Case: The Commissioner Of Income-Tax,Bombay City, Bombay Vs. Nandlal Gandalal

be decided on that narrow issue for reasons, which will presently appear. Section 4A deals with residence of an individual at one end and of a corporation like the company at the other. It also deals with the residence of three entities, viz., Hindu undivided family, firm and association of persons in the remaining part. The tests for these three categories are different. Special tests have been provided for individuals, based on residence for a certain number of days. Two alternative tests have been provided for companies, the first being that the control and management of their affairs must be situated wholly within the taxable 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.25. 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 it control and management is exercised by them within the taxable territory, the family as a whole is treated as resident. In Subba Chettiars case, 1950-1 SCR 961 : (AIR 1951 SC 101 ) 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.26. The words control and management have been figuratively described as the head and brain. In the case of an individual, the test is not necessary, because his residence for a certain period is enough, it being clear that within the taxable territories he would necessarily bring his head and brain with him. The head and brain of a company is the Board of Directors, and if the Board of Directors exercises complete local control, then the company is also deemed to be resident. In the case of firms, association of persons and Hindu undivided family, the control and management can be exercised by one or more of the group. So long as this control and management (even partly) is found, and it must be so when some coparceners reside in British India and manage the affair, the family must be treated as resident.27. The necessity for the test is thus obvious. The Income-tax law anticipated that control and management of the affairs of Hindu undivided families, (firms and association of person) might easily be in two or more places, one or more coparceners being within the taxable territories and the other or others, without. To prevent the escape of tax and to get at the income of such families having multiple places of control and management, it was provided that the whole of the control and management must be without the taxable territories to avoid the implication of residence. Otherwise, different coparceners can manage different business in the taxable territories and the family cannot be regarded as resident if the karta lived outside, an anomaly which does not really arise. In the present case, can one say that the control and management was wholly without the taxable territories (then, British India)? If one goes by the cases set up by the assessee, one finds that the claim was that there was a partition in the family and that Nandlal came to Bombay as a separated member. This claim involves the admission that the affairs, such as they were, were not controlled from Wadhwan. Since, however, the case of partition pleaded by the assessee was not accepted, it might be held that the family at Wadhwan was, perhaps, also in control. But it is equally clear that a part of the control of the affairs of the family was done in British India by those coparceners, who became partners in the business and through whom and not directly from Wadhwan the partnership business at Bombay was run to the benefit 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 those 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 Januslike face two ways, cannot shelter behind the law of Partnership, and claim that t heir 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 business 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, therefore, be regarded as resident in the accounting year within British India.28. In my judgment, the decision of the Bombay High Court, with respect, was erroneous. The answer to the question ought to have been in the affirmative. I would ,therefore, dissolve the answer given by the Bombay High Court, and instead, would answer the question in the affirmative. I would also order that the respondent bear his own costs and pay those of the appellant here and throughout.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7. We must make it clear at the very outset that the first question raised before the Tribunal and decided by it against the assessee does not now fall for consideration. Whatever income Nandlal and Girdharlal received from the two businesses at Bombay 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, viz., 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 S. 4 (!) (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 S. 4 (1) (b) (iii) of the Act. We must, therefore, keep in mind the narrow scope of the acquisition 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 S. 4A (b) of the Act, even though the family carried on its own cloth business wholly outside the taxableagree with the High Court that the position would be different 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 business 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 S. 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 S. 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 business in British India the Hindu undivided family as such had no connection 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 resident in such territories for the purposes of the Act. But where as in this case in respect of the partnership business, the family as such has nothing to do with its control and management, we fail to see how the existence of such a partnership will determine residence of the family within the meaning of S. 4A (b).12. Therefore, we are of the opinion that the High Court correctly answered the question. The appeal fails and is dismissed with costs.