1945 (2) TMI 23 - HC - Income Tax

Summary

Issues:
1. Whether the control and management of a joint Hindu family's business in a foreign country by the karta from British India falls within the scope of the second proviso to Section 4(1) of the Indian Income-tax Act.
2. Whether the mere presence of the karta in British India implies control over the family business in a foreign country.
3. Whether the receipt of copies of day-books by the karta in British India is sufficient evidence to establish control over the foreign business.

Analysis:
1. The judgment deals with the assessment of income tax for a joint Hindu family's money-lending business in the Federated Malay States. The Income-tax Officer contended that the business was controlled by the karta from British India, invoking the second proviso to Section 4(1) of the Income-tax Act. However, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal disagreed, emphasizing the need for evidence of actual control post the karta's return to British India.

2. The Commissioner argued that the mere presence of the karta in British India should imply control over the foreign business. However, the Tribunal rejected this notion, asserting that the physical presence alone does not establish control. The judgment clarifies that control must be actively exercised within British India for the proviso to apply, and the presence of the karta in itself is not sufficient to infer control over the foreign business.

3. The judgment further addresses the contention regarding the receipt of day-books by the karta in British India post his return from the Federated Malay States. The Commissioner suggested that this act should indicate control. However, the court dismissed this argument, emphasizing the need for concrete evidence of control being exercised. The court held that merely receiving day-books does not establish control, especially when the karta had left the management of the business to his eldest son.

In conclusion, the court ruled in favor of the assessee, highlighting that the presence of the karta in British India alone does not signify control over the family business in a foreign country. The judgment underscores the importance of actual evidence demonstrating control and management to invoke the provisions of the Income-tax Act.