Case: V.V.R.N.M. Subbayya Chettiar Vs. Commissioner Of Income-Tax, Madras

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 of business in another. (3) The central management and control of a company may be divided, and it may keep house and do business in more than one place , and, if so, it may have more than one residence. (4) In case of dual residence, it is necessary to show that the company performs some of the vital organic functions incidental to its existence as such in both the places, so that in fact there are two centres of management.9. It appears to us that these principles have to be kept in view in properly construing S. 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 of the provision. Secondly, we take it that the word "affair" 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 outside British India. Lastly, the word "wholly" suggests that a Hindu undivided family may have more than one "residence" in the same way as a corporation may have.10. The question which now arise 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 assessees family has been shown to be divided in this case.11. 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 circumstances 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 interested 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. It seems to us that the learner Judges of the High Court have taken rather a narrow view of the meaning of S. 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 to British India in the particular year, he brought himself within the ambit of the rule. On the other hand, it seems to as that the more correct approach to the case was made by the Appellate Assistant Commissioner of Income-tax in the following passage which occurs in his order dated 24/2/1944 :"During a major portion of the accounting period (year ending 12/4/1942) the appellant was controlling the businesses in Burma and Saigon and there is no evidence that such control was exercised only from Colombo. No correspondence 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 on 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 instructions... .. It has been admitted that there are affairs of the family in British India. Has it been definitely established in this case that the control and management of such affairs has been only in Colombo ? I have to hold it has not been established for the reasons already stated by me."12. 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 S. 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 territories, but the correspondence to which the Assistant Commissioner 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 hand, we have the foot that the head and karta of the assessees family who controls and manages its affairs permanently 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 no means irrelevant to the matter in issue and, therefore, cannot be completely ruled out of consideration in determining 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 exception had not been discharged by the assessee and the normal presumption must be given effect to, appears to us to be a legitimate conclusion.

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

Explanation:
0[ds]9. It appears to us that these principles have to be kept in view in properly construing S. 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 of the provision. Secondly, we take it that the word "affair" 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 outside British India. Lastly, the word "wholly" suggests that a Hindu undivided family may have more than one "residence" in the same way as a corporation may have.The question which now arise 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 assessees family has been shown to be divided 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 circumstances 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 interested 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. It seems to us that the learner Judges of the High Court have taken rather a narrow view of the meaning of S. 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 to British India in the particular year, he brought himself within the ambit of the rule.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 S. 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 territories, but the correspondence to which the Assistant Commissioner 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 hand, we have the foot that the head and karta of the assessees family who controls and manages its affairs permanently 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 no means irrelevant to the matter in issue and, therefore, cannot be completely ruled out of consideration in determining 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 exception had not been discharged by the assessee and the normal presumption must be given effect to, appears to us to be a legitimate conclusion.