S.C.R. SUPREME COURT REPORTS 961

V. V. R. N. M. SUBBAYYA CHETTIAR

V.

COMMISSIONER OF INCOME.TAX, MADRAS.

[SAIYID FAZL Au, MUKHERJEA and

CHANDRASEKHARA AIYAR JJ.J

Indian Income-tax Act (XI of 1922), s. 4A (b)-Hindu undivided

family-Residence-Tests--Occasional visits

to India and attending

to family affairs there, effect

of-B,wden of proof-" Control and

management",'' situated", "wholly" and

11

affairs", meanings of.

The words used in s. 4A (b) show: (i) that, normally a Hindu

undivided family will be taken to be resident in the taxable terri­

torieE1, but such a. presumption will not apply if the case can be

brought under the second part of the provision, (ii) the word

11

affairs " means affairs which are .relevant for the purpose of the

Income-tax Act and which have some relation to income, (iii) the

question whether the case falls within the exception depends on

whether the seat of the direction and control of the affairs of the

family is inside or outside British India, and (iv) the onus of

proving facts which would bring his case within the exception

which

is provided by the latter p.rt is on the assessee.

The expression "control and management" ins. 4A (b) ol the

Income-tax Act signifies the controlling and directive power, the

"head and brain" as it is sometimes called;

11

situated" implies

the functioning of such power at a particular place with some

degree of permanence; and ''wholly" seems to recognise the

possibility ol the seat of such power being divided between two

distinct a.ad separate places and thn.t a Hindu undivided family

may have more than one residence

in the same way as a

corpora­

tion may have.

The karta of a Hindu undivided family lived with bis wife and

children and ca,rried on business in Ceylon, which bad become

their place of domicile. He owned some immoveable property

and bad a house. anil investments in British

India. In the year of

account be visited British India and stayed there for periods

amounting

in all to

101 days and during his stay started two firms

in British India, personally attended to a litigation relating to tbe

family lands, and appeared before the Income-tax 1rnthorities in

proceedings relating to assessment

of the. income of the family:

Held, that these facts were not necessarily conclusive to

establish tbe

existence of a centre of control and management of

the affairs of the family in British India, but they were by no

ineans irrelevant to the matter in issue, and inasmuch as the

assessee had not discharged the onus which lay upon him under

the law by producing all' the material evidence which be was

p&lled upon to produce to show that norms.11¥ and s.s a matter of

l l3

1960

Dec, 21.

962 SUPREME COURT REPORTS [ 1950]

1950 course the affairs in India were also being controlled from

Colombo,

the normal presumption under the

firot part of s. 4 A (b)

V. V. R. N. M. must be given effect to and the assessee must be treateil as a

SubQayya resident in British India during the year in question. It was

Gh~ttiar however open to the assessee to prove in future years by proper

v. evidence that the seat of control and managerr1ent of the affairs

Oommissiontir of of the fau1ily wa.s wholly out.side British InUia.

Income·ta•, De.Beere V· Howe 15 Tax Oas. 198), Swedish Central Railway

Madra•. Co. Ltd. v. Thompson (9.Tax Oas. 373) l'eferred to.

APPELLATE jURISDICTION: Civil Appeal No.

XXXVIII of 1949.

Appeal from a

Judgmept of the High

Court of Judi­

cature at Madras (Gentle C. J. and Patanjali Sastri J.)

dated August 22, 1947, in a reference under section

66

(1) of the Indian Income-tax Act made by the

Income.tax Appellate

Tribunal (Ref. No. 25 of 1946).

K. Rajah Aiyar (K. Srinivasan, with him) for the

appellant.

M. C. Setalvad (G. N. Joshi, with him) for the res.

pondent.

1950: December 21. The Judgment of the Court

was delivered by

Fa•! A!i J. FAZL ALI J. -This is an appeal from a judgment of

the

High

Court of Judicature at Madras on a reference

made to

it under section 66 (1) of the Indian

Income­

tax Act by the Income-tax Appellate Tribunal in

connection

with the assessment of the appellant to

income-tax for the year 1942-43. The question of law

referred to

the High

Court was as follows:-

" Whether in the circumstances of the case, the

assessee

(a Hindu undivided family) is 'resident' in

British India under section 4A (b) of the Income-tax Act."

The circumstances of the case may be briefly stated

as follows. The appellant is the karta of a joint Hindu

family and has been living in Ceylon with his wife,

son

and three daughters, and they are stated to be

domiciled in

that country. He carries on business in

Colombo under the name ano style of the General

Trading Corporation, and he owns a house, some im­

moveable property and investments in British India.

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2J

S.C.R. SUPREME COURT REPORTS 963

He has also shares in two firms situated at Vijaya-1950

puram and Nagapatnam in British India. In the year

of account, 1941-42, which is the basis of the present v.;;,::;Y:~ M.

assessment, the appellant is said to have visited Oh•ttiar

British India on seven occasions and the total period v.

of his stay in British India was 101 days. What he Commissioner of

did during this period is summarized in the judgment Incom•·tax,

of one of the ]earned Judges of the High Court in Madras.

these words : - Fazl Ali J.

" During such stays, he personally attended to a

litigation relating to the family lands both in the trial

Court and in the Court of appeal. He was also attending

the income tax proceedings relating to the assessment

of the family income, appearing before the income.

tax

authorities at Karaikudi and Madras.

On one of these

occasions, he obtained

an extension of time for

pay­

ment of the tax after interviewing the authority

concerned ....... "

The other facts relied upon by the income-tax

authorities

were that he did not produce the file of

correspondence with the business in

Colombo so as to

help them

in determining whether the management

and control of the business was situated in

Colombo

and he had started two partnership businesses in India

on 25th February, 1942,

and remained in India for some

time after the commencement

of those businesses.

