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

2. The Hindu undivided family of one Gandalal carried on business in cloth in Wadhwan in Kathiwar, which at the relevant time was outside British India. The family consisted of Gandalal and his four sons, (1) Girdharlal, (2) Hansrai, (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 and Co. Nandlals share in the partnership was ten annas and that of his three partners, who belonged to the family of Amulakh Amichand, six annas. It was stated that the family of Amulakh Amichand which was a well known business family of Bombay, did not supply and capital to the partnership and Nandlal alone was the financing partner. On 13-4-1944, Nandlal received a sum of Rs. 50,000 from the Hindu undivided family of which he was a member, and a further sum of Rs. 50,000 on 27-4-1944. Two other sums aggregating Rs. 50,000 were also received from the Hindu undivided family on 8-6-1944 and 29-6-1944. The case of the assessee was that a sum of Rs. 1,00,000 was given to each son by the father and the sums of money received on June 8, 1944 and June 29, 1944, were a loan by the Hindu undivided family to Nandlal. Therefore, the case of the assessee was that Nandlal became the partner of the firm of Amulakh Amichand in his individual capacity.3. The case of the Department, however, was that the total sum of Rs. 1,50,000 sent to Nandlal by the Hindu undivided family was utilised as capital in the cloth business of the partnership known as Amulakh Amichand and Co. Subsequently, Girdharlal, another brother of Nandlal, came to Bombay and joined the firm. Out of the share of ten annas of Nandlal, Girdharlal was given a share of five annas. The partnership firm of Amulakh Amichand and Co., then started a cloth business at Banaras, and the partners of the firm at Banaras were the partners of the Bombay firm of Amulakh Amichand and Co., and an outsider from Banaras. A third brother of Nandlal also joined the Banaras firm, but he did not bring any capital.4. For the assessment year 1945-43 the Income-tax Officer held that the Hindu undivided family of Gandalal was resident in the taxable territories (namely, British India), and hence he included the sum of Rs. 1,50,000 in the income of the family under S. 4 (1) (b) (iii) of the Act as having been brought into or received in British India in the relevant year and made an assessment on that basis. The assessee appealed to the Appellate Assistant Commissioner Bombay, but without success. Then, there was an appeal to the Income-tax Appellate Tribunal, Bombay, Two questions were raised before theWhether Nandlal represented the Hindu undivided family of Gandalal of Wadhwan now in Saurashtra, in the firm Amulakh Amichand and Co., Bombay, and later on in the firms Amulakh Amichand and Co., Bombay and Banaras.2. Whether the Hindu undivided family of Gandalal was resident in the taxable territories in the relevant years ofTribunal held on the first question that Nandlal and later Girdharlal joined the Bombay firm and also the Banaras firm of Amulakh Amichand and 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 followingbusiness 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 and Co., and the Banaras firm of Amulakh Amichand and 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. The businesses in Bombay and Banaras, according to the Partnership Act, belonged to Nandlal and others. We are, therefore, of opinion that for assessment years 1945-46 .....the Hindu undivided family was not resident in the taxableactual relief which the Tribunal gave to the assessee was expressed in the followingthe assessment year 1945-46, the assessees status would be Hindu undivided family but no-resident. In so far as the assessed income is concerned the sum of Rs. 1,50,000 which was included under S. 4 (1) (b) (iii) has to be deleted. The rest of the income accrued to the Hindu undivided family in the taxable territories.At the instance of the Commissioner of Income-tax, Bombay, who is the appellant before us, the Tribunal stated as case and referred the following question of law to the High Court of Bombay for its decision under S. 66 (1) of the Act. The question was in thesethe Hindu undivided family of Gandalal represented by Nandlal in the firm of Amulakh Amichand and Co., of Bombay was resident in the taxable territories in the year of account relevant for the assessment yearanswer of the question depended on the true scope and effect of S. 4A (b) of the Act. The High Court held that the expression "the affairs of the Hindu undivided family" in S. 4A (b) did not have reference to the private or domestic affairs of the family, but referred to affairs concerned with income and taxation thereon. Itmight put the matter in this way that when a coparcener carries on business in partnership on behalf of the Hindu undivided family, the affair is of the coparcener and not of the family, but when the business is carried on by the family itself then it is the affair of the family and not of the coparceners.The result is that we must agree with the view taken by the Tribunal and we must answer the question submitted to us in the negative.After the decision of the High Court the appellant obtained special leave and has come to us in pursuance of special leave granted by this Court.

Reasoning: 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.