R. Dayal, C.J.
The petitioner is a company registered under the Registration of Companies, Act, Sikkim, 1961, on 23-6-1986. It was served with three notices dated 16-3-1995, by the Assistant Commissioner, Central Circle-4, New Delhi under section 148 of the Income Tax Act, 1961, for the assessment years 1987-88, 1988-89 and 1989-90, each stating that the assessing officer had reason to believe that the income of rupees forty lakhs had escaped assessment within the meaning of section 147 of that Act and requiring the petitioner-company to deliver to him within thirty days from the date of the service of the notice an income tax return. By this petition filed under article 226 of the Constitution, the petitioner challenged these notices and claimed a writ of certiorari for quashing and setting aside the same and also a mandamus directing respondent Nos. 1 to 3 to withdraw the same. During the pendency of the petition, the petitioner-company was also served with three notices dated 5-2-1997, for the aforesaid years under section 142(1) of the Income Tax Act, 1961. On an application made by the petitioner-company for staying the proceedings, pursuant to these notices, a learned single Judge of this court passed an order on 29-3-1997, 'that the respondents may continue with the assessment proceedings but even after making the final assessment no demand should be raised or no further action for realisation of the assessed amount be made till the disposal of the writ petition.' This order was passed with respect to the notices relating to the assessment year 1988-89. Subsequently, on an application seeking the modification of this order, the learned single Judge passed an order on 19-6-1997, specifying that the order dated 29-3-1997, would cover the assessment years 1987-88, 1988-89 and 1989-90.
2. The petitioner has challenged the validity of the notices under section 148 of the Income Tax Act, 1961 on the ground that they have been issued without jurisdiction for the following reasons:
(i) The Income Tax Act came into force in the State of Sikkim with effect from the previous year relevant to the assessment year commencing on the 1-4-1990, and prior thereto the Sikkim State Income Tax Manual, 1998, was the law applicable in the State of Sikkim and as such whatever liability arose for payment of income-tax in respect of the company, arose under the Sikkim State Manual and the company filed income-tax return under the said manual for the assessment year 1989-90, being the first year of its activities. In view of the special provisions of clause (k) and (n) of article 371-F of the Constitution. Central law could not be operative, since two laws, that is, the State law and the law in force outside the State of Sikkim could not operate on the same subject and at the time and if the matter was covered by the State law it was that law which would govern the issue till the law in force outside the State. of Sikkim was extended to Sikkim. Respondent No. 1 could have no reason to believe that income chargeable to tax under the Income Tax Act, 1961, had escaped assessment as the petitioner's-company was registered under the Registration of Companies Act, Sikkim, 1961, and was carrying on business in the State of Sikkim and was not carrying on business within the territorial jurisdiction of respondent No. 1. Although the petitioner-company was incorporated in 1986, it did not carry out any activities till 1989. As such, respondent No. 1 did not have jurisdiction over the petitioner.
(ii) The assessing officer must have reason to believe that income chargeable to tax had escaped assessment and that belief must be founded on relevant material and the material which is relied upon must have some live-link or rational nexus with the formation of the belief, but there are no such materials or objective facts which would enable a person properly instructed to come to a belief that petitioner had any income chargeable to tax under the Indian Income Tax Act, 1961 and the same escaped assessment.
(iii) The impugned notices under section 148 record that the petitioner's income amounting to rupees forty lakhs had escaped assessment for each of the years. The first accounts of the petitioner were drawn up only for the year ending 31-3-1989, and these accounts also disclose that the petitioner did not earn any income in that year. So the impugned notices are patently illegal. The sanction of respondent No.2 to the impugned notices had been given in a mechanical manner.
