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PETITIONER: V.V.R.N.M. SUBBAYYA CHETTIAR

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MADRAS.

DATE OF JUDGMENT: 21/12/1950

BENCH: FAZAL ALI, SAIYID BENCH: FAZAL ALI, SAIYID MUKHERJEA, B.K. AIYAR, N. CHANDRASEKHARA

CITATION:  1951 AIR  101            1950 SCR  961  CITATOR INFO :  R          1958 SC 779  (6)  E&R        1960 SC1147  (9,11,16,18,22,24,25)

ACT:     Indian  Income-tax  Act (XI of 1922), s.  4A  (b)--Hindu undivided  family--Residence--Tests--Occasional  visits   to India   and  attending  to  family  affairs  there,   effect of--Burden of proof----" Control and management ", "situated ", "wholly" and "affairs ", meanings of.

HEADNOTE:    The  words used in s. 4A (b) show: (i) that, normally  a Hindu undivided family will be taken to be resident, in  the taxable  territories, but such a presumption will not  apply if  the  case can be brought under the second  part  of  the provision,  (ii)the word "affairs" means affairs  which  are relevant  for  the purpose of the Income-tax Act  and  which have some relation to income, (iii) the question whether the case falls within the exception depends on whether the  seat of the direction and control of the affairs of the family is inside or outside British India, and (iv)the onus of proving facts which would bring his case within the exception  which is provided by the latter part is on the assessee.    The expression "control and management" in s. 4A (b)  of the  Income-tax Act signifies the controlling and  directive power,  the  "head and brain" as it  is  sometimes  called;" situated" implies the functioning of such power at a partic- ular  place  with some degree of  permanence;  and  "wholly" seems to recognise the possibility of the seat of such power being  divided between two distinct and separate places  and that  a Hindu undivided family may have more than one  resi- dence in the same way as a corporation may have.     The  karta  of a Hindu undivided family lived  with  his wife  and children and carried on business in Ceylon,  which had become their place of domicile.  [He owned some  immove- able  property  and had a house and investments  in  British India.  In the year of account he visited British India  and stayed  there for periods amounting in all to 101  days  and during his stay started two firms in British India,  person- ally attended to a litigation relating to the family  lands, and  appeared before the Income-tax authorities in  proceed-

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ings relating to assessment of the income of the family:     Held,  that these facts were not necessarily  conclusive to  establish the existence of a centre of control and  man- agement  of the affairs of the family in British India,  but they were by no means irrelevant to the matter in issue, and inasmuch  as the assessee had not discharged the onus  which lay  upon  him under the law by producing all  the  material evidence  which he was called upon to produce to  show  that normally and as a matter of 962 course the affairs in India were  also being controlled from Colombo,  the normal presumption under the first part of  s. 4A  (b)   must be given effect to and the assessee  must  be treated  as a resident in British India during the  year  in question.   It was however open to the assessee to prove  in future years by proper evidence that the seat of eontrol and management  of the affairs of the family was wholly  outside British  India.  De Beere v. Howe (5 Tax Cas. 198), Swedish Central  Railway Co. Ltd. v. Thompson (9 Tax Cas. 373) referred to.

JUDGMENT: APPELLATE   JURIDICTION:  Civil  Appeal No. XXXVIII  of 1949.      Appeal from a Judgment of the High Court of  Judicature at Madras (Gentle C.J. and Patanjali Sastri J.) dated August 22, 1947, in a reference under section 66 (1) of the  Indian Income-tax  Act  made by the Income-tax  Appellate  Tribunal (Re/. No. 25 of 1946).      K. Rajah Aiyar (K. Srinivasan, with him) for the appel- lant.      M.C. Setalvad (G. N..Joshi, with him) for the  respond- ent. 1950. December 21.  The Judgment of the Court was  delivered by      FAzL  ALI J.--This is an appeal from a judgment of  the High Court of Judicature at Madras on a reference made to it under  section  66 (1) of the Indian Incometax  Act  by  the Income-tax Appellate Tribunal in connection with the assess- ment  of the appellant to income-tax for the  year  1942-43. The  question of law referred to the High Court was as  fol- lows :--      "Whether in the circumstances of the case, the assessee (a  Hindu undivided family) is ’resident’ in  British  India under section 4A (b) of the Income-tax Act."       The circumstances of the case may be briefly stated as follows. The appellant is the karta of a joint Hindu  family and  has been living in Ceylon with his wife, son and  three daughters,  and  they  are stated to be  domiciled  in  that country.  He carries on business in Colombo under  the  name and style of the General Trading Corporation, and he owns  a house,  some immoveable property and investments in  British India.     963 He has also shares in two firms situated at Vijayapuram  and Nagapatnam  in British India. In the year of account,  1941- 42, which is the basis of the present assessment, the appel- lant  is said to  have visited British India on seven  occa- sions and the total period of his stay in British India  was 101  days. What he did during this period is  summarized  in the judgment of one of the learned Judges of the High  Court in these words :--     "During such stays, he personally attended to a  litiga-

