TMI Blog1960 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... management, we fail to see how the existence of such a partnership will determine residence of the family within the meaning of section 4A(b). Appeal dismissed. - - - - - Dated:- 21-4-1960 - Judge(s) : HIDAYATULLAH., KAPUR., S. K. DAS JUDGMENT S. K. DAS, J., delivered the judgment of S. K. DAS and KAPUR, JJ. HIDAYATULLAH, J., delivered a separate judgment. S. K. DAS, J.--- This is an appeal by special leave from the judgment and orders of the High Court of Bombay dated February 16, 1955, in a reference under section 66(1) of the Indian Income-tax Act, 1922, hereinafter called the Act. The reference was made in the following circumstances : The Hindu undivided family of one Gandalal carried on business in cloth in Wadhwan in Kathiawar, which at the relevant time was outside British India. The family consisted of Gandalal and his four sons, (i) Girdharlal, (2) Hansraj, (3) Nandlal and (4) Ramniklal. In 1944, Nandlal came to Bombay and started a cloth business in partnership with other persons, the partnership being known as Amulakh Amichand Co. Nandlal's share in the partnership was ten annas and that of his three partners, who belonged to the family of Amulak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the Hindu undivided family of Gandalal was resident in the taxable territories in the relevant years of account." The Tribunal held on the first question that Nandlal and later Girdharlal joined the Bombay firm and also the Banaras firm of Amulakh Amichand Co. as representing the Hindu undivided family of Gandalal and the money for starting the Bombay business came from the Hindu undivided family. Accordingly, the Tribunal held that Nandlal was properly assessed in the status of a Hindu undivided family. On the second question the Tribunal held in favour of the assessee and came to the following conclusion : " The business at Bombay and later on the business at Banaras cannot, in our opinion, be considered to be the affairs of the Hindu undivided family of Gandalal. These two businesses belonged to two separate entities, namely, the Bombay firm of Amulakh Amichand Co., and the Banaras firm of Amulakh Amichand Co. True, the Hindu undivided family would, in due course of time, receive a share of profit from these two firms, but all the same we do not think that it could be said that the firms of Bombay and Banaras constituted the affairs of the Hindu undivided family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay and Banaras was income in their hands of the Hindu undivided family. With that income we are not now concerned. We are concerned with the second question, namely, whether the Hindu undivided family of Gandalal was resident in the taxable territories in the relevant year so as to make the sum of Rs. 1,50,000 taxable under section 4(i)(b)(iii) of the Act on the basis of such residence. Clearly enough, if the Hindu undivided family of Gandalal was not resident in the taxable territories in the relevant year, the sum of Rs. 1,50,000 would not be taxable under section 4(1)(b)(iii) of the Act. We must, therefore, keep in mind the narrow scope of the question before us, which is whether the Hindu undivided family of Gandalal could be said to be resident in the taxable territories (i. e., British India) in the relevant year under the provisions of section 4A(b) of the Act, even though the family carried on its own cloth business wholly outside the taxable territories. It is necessary as well as convenient to read section 4A(b) at this stage : " 4A. For the purposes of this Act--- (b) a Hindu undivided family, firm or other association of persons is resident in the taxable terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership business at Bombay or Banaras the Hindu undivided family of Gandalal was not resident in the taxable territories in the relevant year. The point for decision, therefore, is does the existence of the said partnership establish the residence of the family ? This raises two questions before us: firstly, whether the firm of Amulakh Amichand Co. is one of the affairs of the Hindu undivided family of Gandalal because that is the only affair which has relation to the income sought to be taxed and on which the appellant relies for determining the residence of the family ; secondly, where the control and management of the said affair, looked at from the point of view of the Hindu undivided family, is situate. We think that in the context of the facts found in the case, these two questions are interlinked. The expressions control and management " under section 4A(b) signifies controlling and directive power, " the head and brain " as it is sometimes called. Furthermore, it is settled, we think, that the expression " control and management " means de facto control and management and not merely the right or power to control and manage (See B. R. Naik v. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the Hindu undivided family itself carried on the business as its own business. In that case the business would be an affair of the family, because the family would be in control and management of the business. At first sight it may appear paradoxical that the income from the two businesses at Bombay and Banaras in the hands of Nandlal and Girdharlal should be treated as income of the Hindu undivided family and at the same time it should be held that the two businesses were not the affairs of the Hindu undivided family within the meaning of section 4A(b) of the Act. There is really no paradox because the place of accrual of income of such family and the place of its residence need not necessarily be the same under the Act. Residence under section 4A(b) of a Hindu undivided family is determined by the seat of control and management of its affairs, and in the matter of partnership businesses in British India the Hindu undivided family as such had no connexion whatsoever with its control and management. If the seat of control is divided, the family may have more than one place of residence ; and unless it is wholly outside the taxable territories, the family will be taken to be res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the assessment year 1945-46 the Income-tax Officer treated the Hindu undivided family as resident in British India under section 4A(b) of the Indian Income-tax Act, and assessed the family after adding the sum of Rs. 1,50,000 to the income from the firm of Amulakh Amichand Co., Bombay. The appeal to the Appellate Assistant Commissioner failed. On further appeal, the Appellate Tribunal, Bombay, held that Nandlal was still a coparcener and not a separated member, because the partition which was set up by him was not meant to be acted upon. The Tribunal, however, held that the decision of the Income-tax Officer and the