Test of residence under the Income Tax Act is the de facto control: SC


Test of residence under the Income Tax Act is the de facto control: SC


Mansarovar Commercial Pvt. Ltd (CA No 5770, 5771, 5772, 5773 of 2022)


  1. Section 6(3) of Income Tax Act provides that a company is said to be a resident in India in any previous year, if it is an Indian company or if its place of effective management, in that year, is in India.
  1. Before the Income Tax Act was made applicable to the State of Sikkim from the previous year relevant to the Assessment Year commencing from 1st April, 1990 by a notification issued by the Central Government, the income tax was to be charged and collected under the Sikkim State Income Tax Manual, 1948.
  1. The assessee company was incorporated under the Registration of Companies (Sikkim) Act, 1961. During the course of the search operation conducted at the premises of the assessee companies’ auditor, M/s Rattan Gupta & Co., at New Delhi, the books of account, cheque books, vouchers and other income documents of the assessee companies was found.
  1. The revenue was of the opinion that the control and management of each of the assessee companies was wholly with their auditor, Gupta, who had his office in New Delhi and therefore, the assessee companies were residents of India, in terms of Section 6(3) of the Income Tax Act.
  1. The AO passed assessment orders making additions to the income of the assessees for the said three Assessment Years, while concluding that the commission income was not earned by the assessees in Sikkim.
  1. The stance of the assessee was that notices under Section 148 could not have been served on Gupta, the assessees’ auditor, as he could not be said to be a “Principal Officer” of the assessees within the meaning of Section 2(35)(a) of the Act.

Hon SC held as below:

  1. 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 IT.
  1. The “control and management” in Section 4A(b) of the Income Tax Act, 1922, means de facto control and management and not merely the right or power to control and manage. The control and management of the affairs of the assessees was with their auditor, Gupta, in New Delhi.
  1. The appeal is dismissed.