Case: Erin Estate, Galah, Ceylon Vs. Commissioner of Income Tax, Madras

2. The appellant is a registered firm owning a tea estate called The Erin Estate at Galah in Ceylon. The firm consists of seven partners all of whom are permanent residents of certain villages in Tiruchirapalli District. The total sum paid by the partners amounts to Rs. 25,00,000 and the same is divided into 147 shares. Out of these 147 shares, Andiappa Pillai owns 50 shares, Veerappa Pillai owns 43 shares, Nagalingam Pillai owns 18 shares and the remaining four partners own 9 shares each. The estate owned by the firm produces tea which is sold to the authorities under the regulations prevailing in Ceylon. Under Cl. (3) of the Partnership Deed. the superintendent Ponnambalam Pillai, who was himself ain the said estate previously, manages the estate and looks after its working from day to day. Ponnambalam Pillai permanently stays in Ceylon. He looks after the estate from day to day and it is by him that all sales are effected through commission agents by name Gordon and Company. The pass books for the bank account for the estate are kept in his name and he receives the income and makes the requisite disbursement from time to time.3. The assessment proceedings for the assessment years43 were started by the AdditionalOfficer, Tiruchirapalli Circle. The appellant submitted its returns before theOfficer and claimed that the firm was not resident in British India and so the income arising in Ceylon from the appellants estate was not assessable to tax in India. TheOfficer rejected the appellants contention and held that the appellant was a resident under the provisions of S. 4A(b) of the Act and so he proceeded to tax the entire income accruing to and arising from the appellants estate in Ceylon. The returns submitted by the appellant were accepted as substantially accurate and the appellant was assessed on its income from Ceylon with some minor adjustments considered necessary by theOfficer. The appellant filed appeals against the several assessment thus made before the Appellate Assistant Commissioner ofTiruchirapalli. These appeals, however, failed and were dismissed. The appellant then went in appeal before theAppellate Tribunal, Madras: the Tribunal dealt with the appeal forassessment in the first instance and allowed it. The Tribunal took the view that the evidence produced in the case showed that the control and management of the appellants affairs was situated wholly without the taxable territories and so it reversed the finding of theauthorities that the appellant was a firm resident in the taxable territories. For the other years in question the same order was passed by the Tribunal.4. Against these orders of the Tribunal reference application were filed by the Commissioner ofbut these applications were dismissed by the Tribunal under S. 66 (1) of the Act. Then the Commissioner took up the matter to the High Court of Madras under S. 66(2); the High Court directed the Tribunal to refer the question as to "whether the assessee firm was resident in British India within the meaning of S. 4A(b) of the Act". Accordingly a consolidated reference was made to the High Court and, on March 27, 1951, the High Court held that the appellant was a resident in British India and answered the question referred to it in the affirmative. Subsequently the appellant applied for and obtained a certificate from the High Court under S. 66A (2) that the present case is a fit one to appeal to the Supreme Court of India. That is how this appeal has come before us; and the only point which it raises for decision is whether the appellant is a firm resident in the taxable territories under S. 4A(b) of the Act.

Reasoning: Having regard to this evidence we are unable to accept the appellants argument that the control and management of the appellants affairs was situated wholly in Ceylon.In dealing with this question it would be relevant to bear in mind that the appellant would not succeed even if it is shown that a part of the control and management of the affairs of the company rested in India. The control and management must no doubt be shown to have been actually exercised; and the exercise of the control and management should not be illusory or merely notional. Once it is shown that control and management in the affairs of the firm was exercised by the partners residing in India, it would not be relevant to enquiry whether the control and management thus exercised amounted to a substantial part of the control and management of the affairs of the firm. The exercise of the control and management even in part in the taxable territories could be enough to fix the appellant with the character of a resident within S. 4A(b).We must accordingly hold that the High Court of Madras was justified in holding that the appellant is a firm resident in the taxable territories.9.Mr. Kolan then raised a further point which had not been urged before the High Court. He contended that the control and management mentioned in S. 4A (b) must be control and management valid and effective inS. 12 of the Partnership Act, it is only the majority of partners who could have given effective directions to the superintendent and since there is no evidence that the alleged control and management has been exercised by the majority of partners acting in concert it would not be possible to hold that any control and management of the firms affairs resided in India. We do not think there is any substance in this argument. Under S.12 (a), every partner has a right to take part in the conduct of the business and it is only where difference arises as to ordinary matters connected with the business of the firm that the same has to be decided by majority of partners under sub.s.(c) of the said section.It has not been suggested or shown that there was any difference between the partners in regard to the matters covered by the individual partners letters of instruction to the superintendent. Indeed the course of conduct evidenced by these letters shows that Andiappa Pillai who holds the maximum number of individual shares had purported to act for the partnership and usually gave instructions in regard to the conduct and management of the firms affairs. On the record we see no trace of any protest against or disagreement with this conduct of Andiappa Pillai. Besides, it was never suggested during the course of the enquiry before theOfficers that the directions given by Andiappa Pillai were not valid or effective and had not been agreed upon by the remaining partners. That is why we think this technical point raised by Mr. Kolah must fail.