Appellate Assistant Commissioner that the Hindu undivided family was resident in British India in the relevant year was not sound. The Appellate Tribunal, therefore, ordered that the sum of Rs. 1,50,000 included under section 4(i)(b)(i ii) of the Income-tax Act could not be included and must be deleted. According to the Tribunal, the business at Bombay and later the business at Banaras could not be considered to be " the affairs of the Hindu undivided family of Gandalal ", so as to bring the matter within section 4A(b) of the Act. The Appellate Tribunal held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was, in the taxable territories, any other business. There is also no finding by the Tribunal that no part of the control and management was exercised in British India, though the High Court did find this to be so. We are concerned in this case with the application of section 4A(b), which deals with " residence " in the taxable territories of a Hindu undivided family, firm or other association of persons. Before the present amendment, the section read as follows : " 4A. For the purposes of this Act--- (b) a Hindu undivided family, firm or other association of persons is resident in British India unless the control and management of its affairs is situated wholly without British India. The words " British India " have now been replaced by the words taxable territories but the reasoning applicable to them is the same. The section was plain in so far as its intent and purpose was concerned. It made a Hindu undivided family resident in British India, unless the control and management of its affairs was situated wholly without British India. If the control and management was wholly or partly situated in British India, then the family was treated as a resident. The words " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax. In so far as the law of partnership is concerned, the coparcenary has no place in the partnership, and the coparcener partner is everything. But, viewed from the angle of Hindu law, the position is entirely different. In this connection, we have to bear in mind two principles of the law relating to a coparcenary, which are well-settled. The first is contained in a well-known passage in the judgment of Lord Westbury in Appovier v. Rama Subba Aiyan, which reads : " According to the true notion of an undivided family in Hindoo law, no individual member of that family, whilst it remains undivided, can predicate of the joint and undivided property, that he, that particular member, has a certain definite share ... The proceeds of undivided property must be brought, according to the theory of an undivided family, to the common chest or purse, and then dealt with according to the modes of enjoyment by the members of an undivided family." The second is equally well-known, and is found stated in the judgment of Turner, L. J., in Katama Natchiar v. Rajah of Shivagunga, in the following words : " There is community of interest and unity of possession between all the membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Chetty Sons v. Commissioner of Income-tax and Kaniram Hazarimull v. Commissioner of Income-tax and the numerous cases cited there. The affair, if any, which we have to find, is not to be found within the four corners of the partnership but outside it. The partnership was only the result of the business activity of the family and evidence of it. The affair we have to, find must be regulated by Hindu law and not by the law of partnership, because a partnership is regulated by the two laws considered the other way round. The section we have to interpret speaks of the affairs of the Hindu undivided family whatever shape it may take, and the enquiry is thus limited to what is the dictate of Hindu law. It is an error to think that one can ignore a palpable conclusion of that law, and go to find the answer from the law of partnership. Nor do I think that the decision of this court in Subbayya Chettiar's case laid down any contrary proposition. There, the karta who visited India for a short period dealt with some matters including the starting of certain businesses. The Hindu undivided family was all the time in Ceylon, and it was held that his actions could be described as " activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le territories. Where the control is without, a company can still be taxed if its income within the taxable territories in the year of account (omitting, capital gains) is greater than its income without the taxable territories, with the same omission. The first provision is necessary, because a company can have more than one residence, its residence being where it " keeps house and does business ". The test is reversed for a Hindu undivided family, which is non-resident only if the whole of its control and management is situate without the taxable territories. The residence of the members of the coparcenary is not a relevant factor, but if control and management is exercised by them within the taxable territory, the family as a whole is treated as resident. In Subbayya Chettiar's case, this court observed that " situated " implies functioning somewhat permanently, though the management and control may be exercised in more than one place. To prove that management and control is within the taxable territories, something more than a casual " activity " is needed. The same tests also apply to a firm and an association of persons. The words " control and management " have been fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of the family. Those partners who were also coparceners of the family arranged to start this business at Bombay and stayed on and managed it ; they started a fresh business at Banaras, admitted a stranger as partner at the new place and presumably supplied capital from the Bombay firm or from the family coffers. There is no claim at all that they supplied their own separate funds. All these actions were acts of control and management. They were not casual but permanent in character. Thus, the control and management of family affairs vis-a-vis the partnership was being done by them. The coparceners who Janus-like face two ways, cannot shelter behind the law of partnership, and claim that their action had no reference to the affairs " of the family, which was at their back. I am not equating the affairs of the partnership with the affairs of the family. But the entire business involved a family undertaking, and those affairs were being managed in British India. This control and management of the businesses was in fact, and for purposes of the law of income-tax, control and management of the " affairs " of the Hindu undivided family within British India, and the family must, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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