Under section 124 of the Income-tax Act, 1961, where the Assessing Officer has been vested with jurisdiction over any area, within the limits of such area, he would have jurisdiction in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situated within the area.
Where the business or profession is carried on in more places than one, he would have jurisdiction if the principal place of business or profession is situated within the area.
This section refers to the ‘jurisdiction’ of the Assessing Officer. It is important to note the sense in which the word ‘jurisdiction’ is used in this context. The distinction between want of inherent jurisdiction, i.e. inherent incompetency, on the one hand, and irregular exercise and assumption of jurisdiction on the other hand, is well settled.
A party may waive objection to irregular exercise or assumption of jurisdiction; but there can be no question of waiver where there is absence of inherent jurisdiction because in such a case the assessment order must be treated as a nullity. Under the Act, if an order is made by an Assessing Officer other than the one entitled to exercise jurisdiction, it may account merely to irregular exercise or assumption of jurisdiction.
If the assessee has not objected within the time prescribed by sub-section (3), he would be deemed to have waived his objection and the order would be valid and effective. If an administrative order transferring a case from one Assessing Officer to another is set aside by the Court, that would not necessarily invalidate all action taken, before the Court’s decision, by the Assessing Officer to whom the case was transferred.
Understanding ‘principal place of business’
What constitutes “principal place of business or profession” has been considered by the Guwahati High Court in C.I.T. v. Ganga Bani Mercantile and Finance P. Ltd. (293 I.T.R. 441). The facts in this case were that the company was registered with the Registrar of Companies at Kolkata. There was a search in the G group companies, resulting in seizure of a substantial number of pass books, cheque books and other documents relating to a large number of bank accounts, investments in different names, organisations and financial institutions. On the basis of the statement on oath of G that some of the investments were made by the assessee in support of which he filed a confirmatory letter, the Assessing Officer issued a notice under section 158-BD of the Income-tax Act, 1961.
On considering the challenge made by the assessee to the validity of the proceedings initiated under section 158-BD, the Assessing Officer found that no cogent evidence or reasons had been put forward to show that the assessee would be outside the jurisdiction of the AO at Guwahati.
The Assistant Commissioner at Guwahati held that the assessee failed to explain its source of investment amounting to Rs 1,26,75,554 and assessed the assessee to income-tax amounting to Rs 1,40,17,200 under section 158-BD. The Tribunal accepted the challenge made on behalf of the assessee, holding that as the assessee was registered with the Registrar of Companies at Kolkata, the jurisdiction in respect of the assessee would lie only with the income-tax authorities at Kolkata. Since no order under section 127 had been passed by the income-tax authorities at Kolkata transferring the case to Guwahati, neither the Assessing Officer nor the Commissioner at Guwahati would have jurisdiction in respect of the assessee.
Question of jurisdiction
The High Court held that even though the objection as to the jurisdiction of the Assessing Officer was general in nature, yet the representative of the assessee argued the question of jurisdiction before the Assessing Officer and the Assessing Officer deliberated upon the question and eventually proceeded to assess the tax liability of the assessee, rejecting the plea of lack of jurisdiction. Thus, the question of jurisdiction was very much an issue before the Assessing Officer.
When an objection regarding lack of jurisdiction of an Assessing Officer was raised, the Assessing Officer ought to have made a reference to the higher authorities for a decision as provided under section 124(2). The Assessing Officer could not take a view that no adjudiciable jurisdictional issue was involved in the case. Recourse to the provisions of section 124(2) would have been the only course left with the Assessing Officer.
The Tribunal had set aside the findings of the authorities below merely because the registered office of the assessee was located at Kolkata. From the documents, it was not discernible as to whether the assessee carried on his business in more places than one. The reasons cited by the Tribunal in declaring that the authorities at Guwahati would have no jurisdiction was not correct as the location of the registered office of the assessee could be of no consequence, without any other relevant material to decide on the principal place of business of the assessee. If the assessee did not carry on any business activities within the jurisdiction of the income-tax authorities at Kolkata and instead conducted all its business under the jurisdiction of the income-tax authorities at Guwahati, the principal place of business of the assessee could very well be at Guwahati.
Time-bound objection
In conclusion, it must be noted that an objection as to the Assessing Officer’s jurisdiction should be raised by the assessee before the Assessing Officer and before the expiry of the time allowed under sub-section (3). The objection cannot be raised for the first time in appeal against the assessment after the assessment has been made, or for the first time in penalty proceedings.
If the question as to jurisdiction has been raised in time before the Assessing Officer and has been decided against the assessee by the Director-General or the Commissioner or by the Board, the assessee cannot raise the objection again in an appeal before the C.I.T. (A) because section 246 does not provide for an appeal on the question of jurisdiction. Further, the C.I.T. (A), under the scheme of the Act, cannot sit in appeal over the decision of those authorities.
H.P. Ranina
The author, a Mumbai-based advocate specialising in tax laws
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