TMI Blog1981 (9) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... g the penalty levied under section 271(1)(c) for the assessment year 1958-59 ? " It is not in dispute that the question of penalty is completely dependent upon the answer to the reference on the assessment. If the answer is favourable to the assessee, then the penalty would have to be deleted. One Subbaraya Mudaliar was carrying on the business of purchase and sale of textile goods at Penang and Ipoh in the Federal Malay States under the name and style of Chitra Palayakat Co. as a sole proprietor till April 12, 1950. He converted this individual business into a partnership business by taking Kumaresa Mudaliar and Thayumanaswamy Mudaliar as partners under a deed dated October 20, 1950. Kumaresa was to be the general manager of the business at Penang, Ipoh and other places. On July 14, 1953, there was another partnership deed which provided that Subbaraya should attend to the management of the business as the managing partner. Clause 8 of the said deed authorised Subbaraya to appoint any person as his duly constituted attorney for exercising all or any of his rights and powers and discharging and carrying out the duties and obligations of the managing partner. Most of the purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired by the law. The assessee appealed to the Appellate Assistant Commissioner contesting the validity of the reopening of the assessment and also the findings on the question of control. The Appellate Assistant Commissioner, following the judgment of this court dated February 22, 1962, in T.C. No. 144 of 1959, in the case of this very assessee, held that the assessment of the assessee as a resident for those years was proper. He did not believe the assertion of Subbaraya, that he was here only for the purpose of his daughter's marriage and that he had not associated himself with the transactions of the assessee-firm or even of the Madras firm. The assessee filed an appeal to the Tribunal which, after elaborately considering the matter, held that Subbaraya had executed a power of attorney in favour of Palaniswamy on April 17, 1957, that the agent had been given plenary powers of management and control and that from the correspondence placed before it, it was satisfied that there was no control exercised from India. The Tribunal pointed out that the income-tax authorities had not considered the materials which had been placed before them. The Tribunal noticed also that Thayuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egated to the agent, it is the agent who functioned in Penang and controlled the business. Apart from the agent being there, another partner, Thayumanaswamy, went over from here and attended to the business for which he was paid remuneration. This also shows that the partners did not want to take any chance with the agent carrying on the business and they wanted to see that the agent exercised the powers only in a proper manner. Thus, between Thayumanaswamy and the agent, the entire management and control was being exercised and that too in Penang. It is also reasonable and probable that Subbaraya would not have thought it necessary to trouble himself over the affairs of the firm especially when he was here for the purpose of arranging for his daughter's marriage and performing it. Some reference was made to Subbaraya being concerned in the Madras business and being in a position to effect purchases for the assessee-firm as most of the sales of the Madras firm were only in favour of the assessee-firm. Here also there is no evidence to show that Subbaraya actually effected any purchase for or on behalf of the Madras firm. Even assuming that lie had done so, the work could have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if not better than, the one in the decided case so as to justify the conclusion that the management and control was vested actually with the agent, and that no part of the control was exercised by the principal. In Erin Estate v. CIT [1958] 34 ITR 1, the Supreme Court was concerned with the question of the determination of residence in the case of firm. It was pointed out that (p. 5) : "........ The control and management contemplated by the section evidently refers to the controlling and directing power. Often enough, this power has been described in judicial decisions as the 'head and brain' ; the affairs of the firm which are subject to the said control and management refer to the affairs which are relevant for the purpose of taxation and so they must have some relation to the income of the firm. When the section refers to the control and management being situated wholly without taxable territories, it implies that the control and management can be situated in more places than one. Where the control and management are situated wholly outside India, the initial presumption arising under the section is effectively rebutted. It is true that the control and management which mus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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