in control and management is another. It also matters for what it does not settle: the assessment years were governed by the old control-and-management test, not by the place of effective management test that s.6(3)(ii) now carries. If it applies to you, the first step is this: Ask where the board actually decides, and be able to show it — minutes signed elsewhere are worth little against custody of the seal, the cheque book and the registers.
Mansarovar Commercial Private Limited, Sovereign Commercial Private Limited, Swastik Commercial Private Limited, Trishul Commercial Private Limited and Pasupati Nath Commercial Private Limited were registered under the Registration of Companies (Sikkim) Act, 1961. Each said it was resident in Sikkim, carried on business there as a commission agent on the sale of cardamom, and so was governed for assessment years 1987-88 to 1989-90 by the Sikkim State Income-tax Manual, 1948 rather than by the Income-tax Act, 1961, which was not extended to Sikkim until 1 April 1990. The Assessing Officer found that the directors were all from outside Sikkim and had never been there, that the single director projected as a Gangtok resident could not be shown to be one, and that the entire books of account had been found and seized in New Delhi at the office of Rattan Gupta, chartered accountant. The rubber seals, letter heads, blank signed cheques and other records of all five companies were in the same office. The Assessing Officer held the control and management to be in Delhi and the assessees to be liable under the 1961 Act, and the Commissioner (Appeals) confirmed that. The Tribunal then reversed and decided in the companies' favour. On the department's appeals the Delhi High Court held the Tribunal's decision perverse on facts and in law, answered every question against the companies and restored the position taken by the Assessing Officer. The companies appealed to the Supreme Court. The matter was decided on 2023-04-10 by the Supreme Court (Supreme Court of India - M.R. Shah and B.V. Nagarathna, JJ., Civil Appeal Nos. 5769 to 5773 of 2022). On those facts the Supreme Court held as follows. The appeals were dismissed with no order as to costs and the Delhi High Court's judgment affirmed. On residence, the test is where the head and seat and directing power of the company's affairs lie, and the control and management that must be shown is de facto and actually exercised, not merely de jure; the domicile or registration of the company is not relevant at all. Applying that, the concurrent findings of the Assessing Officer and the Commissioner (Appeals) that Rattan Gupta had the control and management of the five companies were based on the whole material on record, so the High Court had not erred in reversing the Tribunal, service of notice on Rattan Gupta as principal officer was valid, and the Assessing Officer at New Delhi had jurisdiction. On the commission income, the burden of proving that the commission was earned in Sikkim lay on the companies who asserted it; the persons said to have paid it did not answer summons under s.131, and the Tribunal wrongly shifted the burden to the Assessing Officer. In the absence of material that the commission was earned only in Gangtok, the companies could not say they were taxable under the Sikkim Manual, 1948 and not under the 1961 Act. The absence of an original assessment under s.143(3) did not bar reassessment under s.147/148. Interest under s.234A for default in furnishing the return is statutory, mandatory and automatic, and it is enough that it is levied as per the working in ITNS 150 forming part of the assessment order; the argument that no substantial question of law had been framed on interest was rejected.
