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For a company to be a “Resident” in India, Domicile or Registration is irrelevant; test is where De Facto Control Lies : Supreme Court.
Case Title: “Mansarovar Commercial Pvt Ltd vs. Commissioner of Income Tax, Delhi”
SC Relied On: Commissioner of Income Tax vs. Nandlal Gandalal (1960 40 ITR 1 (SC)),
Held:
✓The Apex Court has ruled that under the Income Tax Act, 1961, the domicile or the registration of the company is not at all relevant, and the determinate test is the place where, the sole right to manage the company and the control of the company lies.
✓The place where the “head and seat” and the “directing power” of the affairs of the company and the control and management is shown, must not merely be theoretical control and power, i.e., not de jure control and power.
✓Rather, in order to hold that a non-Indian company is a resident in India during any previous year, it must be established that such company de facto controls and manages its affairs in India, the Apex Court has ruled.
✓The Hon’ble bench thus upheld the jurisdiction of the Assessing Officer at New Delhi to tax the income earned by the assessees incorporated under the company law of Sikkim, for the assessment years prior to the date the Income Tax Act, 1961 was extended to the State of Sikkim.
✓It was observed that under Section 6(3) – Since the control and management of the affairs of the assessee companies was with its auditor in New Delhi, the Income Tax Act, 1961 was applicable to them.
✓Thus, the assesses who were incorporated under the company law of Sikkim, were resident Indian companies, and the income accrued to them/ earned by them in India for the assessment years prior to 1st April 1990, was taxable under the Income Tax Act.
✓SC thus upheld the Delhi High Court’s order, where the High Court had confirmed the findings recorded by the AO and CIT(A) that the assessees’ auditor was in de facto control of the assessee.