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tion  relating to the family lands both in the  trial  Court and  in the Court of appeal. He was also attending  the  in- come-tax  proceedings  relating  to the  assessment  of  the family  income, appearing before the income-tax  authorities at  Karaikudi  and Madras.  On one of  these  occasions,  he obtained  an extension of time for payment of the tax  after interviewing  the  authority concerned...... "     The other facts relied upon by  the  income-tax authori- ties were that he did not produce the file of correspondence with the business in Colombo so as to help them in determin- ing  whether the management and control of.the business  was situated  in  Colombo  and he had  started  two  partnership businesses in India on 25th February, 1942, and remained  in India  for some time after the commencement of  those  busi- nesses.     Upon the facts so stated, the Income-tax Officer and the Assistant Commissioner of Income-tax held that the appellant was  a resident within the meaning of section 4A (b) of  the Income-tax  Act, and was therefore liable to be assessed  in respect  of  his foreign income.  The  Income-tax  Appellate Tribunal  however  came to a different conclusion  and  held that  in the circumstances of the case it could not be  held that  any act of management or control was exercised by  the appellant during his stay in British India and therefore  he was  not liable to assessment in respect of his income  out- side British India. This view was not accepted by a Bench of the  Madras High Court consisting of the learned Chief  Jus- tice and Patanjali Sastri J. They held that the Tribunal had misdirected itself in determining the 964 question  of the" residence" of the appellant’s  family  and that  on the facts proved the control and management of  the affairs  of  the family cannot be held to have  been  wholly situated  outside  British India, with the result  that  the family  must  be deemed to be resident  ,fin  British  India within the meaning of section 4A (b) of the Income-tax  Act. In this appeal, the appellant has questioned the correctness of the High Court’s decision :-    Section 4A (b) runs thus:--   "For the purposes of this Act---- A Hindu undivided family, firm or other association of  per- sons  is  resident in British India unless the  control  and management of its affairs is situated wholly without British India."      It  will  be  noticed  that   section  4A  deals   with "residence"  in the taxable territories, of  (a)individuals, (b)a  Hindu undivided family, firm or other  association  of persons, and (c) a company.  In each of these cases, certain tests  have been laid down, and the test with which  we  are concerned is that laid down in section 4A (b).  This  provi- sion appears to be based very largely on the rule which  has been applied in England to cases of corporations, in  regard to  which  the law was stated thus by Lord  Loreburn  in  De Beers Howe(1).     "A  company cannot eat or sleep, but it can keep  house and  do  business.   We ought, therefore, to  see  where  it really keeps house and does business......  The decision  of Chief Baron Kelly and Baron Huddleston in The Calcutta  Jute Mills v. Nicholson and The Cessna Sulphur Company v. Nichol- son(2), now’ thirty years ago, involved the principle that a company  resides for purposes of income-tax where  its  real business   is  carried on. Those decisions have  been  acted upon  ever since.  I regard that as the true rule,  and  the real business is carried on where the central management and control actually abides."

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    It is clear that what is said in section 4A (b) of  the Income-tax Act is what Lord Loreburn intended to (1) 5 Tax Cas. 198.                (2) (1876) 1 Ex. D. 428, 965 convey  by the words "where the central management and  con- trol actually abides."     The  principles which are now well-established in’  Eng- land  and  which  will be found to have  been  very  clearly enunciated  in  Swedish Central Railway Company  Limited  v. Thompson(1),  which  is  one of the’ leading  cases  on  the subject, are :--     (1)  that the conception of residence in the case  of  a fictitious "person ", such as a company, is as artificial as the  company itself, and the locality of the  residence  can only  be determined by analogy, by asking where is the  head and seat and directing power of the affairs of the  company. What  these  words  mean have been  explained  by  Patanjali Sastri  J. with very great clarity in the following  passage where  he  deals with the meaning of section 4A (b)  of  the Income-tax Act :--     "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 degree of permanence, while "wholly" would seem to recognize the  possibility  of the seat of such  power  being  divided between two distinct and separated places."     As  a  general  rule, the control and  management  of  a business  remains  in  the hand of a person or  a  group  of persons,  and  the  question to be asked  is  wherefrom  the person or group of persons controls or directs the business.     (2)  Mere  activity by the company in a place  does  not create residence, with the result that a company may be "residing" in one place and doing a great deal  busi- ness in another.     (3) The central management and control of a company  may be  divided,  and it may keep house and do business  m  more than one place, and, if so, it may have more than one  resi- dence.     (4)  In case of dual residence, it is necessary to  show that the company performs some of the vital organic (1) 9 Tax Cas 373 966     functions  incidental to its existence as such  in  both the  places, so that in fact there are two centres of  ’man- agement-     It  appears to us that these principles have to be  kept in  view in properly construing section 4A(b) of   the  Act. The words used in this provision clearly show firstly, that, normally,  a  Hindu  undivided family will be  taken  to  be resident in the taxable territories, but such a  presumption will  not apply if the case can be brought under the  second part  c,f the provision. Secondly, we take it that the  word "affairs"  must  mean  affairs which are  relevant  for  the purpose  of the Income-tax Act and which have  some-relation to  income.  Thirdly, in order to bring the case  under  the exception, we have to ask whether the seat of the  direction and  control of the affairs of the family is inside or  out- side  British  India.  Lastly, the  word  "wholly"  suggests that a Hindu undivided family may have more than One  "resi- dence" in the same way as a corporation may have. The  question which now arises is what is the result of  the application of these principles to this case, and whether it can  be held that the central control and management of  the affairs of the assessee’s family has been shown to be divid-