The Court read the orders of the Assessing Officer, the Commissioner (Appeals), the Tribunal and the High Court in detail and set out the findings at each stage before deciding anything. It then surveyed the decisions on s.4A of the 1922 Act and s.6(3) of the 1961 Act and drew the test from them: what must be shown is not theoretical or de jure control and power but de facto control and power actually exercised in conducting and managing the company's affairs, and the domicile or registration of the company is not relevant, the determinate test being where the sole right to manage and control lies. Applying that to the findings of fact, it agreed that control and management lay with Rattan Gupta in Delhi and that those findings rested on the entire material on record, so the High Court was right to reverse the Tribunal and right to hold service on Rattan Gupta as principal officer good and the Delhi Assessing Officer competent. On the commission, the Court's route was one of burden: the assessees asserted the income was earned in Sikkim, the alleged payers did not comply with summons under s.131, no worthwhile evidence of genuineness was produced, and the Tribunal had erred in putting the burden on the department to bring adverse material. Without material that the commission was earned only in Gangtok, the claim to be taxed under the Sikkim Manual could not stand, and the Court described the claim as an attempt to escape the 1961 Act. The reassessment point was answered by Sun Engineering Works, whose paragraph 14 the Court reproduced, to the effect that 'escaped assessment' covers non-assessment as well as under-assessment, so an assessment made for the first time under s.147 is within the section. On interest, the Court applied the Constitution Bench decision in Anjum M.H. Ghaswala and the later decision in Karanvir Singh Gossal, recorded that the Patna High Court decision in Ranchi Club on which the Tribunal had relied is not good law after Ghaswala, and held that levy as per the ITNS 150 working forming part of the assessment order is sufficient, following Bhagat Construction Co. Finally it held the framing point to be incidental or collateral and in any event not a question of law once interest under s.234A is mandatory and automatic. In the words reproduced by the source cited on this page: "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 ... 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." The decision followed or applied CIT v. Anjum M.H. Ghaswala [2001] 119 Taxman 352 / 252 ITR 1 (SC) (Constitution Bench) - interest under ss.234A to 234C is mandatory (paras 12, 12.1, 14); Karanvir Singh Gossal v. CIT [2012] 25 taxmann.com 213 / 210 Taxman 241 / 349 ITR 692 (SC) (paras 12, 14); CIT v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442 / 198 ITR 297 (SC) - para 14 reproduced on the meaning of escaped assessment (para 11); CIT v. Bhagat Construction Co. (P.) Ltd. [2015] 60 taxmann.com 334 / [2016] 383 ITR 9 (SC) - levy of interest through the ITNS 150 working (para 12.1); CIT v. Ranchi Club Ltd. [2001] 247 ITR 209 / 114 Taxman 414 (SC) distinguished; the Patna High Court decision of that name, relied on by the Tribunal, held not good law after Ghaswala (para 12).
It was decided by the Supreme Court on 2023-04-10 and is reported as (2023) 453 ITR 661 / 293 Taxman 312 / 332 CTR 137 / 224 DTR 305 (SC). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 6(3), section 6(3)(ii), section 2(35), section 4, section 131, section 147, section 148, section 234A, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were dismissed with no order as to costs and the Delhi High Court's judgment affirmed. On residence, the test is where the head and seat and directing power of the company's affairs lie, and the control and management that must be shown is de facto and actually exercised, not merely de jure; the domicile or registration of the company is not relevant at all. Applying that, the concurrent findings of the Assessing Officer and the Commissioner (Appeals) that Rattan Gupta had the control and management of the five companies were based on the whole material on record, so the High Court had not erred in reversing the Tribunal, service of notice on Rattan Gupta as principal officer was valid, and the Assessing Officer at New Delhi had jurisdiction. On the commission income, the burden of proving that the commission was earned in Sikkim lay on the companies who asserted it; the persons said to have paid it did not answer summons under s.131, and the Tribunal wrongly shifted the burden to the Assessing Officer. In the absence of material that the commission was earned only in Gangtok, the companies could not say they were taxable under the Sikkim Manual, 1948 and not under the 1961 Act. The absence of an original assessment under s.143(3) did not bar reassessment under s.147/148. Interest under s.234A for default in furnishing the return is statutory, mandatory and automatic, and it is enough that it is levied as per the working in ITNS 150 forming part of the assessment order; the argument that no substantial question of law had been framed on interest was rejected. It arises in Residence & Treaty Benefit, Assessment & Scrutiny and Reassessment & Reopening matters, on section 6(3), section 6(3)(ii), section 2(35), section 4, section 131, section 147, section 148, section 234A, section 260A of the Income Tax Act 1961, and was decided by Supreme Court of India - M.R. Shah and B.V. Nagarathna, JJ., Civil Appeal Nos. 5769 to 5773 of 2022. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not rely on the certificate of incorporation or the registered office address; the Court treated registration as not relevant to the enquiry. If the company's Indian professional holds the records, document the engagement so that it reads as professional service rather than as a vital say in management. For any year from AY 2017-18 onwards, run the enquiry under the place of effective management test in s.6(3)(ii) as it now stands, and treat this decision as authority on the factual approach rather than on the statutory words. Deal separately with the burden on the underlying income — here the companies also failed to prove the commission they claimed to have earned.
