PETITIONER:
V.V.R.N.M. SUBBAYYA CHETTIAR
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, MADRAS.
DATE OF JUDGMENT:
21/12/1950
BENCH:
FAZAL ALI, SAIYID
BENCH:
FAZAL ALI, SAIYID
MUKHERJEA, B.K.
AIYAR, N. CHANDRASEKHARA
CITATION:
1951 AIR 101 1950 SCR 961
CITATOR INFO :
R 1958 SC 779 (6)
E&R 1960 SC1147 (9,11,16,18,22,24,25)
ACT:
Indian Income-tax Act (XI of 1922), s. 4A (b)–Hindu
undivided family–Residence–Tests–Occasional visits to
India and attending to family affairs there, effect
of–Burden of proof—-” Control and management “, “situated
“, “wholly” and “affairs “, meanings of.
HEADNOTE:
The words used in s. 4A (b) show: (i) that, normally a
Hindu undivided family will be taken to be resident, in the
taxable territories, but such a presumption will not apply
if the case can be brought under the second part of the
provision, (ii)the word “affairs” means affairs which are
relevant for the purpose of the Income-tax Act and which
have some relation to income, (iii) the question whether the
case falls within the exception depends on whether the seat
of the direction and control of the affairs of the family is
inside or outside British India, and (iv)the onus of proving
facts which would bring his case within the exception which
is provided by the latter part is on the assessee.
The expression “control and management” in s. 4A (b) of
the Income-tax Act signifies the controlling and directive
power, the “head and brain” as it is sometimes called;”
situated” implies the functioning of such power at a partic-
ular place with some degree of permanence; and “wholly”
seems to recognise the possibility of the seat of such power
being divided between two distinct and separate places and
that a Hindu undivided family may have more than one resi-
dence in the same way as a corporation may have.
The karta of a Hindu undivided family lived with his
wife and children and carried on business in Ceylon, which
had become their place of domicile. [He owned some immove-
able property and had a house and investments in British
India. In the year of account he visited British India and
stayed there for periods amounting in all to 101 days and
during his stay started two firms in British India, person-
ally attended to a litigation relating to the family lands,
and appeared before the Income-tax authorities in proceed-
ings relating to assessment of the income of the family:
Held, that these facts were not necessarily conclusive
to establish the existence of a centre of control and man-
agement of the affairs of the family in British India, but
they were by no means irrelevant to the matter in issue, and
inasmuch as the assessee had not discharged the onus which
lay upon him under the law by producing all the material
evidence which he was called upon to produce to show that
normally and as a matter of
962
course the affairs in India were also being controlled from
Colombo, the normal presumption under the first part of s.
4A (b) must be given effect to and the assessee must be
treated as a resident in British India during the year in
question. It was however open to the assessee to prove in
future years by proper evidence that the seat of eontrol and
management of the affairs of the family was wholly outside
British India.
De Beere v. Howe (5 Tax Cas. 198), Swedish Central Railway
Co. Ltd. v. Thompson (9 Tax Cas. 373) referred to.
JUDGMENT:
APPELLATE JURIDICTION: Civil Appeal No. XXXVIII of
1949.
Appeal from a Judgment of the High Court of Judicature
at Madras (Gentle C.J. and Patanjali Sastri J.) dated August
22, 1947, in a reference under section 66 (1) of the Indian
Income-tax Act made by the Income-tax Appellate Tribunal
(Re/. No. 25 of 1946).
K. Rajah Aiyar (K. Srinivasan, with him) for the appel-
lant.
M.C. Setalvad (G. N..Joshi, with him) for the respond-
ent.
1950. December 21. The Judgment of the Court was delivered
by
FAzL ALI J.–This is an appeal from a judgment of the
High Court of Judicature at Madras on a reference made to it
under section 66 (1) of the Indian Incometax Act by the
Income-tax Appellate Tribunal in connection with the assess-
ment of the appellant to income-tax for the year 1942-43.
The question of law referred to the High Court was as fol-
lows :–
“Whether in the circumstances of the case, the assessee
(a Hindu undivided family) is ‘resident’ in British India
under section 4A (b) of the Income-tax Act.”
The circumstances of the case may be briefly stated as
follows. The appellant is the karta of a joint Hindu family
and has been living in Ceylon with his wife, son and three
daughters, and they are stated to be domiciled in that
country. He carries on business in Colombo under the name
and style of the General Trading Corporation, and he owns a
house, some immoveable property and investments in British
India.
