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Issues Involved:
1. Territorial jurisdiction of the court to entertain the petition. 2. Jurisdiction of the Assistant Commissioner of Income-tax, Delhi, to issue notices under section 148 of the Income-tax Act to the petitioner-company registered in Sikkim. 3. Existence of "reason to believe" that income chargeable to tax had escaped assessment. Detailed Analysis: Point No. 1: Territorial Jurisdiction The court examined whether any part of the cause of action arose within its territorial jurisdiction. "Cause of action" refers to the bundle of material facts necessary for the petitioner to prove to support their right to the judgment. The petitioner alleged that notices under section 148 were received at Gangtok, Sikkim, while respondents claimed they were served on the petitioner's authorized agent in New Delhi. The court found no evidence proving that Rattan Gupta and Co. was the authorized agent to receive notices on behalf of the petitioner. Consequently, it held that the notices were served at Gangtok, thus part of the cause of action arose within the territorial jurisdiction of this court. Therefore, the court has the jurisdiction to entertain the petition. Point No. 2: Jurisdiction of Assistant Commissioner of Income-tax, Delhi The petitioner argued that the Income-tax Act, 1961, was not applicable to Sikkim for the relevant assessment years due to the special provisions of article 371F of the Constitution, which continued the Sikkim State Income Tax Manual until repealed or modified by a competent authority. The court clarified that the Sikkim State Income Tax Manual could not operate beyond Sikkim's territorial limits and could not override the Central Income-tax Act concerning income accrued or received outside Sikkim. The court concluded that the Assistant Commissioner of Income-tax, Delhi, had jurisdiction to issue notices under section 148 of the Income-tax Act, 1961, for income earned or received outside Sikkim. Point No. 3: Reason to Believe The court's supervisory jurisdiction under article 226 is limited to examining whether the Assessing Officer had a "reason to believe" that income chargeable to tax had escaped assessment. The court referred to the Supreme Court's rulings, emphasizing that the existence of such reasons is a justiciable issue, and the court can ensure that the reasons have a rational connection to the belief. The reasons recorded by the Assessing Officer included documents seized during a search and seizure operation on March 15, 1990, revealing the petitioner-company's significant investments and activities linked to Delhi. The court found that these documents provided sufficient material for the Assessing Officer to form a reasonable belief of income escapement. Thus, the court held that the Assessing Officer had valid reasons to believe that the income chargeable to tax had escaped assessment. Conclusion: The petition was dismissed, and the interim orders passed during the pendency of the petition were vacated. There was no order as to costs.
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