TAX CASES No.36 OF 1991 WITH TAX CASES NO. 37 OF 1991 Reference Under Section 256(1) of the Income Tax Act, 1961 in the Income Appellate Tribunal, Patna Bench Patna arising out of R.A. Nos. 12 and 13 of 1990. C.I.T.BIHAR ,PATNA & ORS.---------(Petitioner in both the cases) Versus INDER SINGH RAJENDRA SINGH-------(Respondents in both the cases) Counsel for the Appellant :- Mr. Harshwardhan Pd. Sr. Standing Counsel Mrs. Archana Sinha Jr. Standing Counsel Counsel for the Respondent :- None. P R E S E N T THE HON’BLE MR. JUSTICE CHANDRAMAULI KR. PRASAD THE HON'BLE MR. JUSTICE SHAILESH KUMAR SINHA ------ C.K. Prasad & Shailash Kumar Sinha,JJ:- In this reference following questions of law have been forwarded for our opinion. “1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal (sic erred) in granting exemption to the assessee firm in respect of income accruing in Ladakh U/s 10(36A) of the Act without recording a finding that the conditions of the proviso to Section 10(26-A) were also satisfied? 2. Whether, on the facts and in the circumstances of the case, on a true construction of section 10(10-A) of the Act the assessee firm is entitled to exemption of that income accruing to it in the district of Ladakh”? The assessee is a partnership firm having a contract business in Leh for supply of furniture and construction of road and 2 building for defence establishment. Leh falls in Ladakh. The assessee claimed that profits arising out of the said contract are exempted under Section 10 (26A) of Income Tax Act (hereinafter referred to as the Act). The assessing officer negatived this contention on the ground that the assessee was not a permanent resident of Ladakh. It took into account partnership deed, which showed that its head office is at Muzzaffarpur in the State of Bihar. According to the assessing officer as the assessee was controlling and managing its work from its head office at Muzaffarpur in the State of Bihar, it is not entitled for exemption. On an appeal by the assessee, the Deputy Commissioner of Income Tax (Appeal) agreed with the conclusion of the assessing officer and dismissed the appeal. The assessee thereafter filed second appeal before Patna Bench of the Income Tax Appellate Tribunal (hereinafter referred to as the tribunal). The tribunal granted the exemption claimed by the assessee on the ground that Sardar Indra Singh, managing partner of the firm while executing the contract, was controlling and managing the work living at Leh. According to the tribunal the fact of the assessee not being a permanent resident of Leh was immaterial for claim of exemption under Section 10(26A) of the Act. On these facts the tribunal had referred the aforesaid questions of law for our opinion. Mr. Harshwardhan Prasad, appearing on behalf of the Revenue, submits that exemption under Section 10(26A) of the Act shall be available in respect of income accruing in the district of Ladakh only in a case when the person claiming exemption is residing 3 in that district and also resident of the district in the previous year. He draws our attention to Section 6(4) and explanation 1 to Section 10(26A) and submits that assessee firm could be said to the resident in the district of Ladakh in every case except where during the relevant year the control and management of his affairs is situated wholly outside the district of Ladakh. According to him, from the contents of the partnership the head office of the assessee was located at Muzaffarpur and partners were also residents of places other than Ladakh and hence in the submission of Mr. Prasad it cannot be said that the control and management of the office affairs was wholly within the district of Ladakh. According to him the assessee firm had business at Jammu which meant that partners were moving from Leh to Jammu and Muzafarpur and also other places and by no stretch of imagination it can be concluded that the control and management of affairs of the assessee was wholly at Leh. Despite service of notice on the assessee, nobody has chosen to appear on its behalf. Submissions advanced necessitates examination of section 10(26A) as also Section 6 (2) of the Act. Section 10(26A) of the Act reads as follows :- “10”. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- x x x (26A). “any income accruing or arising to any person from any source in the district of Ladakh or outside India in any previous year relevant to any assessment year commencing before the 1st day of April (1989), where such person is resident in the said district in that previous year:. Provided that this clause shall not apply in 4 the case of any such person unless he was resident in that district in the previous year relevant to the assessment year commencing on the 1st day of April, 1962.” Explanation 1:- For the purposes of this clause, a person shall be deemed to be resident in the district of Ladakh if he fulfils the requirements of sub-section (1) or sub-section (2) or sub-section (3) or sub-section (4) of section 6, as the case may be, subject to the modification that – (i) reference in those sub-sections to India shall be construed as references to the said district; and (ii) in clause (i) of sub-section (3), reference to Indian company shall be construed as reference to a company formed and registered under any law for the time being in force in the State of Jammu and Kashmir and having its registered office in that district in that year.) Explanation 2:- In this clause, reference to the district of Ladakh shall be construed as reference to the areas comprised in the said district on the 30th day of June, 1979;) x x x From a plain reading of the aforesaid provision it is evident that in computing the total income any income accruing or arising to any person from any source in the district of Ladakh in any pervious year shall not be included. According to explanation -1 to Section 10(26A) of the Act, a person shall be deemed to be the resident in the district of Ladakh if he fulfils the requirement of Sub- Section 1 or 2 or 3 or 4 of Section 6. Further according to the explanation the reference in Section 6 (1), (2), (3) and (4) shall be constituted as reference to the district of Ladakh. Section 6(2) of the act which is relevant for the purpose reads as follows :- For the purpose of this Act :- (1) x x x 5 (2) “A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.” From the reading of section 6(2) of the Act, taking into account the explanation that India would mean the district of Ladakh, it is evident that for claiming exemption under Section 10 (26A) of the Act it is not necessary that the entire control and management of the business to be in the district of Ladakh. In our opinion the assessee shall be deemed to be resident of Ladakh even if part of its affairs is controlled and managed in any part of India. In our opinion the assessee shall be entitled to exemption of income accruing in the district of Ladakh to the extent of the business carried in Ladakh only and profits earned from business at any other place in the India would be taxable. In view of the discussion aforesaid our answers to both the questions are in the affirmative and in our opinion the tribunal rightly granted exemption to the assessee in respect of income accruing in Ladakh. Both the references are answered accordingly. Our opinion be transmitted to the Patna Bench of the Income Tax Tribunal. (Chandramauli Kr. Prasad, J) ( Shailesh Kumar Sinha,J.) Patna High Court Dated 3rd July 2008 Jagdish/NAFR 6