963
He has also shares in two firms situated at Vijayapuram and
Nagapatnam in British India. In the year of account, 1941-
42, which is the basis of the present assessment, the appel-
lant is said to have visited British India on seven occa-
sions and the total period of his stay in British India was
101 days. What he did during this period is summarized in
the judgment of one of the learned Judges of the High Court
in these words :–
“During such stays, he personally attended to a litiga-
tion relating to the family lands both in the trial Court
and in the Court of appeal. He was also attending the in-
come-tax proceedings relating to the assessment of the
family income, appearing before the income-tax authorities
at Karaikudi and Madras. On one of these occasions, he
obtained an extension of time for payment of the tax after
interviewing the authority concerned…… ”
The other facts relied upon by the income-tax authori-
ties were that he did not produce the file of correspondence
with the business in Colombo so as to help them in determin-
ing whether the management and control of.the business was
situated in Colombo and he had started two partnership
businesses in India on 25th February, 1942, and remained in
India for some time after the commencement of those busi-
nesses.
Upon the facts so stated, the Income-tax Officer and the
Assistant Commissioner of Income-tax held that the appellant
was a resident within the meaning of section 4A (b) of the
Income-tax Act, and was therefore liable to be assessed in
respect of his foreign income. The Income-tax Appellate
Tribunal however came to a different conclusion and held
that in the circumstances of the case it could not be held
that any act of management or control was exercised by the
appellant during his stay in British India and therefore he
was not liable to assessment in respect of his income out-
side British India. This view was not accepted by a Bench of
the Madras High Court consisting of the learned Chief Jus-
tice and Patanjali Sastri J. They held that the Tribunal had
misdirected itself in determining the
964
question of the” residence” of the appellant’s family and
that on the facts proved the control and management of the
affairs of the family cannot be held to have been wholly
situated outside British India, with the result that the
family must be deemed to be resident ,fin British India
within the meaning of section 4A (b) of the Income-tax Act.
In this appeal, the appellant has questioned the correctness
of the High Court’s decision :-
Section 4A (b) runs thus:–
“For the purposes of this Act—-
A Hindu undivided family, firm or other association of per-
sons is resident in British India unless the control and
management of its affairs is situated wholly without British
India.”
It will be noticed that section 4A deals with
“residence” in the taxable territories, of (a)individuals,
(b)a Hindu undivided family, firm or other association of
persons, and (c) a company. In each of these cases, certain
tests have been laid down, and the test with which we are
concerned is that laid down in section 4A (b). This provi-
sion appears to be based very largely on the rule which has
been applied in England to cases of corporations, in regard
to which the law was stated thus by Lord Loreburn in De
Beers Howe(1).
“A company cannot eat or sleep, but it can keep house
and do business. We ought, therefore, to see where it
really keeps house and does business…… The decision of
Chief Baron Kelly and Baron Huddleston in The Calcutta Jute
Mills v. Nicholson and The Cessna Sulphur Company v. Nichol-
son(2), now’ thirty years ago, involved the principle that a
company resides for purposes of income-tax where its real
business is carried on. Those decisions have been acted
upon ever since. I regard that as the true rule, and the
real business is carried on where the central management and
control actually abides.”
It is clear that what is said in section 4A (b) of the
Income-tax Act is what Lord Loreburn intended to
(1) 5 Tax Cas. 198. (2) (1876) 1 Ex. D. 428,
965
convey by the words “where the central management and con-
trol actually abides.”
The principles which are now well-established in’ Eng-
land and which will be found to have been very clearly
enunciated in Swedish Central Railway Company Limited v.
Thompson(1), which is one of the’ leading cases on the
subject, are :–
(1) that the conception of residence in the case of a
fictitious “person “, such as a company, is as artificial as
the company itself, and the locality of the residence can
only be determined by analogy, by asking where is the head
and seat and directing power of the affairs of the company.
What these words mean have been explained by Patanjali
Sastri J. with very great clarity in the following passage
where he deals with the meaning of section 4A (b) of the
Income-tax Act :–
“Control and management” signifies, in the present
context, the controlling and directive power, “the head and
brain’ as it is sometimes called, and “situated” implies the
functioning of such power at a particular place with some
degree of permanence, while “wholly” would seem to recognize
the possibility of the seat of such power being divided
between two distinct and separated places.”
As a general rule, the control and management of a
business remains in the hand of a person or a group of
persons, and the question to be asked is wherefrom the
person or group of persons controls or directs the business.
(2) Mere activity by the company in a place does not
create residence, with the result that a company
may be “residing” in one place and doing a great deal busi-
ness in another.
(3) The central management and control of a company may
be divided, and it may keep house and do business m more
than one place, and, if so, it may have more than one resi-
dence.