Still good law. The report carries the later-treatment line 'This case is Affirmed [2023] 153 taxmann.com 645 (SC)': the review petitions, R.P.(C) No. 727 of 2023 and others, were dismissed on 13 July 2023 by Dr. D.Y. Chandrachud, CJI and B.V. Nagarathna, J., on the ground that there was no error apparent on the face of the record. That is the Court declining to disturb its own decision rather than an independent later application, and nothing else applying it has been checked. The decision affirms CIT v. Mansarovar Commercial (P.) Ltd. [2016] 66 taxmann.com 283 (Delhi), 22 February 2016. What has changed is the statute and not the authority: s.6(3)(ii) as it stood for these years made a company resident where the control and management of its affairs was situated wholly in India, and the provision now turns on place of effective management, so the ratio speaks to the older text. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment has now been read in full in a law report, and the holding, the reasoning and the quoted sentence come from its numbered paragraphs. Two corrections matter. The Bench is M.R. Shah and B.V. Nagarathna, JJ. - the free host the entry had preferred named C.T. Ravikumar, J. and is wrong. And the sentence that previously stood as the key quote, about the blank signed cheque books, rubber seals and letter heads found in the accountant's office, is not the Supreme Court's language: it is clause (iii) of paragraph 91 of the Delhi High Court's judgment, which the Supreme Court set out at para 2.15 when describing what the High Court had held. The Court's own formulation of the test is at para 8 and is quoted instead. The procedural history also needed fixing - the Tribunal decided in the companies' favour and was reversed by the High Court as perverse; the earlier entry had the Tribunal deciding against them. The most important limit remains statutory rather than evidential: the assessment years were 1987-88 to 1989-90, when s.6(3)(ii) made a company resident if the control and management of its affairs was situated wholly in India, and the provision now turns on place of effective management, so the decision cannot be cited as if it construed the section in its present form. The review petitions against the decision were dismissed on 13 July 2023, reported at [2023] 153 taxmann.com 645 / 294 Taxman 513 (SC). The Court did not say how the control and management test maps onto place of effective management for years from AY 2017-18, and did not consider the Board's guidance on that concept. It did not address what happens where control is partly in India, since the old provision required it to be situated wholly in India and the finding here was that it was wholly in Delhi. On the commission limb it decided a question of burden on findings of fact, so it gives no guidance on what evidence would have discharged that burden. The interest limb is decided by following Anjum M.H. Ghaswala and does not add to it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with no order as to costs and the Delhi High Court's judgment affirmed. On residence, the test is where the head and seat and directing power of the company's affairs lie, and the control and management that must be shown is de facto and actually exercised, not merely de jure; the domicile or registration of the company is not relevant at all. Applying that, the concurrent findings of the Assessing Officer and the Commissioner (Appeals) that Rattan Gupta had the control and management of the five companies were based on the whole material on record, so the High Court had not erred in reversing the Tribunal, service of notice on Rattan Gupta as principal officer was valid, and the Assessing Officer at New Delhi had jurisdiction. On the commission income, the burden of proving that the commission was earned in Sikkim lay on the companies who asserted it; the persons said to have paid it did not answer summons under s.131, and the Tribunal wrongly shifted the burden to the Assessing Officer. In the absence of material that the commission was earned only in Gangtok, the companies could not say they were taxable under the Sikkim Manual, 1948 and not under the 1961 Act. The absence of an original assessment under s.143(3) did not bar reassessment under s.147/148. Interest under s.234A for default in furnishing the return is statutory, mandatory and automatic, and it is enough that it is levied as per the working in ITNS 150 forming part of the assessment order; the argument that no substantial question of law had been framed on interest was rejected.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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