3. Respondent Nos. 1 to 3, in their counter-affidavit, have taken the preliminary objection, as to the territorial jurisdiction of this court to entertain the petition. It is not disputed that respondent Nos. 1 to 3 against whom reliefs are claimed have their offices at Delhi beyond the territorial jurisdiction of this court. It is averred in the counter-affidavit that no part of the cause of action arose within the territorial jurisdiction of this court inasmuch as the notices under section 148 were sent to the petitioner's authorised agent M/s. Rattan Gupta & Co. 4356/4, Ansari Road, Daryaganj, New Delhi, under registered cover but were refused, as the authorised agent stated that there was no company at the given address. Notices were sought to be served on M/s. Rattan Gupta & Co. since respondent Nos. 1 to 3 had the information in their possession that there was no office running from the address given by the company in the Memorandum and Articles of Association and no enquiry it was found that merely a signboard in the name of the company had been placed there and the letters addressed to the company were despatched by the person employed there to the Delhi address of M/s. Rattan Gupta & Co., Daryaganj, New Delhi. It is further stated that the fact that M/s. Gupta & Co. were authorised to receive such notices is evident from the letter dated 7-4-1994, though the notices were also sent to the Gangtok address and it is erroneous to say that the notices were only served at Gangtok. The petitioner-company did not respond to the notices under sections 148 and 142(1) of the Indian Income Tax Act and did not also produce the account books pursuant to those notices and the copies of the accounts were also not attached with the writ petition which would otherwise have shown that the petitioner had made heavy investments aggregating approximately Rs. 1,28,00,000 up to 31-3-1989, and it is within the jurisdiction of the Income Tax Authorities to examine the means of financing the investments and to ascertain whether the financing is from unproven sources. Further it is pleaded that income which accrues or arises in India or income which is deemed to have accrued or arisen in India is liable to tax under the Indian Income Tax Act, 1961, and respondent Nos. 1 to 3 have the jurisdiction to make inquiry and ascertain about escapement of income-tax, if any, and also that notices have been issued in respect of the income liable to tax in India. A plea is also taken to the effect that the court is not concerned with the ascertainment of facts but only with the existence of rational nexus between the reasons and the belief that income liable to tax has escaped assessment. The sufficiency of the reasons cannot and need not be gone into. Following reasons to believe escapement of income have been recorded :
'Kindly refer to the note of my predecessor and approval of Commissioner.
A search and seizure operation was carried out on 15-3-1990 in cases belonging to 'Dalmia Group' and Shri Rattan Gupta, C.A. of M/s Rattan Gupta & Co. Darya Ganj, Delhi was one of the persons covered with this group. In the course of search operation certain documents were seized from the above persons. Page 22 of the bunch of loose papers marked as Annexure 'A-45' reveals that M/s. Alankar Commercial (P) Ltd. had made an investment of Rs 1,22,22,500 till 31-3-1989.
Year-wise bifurcation is not available. The jurisdiction in this case was assigned to this circle vide order No. CIT.I/HQ/Centralisation/1993-94/522 dated 8-7-1993.
The company was incorporated on 23-6-1986. Thus, the first assessment year would be 1987-88. No return of income was filed by the company. In absence of exact bifurcation, it is estimated that the company had invested a sum of Rs. 40 lacs each in assessment years 1987-88, 1988-89, 1989-90.
No return of income showing the income earned through above investment was filed by the assessee for subsequent years. I therefore, have reasons to believe that income of Rs. 40 lacs each chargeable to tax has escaped assessment for assessment years 1987-88 to 1989-90.
If approved notice under section 148 may be issued.
Further, it is alleged that the petitioner has accepted that it did not carry out any activity for generation of income in the years under consideration and the sole source of its finances is the issue of bearer share capital, the verification of which can only be done from the petitioner, the onus to show that the money has come from the bearer shares is squarely on the petitioner and this coupled with the non-functional office of the petitioner, doubtful incorporation and a back account indicating simultaneous deposits and withdrawals has given rise to a reasonable belief of escapement of income liable to tax. Thus, according to these respondents, there was sufficient material for the formation of reasons to believe.
4. Following points arise for decision :
1. Whether this court has the territorial jurisdiction to entertain this petition ?
2 Whether the Assistant Commissioner of Delhi did not have the jurisdiction to issue a notice under section 148 of the Act to the petitioner-company simply because it is registered in Sikkim, in view of the provisions of article 371F of the Constitution ?
