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Bhimji R. Naik Versus Commissioner of Income-Tax, Bombay

1946 (3) TMI 21 - BOMBAY HIGH COURT

Income-Tax Reference No. 6 of 1944 - Dated:- 12-3-1946 - Sir Leonard Stone (CJ) And Kania, JJ. For the Assessee : Sir Jamshedji Kanga For the Commissioner : M. C. Setalvad JUDGMENT Sir Leonard Stone, CJ. This reference was before this Court on the 29th of September 1944 when we decided that upon the true construction of sub- section 4-A(b) of the Income-tax Act, which deals with the question of residence of a Hindu undivided family, firm or other association of persons, the control and managemen .....

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irs. Sub-section (b) of Section 4-A of the Income-tax Act provides:- "For the purposes of this Act- (b) A Hindu undivided family, firm or other associations of persons is resident in British India unless the control and management of its affairs is situated wholly without British India." Sub-section (c) deals with the case of a company and provides:- "A company is resident in British India in any year if the control and management of its affairs is situated wholly in British India .....

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trol and management is situated. Especially is this so, when, as in this case, the section refers to the control and management being situated wholly without British India. In one sense an American businessman, who pays a short visit to this country and while here by cablegram gives some instructions to his firm in America, could be said to make his firm resident in British India for income-tax purposes. But in my opinion the canons of construction do not demand the conclusion of any such extrem .....

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tered office and its directors hold their board meetings and its members their annual general meetings at a particular place. These are indications which must assist in any consideration of the situation of the control and management of a company, and free it from some of the difficulties which arise in the case of a firm. However in the case of a firm, the problem ought, in my opinion, to be approached from the same angle. If this is correct, the further facts found by the Tribunal present litt .....

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fairs of the said business and the control and management of the affairs of the said business are situated wholly without British India." Then there is another affidavit by two of the three South African partners and they say:- "We have never received any instructions from Sardar Rao Bahadur Bhimbhai R. Naik as to the purchases or sales or any matters of the firm and we have never referred to Sardar Bhimbhai R. Naik as to the management and conduct of any of the business affairs of the .....

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the firm. The total purchases of Messrs. Bhimji R. Naik for the year ended 31st March 1939 done through my firm amount to about ₹ 29,900." These affidavits remain unchallenged and no request was made or direction given to cross-examine the deponents upon them. Mr. Setalvad on behalf of the Commissioner has pointed out that by the effect of Section 106 of the Evidence Act when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Unchal .....

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nagement of the firm was therefore not situated wholly without British India. We are of the opinion that the assessee firm is a firm resident in British India." In my opinion not only is that conclusion contrary to the evidence, but there is no factual evidence at all to support it. Whether or not a man exercises control over a particular business may be a mixed question of law and fact, for example, suppose that the dormant partner has given a mandate to the bank to honour the cheques draw .....

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gement and it is the acts and not the powers with which we are concerned. In my opinion, therefore, the question referred to us should be answered in the negative. It follows that the Commissioner must pay the costs. Commissioner to pay the costs of this hearing and of the previous hearing on which the remand was made. KANIA, J.-I agree. When the matter was first argued before us, it appeared that the Tribunal had come to its conclusion against the assessee on the construction of the deed of par .....

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hree affidavits. The effect of those affidavits has been set out in the judgment of the learned Chief Justice. The contents of these affidavits were not challenged. It appears to be common ground also that after 1912 Rao Bahadur Naik never went to South Africa. If so, the only way in which the control or management could in fact be exercised by him would be either by letters, telegrams or telephones. The affidavits filed by two partners living in Africa and Rao Bahadur Naik negative the suggesti .....

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s, can be easily understood and no adverse inference could be drawn from that fact. The matter, however, does not leave room for much doubt. A summary of the correspondence made by the examiner of the Income-tax Department was produced before the Tribunal and it contained the following statement:- "After going through some of the letters it is seen that the assessee (Rao Bahadur Naik) has left the management and control of the business at Salisbury in the hands of the partners at Salisbury. .....

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onclusion about the control and management of the business. When the case was remanded, the Tribunal in different paragraphs considered the facts relevant to the question to be answered. The first was a letter from the bank in South Africa. That indicated that since 1912 Rao Bahadur Naik had not operated on the banking account at all. The Tribunal sought to use this as leading to the inference that the management still remained in Rao Bahadur Naik, because between 1912 and 1937 he was the sole o .....

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ey existed before. No inquiry was made as to how the account was operated upon after 1937. No explanation was asked and in my opinion there is no justification for holding that the same stated of affairs, in respect of the right to operate on the account, continued as before. In the second paragraph of the further statement of the case a summary of the correspondence leading to the conclusion, which I have quoted above, is made. In the third paragraph the Tribunal dealt with the question of sale .....

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words of instructions. In my opinion, that is not the correct interpretation of the note made by the examiner. As regards the affidavits of the two partners in South Africa, the Tribunal put a meaning on the words different from what they plainly bear. The Tribunal thought that when the partners used the words "control and management," they probably meant "sales and purchases." The affidavits show that the partners, apart from sales and purchases, have separately stated that .....

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