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ed in this case.      It seems to us that the mere fact that the assessee has a  house  at Kanadukathan, where his  mother  lives,  cannot constitute that place the seat of control and management  of the  affairs of the family. Nor are we inclined in the  cir- cumstances of the present case to attach much importance  to the fact that the assessee had to stay in British India  for 101 days in a particular year.  He was undoubtedly interest- ed  in the litigation with regard to his family property  as well as in the income-tax proceedings, and by merely  coming out to India to take part in them, he cannot be said to have shifted the seat of management and control of the affairs of his  family,  or to have started a second  centre  for  such control  and management. The same remark must apply  to  the starting  of two partnership businesses, as mere"  activity" cannot be the test of residence.       967 It  seems  to us that the learned Judges of the  High  Court have  taken rather a narrow view of the meaning  of  section 4A(b), because they seem to have proceeded on the assumption that  merely because the assessee, attended to some  of  the affairs of his family during his  visit t.o British India in the particular year, he brought to himself within the  ambit of  the  rule.  On the other hand. it seems to us  that  the more correct approach to the case was made by the  Appellate Assistant  Commissioner of Income-tax in the following  pas- sage which occurs in his order dated the 24th February, 1944 :--     "During  a major portion of the accounting period  (year ending  12th April, 1942) the appellant was controlling  the businesses in Burma and Saigon and there is no evidence that such  control  was exercised only from Colombo.   No  corre- spondence  or other evidence was produced which  would  show that  any instructions were issued from Colombo  as  regards the management of the affairs in British India especially as it  was  an unauthorized clerk who was  looking  after  such affairs. The presumption therefore is that whenever he  came to  British  India  the appellant was  looking  after  these affairs  himself and exercising control by issuing  instruc- tions...............   It has been admitted that  there  are affairs  of the family in British India.  Has it been  defi- nitely established in this case that the control and manage- ment  of such affairs has been only in Colombo ? I  have  to hold  it  has not been established for the  reasons  already stated by me."     There  can  be no doubt that the onus of  proving  facts which  would bring his case within the exception,  which  is provided  by  the latter part of section 4A(b), was  on  the assessee.  The appellant was called upon to adduce  evidence to  show that the control and management of the  affairs  of the family was situated wholly outside the taxable  territo- ries, but the correspondence to which the Assistant  Commis- sioner  of  Income-tax refers and  other  material  evidence which  might  have shown that normally and as  a  matter  of course the affairs in India were also being controlled  from Colombo were not produced.  The position therefore is  this. On the one 968 hand, we have the fact that the head and karta of the asses- see’s family who controls and manages its affairs permanent- ly  lives in Colombo and the family is domiciled in  Ceylon. On  the other hand, we have certain  acts done by the  karta himself  in British India, which,  though not conclusive  by themselves  to  establish the  existence of  more  than  one centre  of control for the ’ affairs of the family, are  by’

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no  means  irrelevant to the matter in issue  and  therefore cannot be completely ruled out of consideration in determin- ing it.  In these circumstances, and in  the absence of  the material  evidence  to which reference has  been  made,  the finding  of  the Assistant Commissioner, that  the  onus  of proving such facts as would bring his case within the excep- tion had not been discharged by the assessee and the  normal presumption  must be given effect to, appears to us to be  a legitimate  conclusion.   In this view, the appeal  must  be dismissed with costs, but we should like to observe that  as this  case  has to be decided mainly with reference  to  the question of onus of proof, the decision in this appeal  must be  confined  to the year of assessment to which  this  case relates,  and it would be open to the appellant to  show  in future years by proper evidence that the seat of control and management  of the affairs of the family is  wholly  outside British India.      MUKHERJEA J.--I agree with my learned brother, Fazl Ali J., both in his reasoning and in his conclusion.      CHANDRASEKHARA AIYAR J.  I concur in the judgment of my learned brother, Fazl Ali J.                 Appeal dismissed. Agent  for  the  appellant:  M.S.K. Sastri. Agent for the respondent:  P.A. Mehta. 969