TMI Blog1962 (3) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... e two Indian wives, their nine children, the Malayan wife and her only son. Under the will, he had, however, appointed three executors and trustees to administer the properties belonging to him until they were divided and distributed to his heirs-in-laws; and they were (1) Amir Mohideen, (2) Mohamed Noorudeen and (3) Sheik Ahmed. Penang was under Japanese occupation at the time of Mohamed Rowthers death and for some time thereafter. The executors obtained probate of the will from the Japanese court on 12th December, 1944. After the British re-occupation sometime in 1945, this probate was confirmed by the British court. All the three executors, however, did not take up the management of the estate of the deceased, Mohamed Rowther. It was only Amir Mohideen who appears to have carried on the lighterage business in his capacity as executor till it was taken over by the power of attorney agent of the Indian heirs on 18th December, 1946. The news of the death of Mohamed Rowther was received by the Indian heirs only after the British re-occupation in 1945. On 3rd September, 1945, the Indian heirs remitted a sum of $ 15,000 through the Indian Overseas Bank Ltd., to the executors to enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57,099 1948 1949-50 1,440 46,360 47,800 2. The assessees, the Indian heirs, preferred appeals to the Appellate Assistant Commissioner against the said assessments and reiterated their contention that they did not form a unit of assessment, and that it would be inappropriate to call them an association of persons and that the control and management of the affairs of the estate of the deceased, Mohamed Rowther, were wholly outside India, that they should be deemed to be non-resident under section 4A of the Act, and that the orders of assessment made by the Income Tax Officer were illegal and improper. The Appellate Assistant Commissioner in a brief unsatisfactory order, dismissed the appeals. 3. Appeals to the Income Tax Appellate Tribunal were taken by the assessee. The Tribunal reached the conclusion that there was an association of persons which could be the unit of assessment of the facts and circumstances set forth above, but that the association of persons must consist only of the Indian heirs, excluding the Malayan heirs. The Tribunal excluded the rental inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted to the care of a manager by a court or if the properties vest in custodia legis by reason of the appointment of the receiver (see S . C. Mazumdar v. Commissioner of Income-tax ). But there is nothing impracticable or impossible for co-owners of for co-heirs to attract the characteristics of an association of persons under the Indian Income Tax Act if the facts and circumstances of the case so warrant. An association of persons is a unit of assessment under the Indian Income Tax Act. The precise meaning of the expression has come up for consideration on several occasions before the courts. The words association indicates plainly the voluntary combination for a common endeavour and not a mere legal status resulting from operation of law. Co-owners, co-heirs or co-legatees do not constitute such association in respect of the income of the joint or common asset by reason only of their jural relationship. But, if they unite themselves with the objective of earning income, they constitute an association of persons for assessment purposes and they cannot take advantage of their legal position to resist assessment on that basis. The essential criterion that attracts the label of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en them which was sufficient to constitute them an association of persons, the ultimate object of which was that profits should be earned on their behalf. 9. We have no doubt that, in the instant case, the executors, Amir Mohideen, who alone of the three executors got into the management of the business at Penang, functioned only as a result of the common consent of all the heirs, both Indian and Malayan. We are, of course, not now concerned with the Malayan heirs, as they have been excluded from the association of persons by the Tribunal. So far as the Indian heirs are concerned, there is ample evidence to show - and indeed, there is a clear finding of fact on this point by the Tribunal - that Amir Mohideen carried on the business on behalf of the Indian heirs with their concurrence and cooperation. The remittance of $ 15,000 is September, 1945, from India to Penang is significant and is explicable only on the ground that the heirs in India agreed to the business being carried on by one or other of the executors at Penang. In the statement of the case, which is an agreed statement between the department and the assessee, it is observed by the Tribunal as follows : The India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion whether the association is a resident or not is section 4A(b) which runs thus : For the purposes of this Act..... (b) a Hindu undivided family, firm or other association of person is resident in the taxable territories unless the control and management of its affairs is situated wholly without the taxable territories .... 13. In order to ascertain whether the control and management of the affairs of the association was inside or outside the taxable territories, regard must be had only the manner in which the Penang business was carried on and to the part played by the Indian heirs in respect of such management. The interpretation of the term control and management occurring in section 4A(b) is found in the decision of the Supreme court in V. V. N. M. Subbayya Chettiar v. Commissioner of Income Tax . Fazl Ali J., delivering the judgment of the court quotes with approval the following observation of Patanjali Sastri J., as he then was : 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are sought to be taxed.... It is not possible to lay down in precise or definite terms as to what activity would answer this description as everything depends upon the nature of the business and the degree of activity and the facts and circumstances of a particular case. It has been held that the mere receipt in India by the karta or a partner of copies of business books would not by itself amount to an exercise of control. ( Commissioner of Income Tax v. Palaniappa Chettiar ). The mere presence of the karta for some time in India has been held not to imply control of the foreign business during that period from India ( Commissioner of Income Tax v. Gangabishan Mohanlal ). These principles are not doubt fairly clear but their application is not always easy, as there are borderline cases in which it would be very difficult to appreciate to appreciate the precise nature of the so-called activity in India relating to a foreign business. But the onus is upon the assessee, who claims to be a non-resident, to prove that the entire control and management of the affairs of the association or Hindu undivided family or firm was wholly outside the taxable territories. 16. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no objection to my treating the estate as resident and ordinarily resident. In the assessment order of the Income Tax Officer relating to the year of assessment 1949-50 the following concession made on behalf of the assessee is recorded : During the accounting year therefore the (Dawood Ghani) remained in India from January 1, 1948, to November, 1948, for about 11 months. In the absence of materials to show that during this period he did not exercise any control or management of the foreign business or of the Indian affairs of the estate, the auditors expressed no objection to treating the estate as resident and ordinarily resident under section 4A(b) of the Act. 18. It is impossible for the assessee to contend at this stage that in respect of the accounting years, calendar years 1947 and 1948, they must be deemed to be non-resident. We are of opinion that the concession on behalf of the assessee was rightly and properly made on the materials on record and that it is too late in the day for them to contend that they are non-residents. It follows that for the years 1947 and 1948 (assessment years 1948-49 and 1949-50) the association of persons cannot be treated as a non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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