3. Whether respondent No. 1 had the reason to believe that any income chargeable to tax had escaped assessment ?
Point No. 1
5. To decide whether this court has the territorial jurisdiction to entertain this petition, the only question that falls for consideration is whether any part of the cause of action arose within the territorial jurisdiction of this court. 'Cause of action' has not been defined in any enactment but the meaning of it has been judicially considered in various decisions. 'Cause of action' means the whole bundle of material facts which are necessary for the petitioner to prove, if traversed, in order to support the right of the petitioner to the judgement of the court. If a limb of that bundle of facts is available, seen or discernible in one particular place which is the seat of the High Court, then such High Court has the jurisdiction to exercise all the powers conferred on it under article 226(2), not withstanding the fact that the authority against whom the ultimate rule has to be issued and whose act has created a cause of action as a whole or in part, is situated outside its territorial limits. An assessing officer does not have the jurisdiction to make an assessment under section 147 of the Income Tax Act, unless notice under section 148 has been validly issued to and served on the assessee. This leads to the question as to whether, in the instant case, notices under section 148 were served within the territorial jurisdiction of this court? The petitioner has alleged in para 9 of the petition that the notices were received at Gangtok by registered post on 7-4-1995. On the other hand, case of respondent Nos. 1 to 3 is that the notices were served on M/s Rattan Gupta & Co. Daryaganj, New Delhi who allegedly the authorised agent of the petitioner but who refused to receive the notices. In support of this submission, learned counsel for the petitioner referred to a copy of the letter dated 7-4-1994, addressed by Shri T. B. Thapa, Advocate on behalf of the petitioner-company to Shri Hemant Sarangi, Assistant Commissioner Central Circle-4, Mayur Bhawan, Connaught place, New Delhi, inter alia, stating that the notices under section 142(1) had been received by the petitioner-company from M/s. Rattan Gupta & Co. on 4-3-1994. Reference has been made to this letter to show that M/s. Rattan Gupta & Co., was authorised to receive notices on behalf of the petitioner-company. In order to show that such inference cannot be drawn from this letter, reference has been made by the learned counsel for the petitioner to letter dated 25-2-1994, sent earlier by M/s. Rattan Gupta & Co. to Shri Hemant Sarangi, Assistant Commissioner, New Delhi to the effect that M/s Rattan Gupta & Co. had received the notices under section 142(1) of the Income Tax Act, but M/s. Rattan Gupta & Co. was neither the principal officer nor the authorised representative of the petitioner-company nor was it in any other manner empowered to receive any notices on behalf of the petitioner-company nor to file return of income nor to make any compliance nor to give any information on its behalf. In this letter, reference was also made to the earlier letter dated 24-2-1993, and 19-4-1993, wherein the addressee had been informed that the aforesaid company had been registered in the State of Sikkim and the address of the registered office of the company had also been communicated vide letter 24-2-1993. In view of this letter, it is not possible to draw an inference from the letter dated 7-4-1994, that M/s Rattan Gupta & Co. was the principal officer of the petitioner-company or was its authorised agent competent to receive any notices on its behalf. There is no other document on record to prove that M/s Rattan Gupta & Co. was the principal officer or the authorised agent of the petitioner-company. So, it has to be held that the notices under section 148 of the Income Tax Act were served at Gangtok and the service of the notices on Rattan Gupta & Co. by refusal of registered posts did not amount to service of notices on the company. Under section 282(2)(b) of the Income Tax Act, notice is required to be served in the case of a company on its principal officer. Since notices under section 148 were served at Gangtok and since the assessing officer does not have the jurisdiction to make assessment under section 147 unless a notice under section 148 has been validly issued to and served on the assessee, we hold that a part of the cause of action arose within the territorial jurisdiction of this court and as such this court has the territorial jurisdiction to entertain the petition.