(4) In case of dual residence, it is necessary to show
that the company performs some of the vital organic
(1) 9 Tax Cas 373
966
functions incidental to its existence as such in both
the places, so that in fact there are two centres of ‘man-
agement-
It appears to us that these principles have to be kept
in view in properly construing section 4A(b) of the Act.
The words used in this provision clearly show firstly, that,
normally, a Hindu undivided family will be taken to be
resident in the taxable territories, but such a presumption
will not apply if the case can be brought under the second
part c,f the provision. Secondly, we take it that the word
“affairs” must mean affairs which are relevant for the
purpose of the Income-tax Act and which have some-relation
to income. Thirdly, in order to bring the case under the
exception, we have to ask whether the seat of the direction
and control of the affairs of the family is inside or out-
side British India. Lastly, the word “wholly” suggests
that a Hindu undivided family may have more than One “resi-
dence” in the same way as a corporation may have.
The question which now arises is what is the result of the
application of these principles to this case, and whether it
can be held that the central control and management of the
affairs of the assessee’s family has been shown to be divid-
ed in this case.
It seems to us that the mere fact that the assessee has
a house at Kanadukathan, where his mother lives, cannot
constitute that place the seat of control and management of
the affairs of the family. Nor are we inclined in the cir-
cumstances of the present case to attach much importance to
the fact that the assessee had to stay in British India for
101 days in a particular year. He was undoubtedly interest-
ed in the litigation with regard to his family property as
well as in the income-tax proceedings, and by merely coming
out to India to take part in them, he cannot be said to have
shifted the seat of management and control of the affairs of
his family, or to have started a second centre for such
control and management. The same remark must apply to the
starting of two partnership businesses, as mere” activity”
cannot be the test of residence.
967
It seems to us that the learned Judges of the High Court
have taken rather a narrow view of the meaning of section
4A(b), because they seem to have proceeded on the assumption
that merely because the assessee, attended to some of the
affairs of his family during his visit t.o British India in
the particular year, he brought to himself within the ambit
of the rule. On the other hand. it seems to us that the
more correct approach to the case was made by the Appellate
Assistant Commissioner of Income-tax in the following pas-
sage which occurs in his order dated the 24th February, 1944
:–
“During a major portion of the accounting period (year
ending 12th April, 1942) the appellant was controlling the
businesses in Burma and Saigon and there is no evidence that
such control was exercised only from Colombo. No corre-
spondence or other evidence was produced which would show
that any instructions were issued from Colombo as regards
the management of the affairs in British India especially as
it was an unauthorized clerk who was looking after such
affairs. The presumption therefore is that whenever he came
to British India the appellant was looking after these
affairs himself and exercising control by issuing instruc-
tions…………… It has been admitted that there are
affairs of the family in British India. Has it been defi-
nitely established in this case that the control and manage-
ment of such affairs has been only in Colombo ? I have to
hold it has not been established for the reasons already
stated by me.”
There can be no doubt that the onus of proving facts
which would bring his case within the exception, which is
provided by the latter part of section 4A(b), was on the
assessee. The appellant was called upon to adduce evidence
to show that the control and management of the affairs of
the family was situated wholly outside the taxable territo-
ries, but the correspondence to which the Assistant Commis-
sioner of Income-tax refers and other material evidence
which might have shown that normally and as a matter of
course the affairs in India were also being controlled from
Colombo were not produced. The position therefore is this.
On the one
968
hand, we have the fact that the head and karta of the asses-
see’s family who controls and manages its affairs permanent-
ly lives in Colombo and the family is domiciled in Ceylon.
On the other hand, we have certain acts done by the karta
himself in British India, which, though not conclusive by
themselves to establish the existence of more than one
centre of control for the ‘ affairs of the family, are by’
no means irrelevant to the matter in issue and therefore
cannot be completely ruled out of consideration in determin-
ing it. In these circumstances, and in the absence of the
material evidence to which reference has been made, the
finding of the Assistant Commissioner, that the onus of
proving such facts as would bring his case within the excep-
tion had not been discharged by the assessee and the normal
presumption must be given effect to, appears to us to be a
legitimate conclusion. In this view, the appeal must be
dismissed with costs, but we should like to observe that as
this case has to be decided mainly with reference to the
question of onus of proof, the decision in this appeal must
be confined to the year of assessment to which this case
relates, and it would be open to the appellant to show in
future years by proper evidence that the seat of control and
management of the affairs of the family is wholly outside
British India.
MUKHERJEA J.–I agree with my learned brother, Fazl Ali
J., both in his reasoning and in his conclusion.
CHANDRASEKHARA AIYAR J. I concur in the judgment of my
learned brother, Fazl Ali J.
Appeal dismissed.
Agent for the appellant: M.S.K. Sastri.
Agent for the respondent: P.A. Mehta.
969