Point No. 2
6. Sikkim was a feudal State governed by a monarch and became a part of the Indian Union by the 36th Amendment to the Constitution, whereby article 371-F was introduced making special provisions with respect to that State. The Sikkim State Income Tax Manual was the law in force prior to the date of the merger of Sikkim with the rest of India and it continued to be in force even after the merger until it was to be amended or repealed by a competent legislature by virtue of clause (k) of article 371-F. Clause (n) of article 371-F provides that the President may, by public notification, extend with such restrictions or modifications as he thinks fit to the State of Sikkim any enactment which is in force in a State in India at the date of the notification. At the same time, any law which is in force in any other part of the country may be extended to Sikkim or may be enacted to be in force in Sikkim, as in any other part of the country, as per the general provisions of the Constitution which are applicable to the whole of India. The Income Tax Act, though was initially purported to be extended to the State of Sikkim by a Presidential notification issued under clause (n), was subsequently extended to Sikkim by section 26 of the Finance Act, 1989, with effect from the previous year relevant to the assessment year commencing from the 1-4-1990. Since the present case concerns the assessment years up to 1989-90, the extension of the Income Tax Act to Sikkim by virtue of section 26 of the Finance Act, 1989, is of no consequence. Learned counsel for the petitioner has submitted that since special provision was made under clause (k) of article 371-F providing that a State law would continue until it was repealed or modified by a competent legislature or other competent authority, that was the law applicable to the petitioner-company which was registered in Sikkim, even for the income that accrued or arose outside the State of Sikkim. We see absolutely no merit in this submission. Clause (K) of article 371-F does not have any relevance to the interpretation of the Income Tax Act, 1961. If income which accrued or was received outside Sikkim was liable to tax under the Indian Income Tax Act, it cannot be said that the same would not be liable to tax under that Act merely because of the provisions of clause (k) of article 371-F. There can be no doubt that Sikkim State Income Tax Manual, being a State law cannot have its operation beyond the limits of Sikkim. Therefore, that law cannot stultify the operation of the central law of income-tax with respect to a company registered in Sikkim concerning its income which accrued or was received outside Sikkim. Furthermore, law of income-tax is not a personal law which a person may carry with him wherever he goes or functions. Therefore, if the petitioner-company has carried on its business activities or has otherwise earned or received income outside the State of Sikkim but within India, the same would be liable to tax under the Indian Income Tax Act, 1961. We, therefore, hold that the jurisdiction of the Assistant Commissioner, Delhi to issue notices under section 148 of the Income Tax Act, 1961, is not ousted by article 371 -F of the Constitution.
Point No. 3
7. The High Court in exercise of its supervisory jurisdiction under article 226 of the Constitution is not concerned with the question whether any income of the petitioner liable to tax under the Indian Income Tax Act, 1961, had escaped tax but only with the question whether the assessing officer had reason to believe that an income chargeable to tax under that Act had escaped assessment. The Supreme Court held in Income Tax Officer & Ors. v. Madnani Engg. Works Ltd. : [1979]118ITR1(SC) that the existence of reason to believe on the part of the Income Tax Officer is a justifiable issue and it is for the court to be satisfied whether in fact the Income Tax Officer had reason to believe that income had escaped assessment. In Lalji Haridas v. R. H. Bhatt & Anr. : [1965]55ITR415(SC) , the Supreme Court said that the jurisdiction conferred on the High Court under article 226 of the Constitution is not intended to supersede the jurisdiction and authority of the Income Tax Offices to deal with the merits of all the contentions that the assessees may raise before them. Again, the Supreme Court held in S. Narayanappa & Ors. v. CIT : [1967]63ITR219(SC) that it is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings is open to challenge in a court of law. Whether the grounds are adequate or not is not a matter for the court to investigate. It was observed in State of U. P. v. Dharmendar Prasad Singh : [1989]1SCR176 that the judicial review under article 26 cannot be converted into an appeal. Judicial review is directed, not against the decision, but is confirmed to the examination of the decision-making process. CIT v. Pr. Pl. Palaniappa Chettiar : [1945]13ITR269(Mad) , Chhugamal Rajpal v. S. P. Chaliha & Ors. : [1971]79ITR603(SC) , Raunaq & Co. (P) Ltd. v. Income Tax Officer & Anr. : [1986]158ITR30(Delhi) and Smt. Kantamani Venkata Satyavathi v. Income Tax Officer : [1967]64ITR516(AP) referred on behalf of the petitioner do not lay down law any the different. We have already extracted the reasons to believe escapement of income to tax recorded by the assessing officer which show that as a result of search and seizure operations that were carried out on 15-3-1990, in the case of `Dalmia Group' and Shri Rattan Gupta, C. A. of M/s. Rattan Gupta & Co., Darya Ganj, Delhi certain documents were seized and one of those documents revealed that the petitioner-company had made an investment of Rs. 1,22,22,500 till 31-3-1989. From the documents seized at the time of the search, the assessing officer had entertained the belief that though the company was registered in Sikkim, its activities of profits were carried out from Delhi and income accrued and arose in Delhi and that the head and brain of the company was situated at Delhi. It was also found that no office was running at the registered office of the company at Gangtok. There was only a signboard of the company at that address and the office remained mostly locked. In our view, from the documents seized as a result of the search and seizure operations carried out on 15-3-1990, the assessing officer had reason to believe that the income shown in the notices under section 148 was chargeable to tax and had escaped assessment.
In the result, the petition is dismissed. The interim orders passed during the pendency of the petitioner stand vacated. In the circumstances, there shall be no order as to costs.