Upon the facts so stated, the Income-tax Officer and

the Assistant Commissioner of Income-tax held that

the appellant was a resident within the meaning of

section

4A (b) of the Income-tax Act, and was therefore

liable to

be assessed in respect of his foreign income.

The Income-tax Appellate Tribunal however came to a

different conclusion

and held that in the circumstances

·

of the case it could not be held that any act of manage­

ment or control was exercised by the appellant during

his stay in British

India and therefore he was not

liable to assessment in respect

of his income outside

British India. This view was not accepted

by a Bench

of the Madras High

Court consisting of the learned

Chief Justice and Patanjali Sastri]. They held that

the Tribunal had misdirected itself in determining the

964 SUPREME COURT REPORTS [1950]

1950 question of the " residence" of the appellant's family

and that on the facts proved the control and manage-

v. ;~b~~Y~~ M. ment of the affairs of the family cannot be held to have

Ghettiar been wholly situated outside British India, with the

v. result that the family must be deemed to be resident

Commissioner of in British India within the meaning of section 4A (b)

Income-ta•, of the Income-tax Act. In this appeal, the appellant

Ma.dra" has questioned the correctness of the High Court's

Fa•I Ali J. decision :-

Section 4A (b) runs thus:­

"For the purposes of this Act-

A Hindu undivided family, firm or other association

of persons is resident in British India unless the control

and management of its affairs is situated wholly without

British India."

It will be noticed that section 4A deals with

" residence ", in the taxable territories, of (a) indi­

viduals, (b) a Hindu undivided family, firm or other

association

of persons, and (c) a company. In each of

these cases, certain tests have been laid down,

and the

test with which we are concerned is that laid down in

section 4A (b

). This provision appears to be based

very largely on the rule which

has been applied in

England to cases of corporations, in regard to which

the law was stated thus by Lord Loreburn in De Beers

v.

Howe(').

"A company cannot eat or sleep, but it can keep

house

and do business. We ought, therefore, to see

where

it really keeps house and does business ...... The

decision

of

Chief Baron Kelly and Baron Huddleston

in The Calcutta jute Mills v. Nicholson and The Cesena

Sulphur Company v. Nicholson('), now thirty years •

ago, involved the principle that a company resides for

purposes

of income-tax where its real business is carried· on. Those decisions have been acted upon ever

since. I regard

that as the true rule, and the real

business is carried on where the

central management

and control actually

abideS"."

It is clear that what is said in section 4A (b) of the

Income-tax Act is what Lord Loreburn intended to

(1) 5 Tax C••· 198. (2; (18761 1 Ex. D. 428,

S.C.R. SUPREME COURT REPORTS 965

convey by the words " where the central management !950

and control actually abides."

. h" ~~&~•

The principles w ich are now well-established in subbayya

England and which will be found to have been very Ohettiar

clearly enunciated in Swedish Central Railway Com- v.

pany Limited v. Thompson(

1

), which is one of the Commissioner of

1 d

· th b · t Income-tax

ea mg cases on e su 1ec , are:-Madra•.'

(1) that the conception of residence in the case of a

fictitious "person ", such as a company, is as artificial Farl Ali J.

as the company itself, and the locality of the residence

can only be determined by analogy,

by asking where

is

the head and seat and directing power of the affairs

of. the company. What these words mean have been

explained

by Patanjali

Sastri J. with very great clarity

in the following passage where he deals with the

meaning of section

4A (b) of the Income-tax Act:-

"Control and management " signifies, in the present

context, the controlling

and directive power,

"the head

and brain" as it is sometimes called, and "situated"

implies the functioning of such power at a particular

place with some degree of permanence, while "wholly"

would seem to recognize the possibility of the seat of

such power being divided between two distinct and

separated places."

As a general rule, the control and management of a

business remains in the hand

of a person or a group of

persons, and the question to be asked 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 com­

pany 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

Ill 9 T•x Oas. R73.

•

966 SUPREME COURT REPORTS [ 1950]

1950 functions incidental to its existence as such in both

the places, so

that in fact there are two centres of

V.~R.N M. t

Subbayya managemen .

Ghettiar It appears to us that these principles have to be

v. kept in view in properly construing section 4A(b) of

Gommi,,fon.r afthe Act. The words used in this provision clearly

Income.ta~. show firstly, that, normally, a Hindu undivided family

Madras. will be taken to be resident in the taxable territories,

Fa•t Ali J. but such a presumption will not apply if the case can

be

brought under the second part cf the provision.

Secondly,

we take

it that the word " affairs " 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 arises 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 assessee's 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 parti­

cular 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

arid management. The same remark

must apply to the starting of two partnership busines­

ses, as mere" activity " cannot be the test of residence.

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S.C.R. SUPREME COURT REPORTS 967

It seems to us that the learned Judges of the High 1950

Court have taken rather a narrow view of the meaning

of section 4A(b). because they seem to have proceeded v. v. R. N. M.

. Subbavya

on the assumption that merely because the assessee Chsttiar

attended to some of the affairs of his family during his v.

visit to British India in the part!cular year, he brought Oommissw•er of

himself within the ambit of the rule. On the other · focoms-tax,

hand, it seems to us that the more correct approach to Madras.

the case was made by the Appellate Assistant Com- Faz! Ali J.

missioner of Income-tax in the following passage which

occurs in his order dated the 24th February, 1944

:-" During a major portion of the accounting period

(year ending 12th April, 1942) the appellant was con­

trolling 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 an

un­

authorized 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 instruc-

tions

............... 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 ~tated by me."

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 section 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 pro­

duced. The position therefore is this. On the one

968 SUPREME COURT REPORTS [1950]

1950 hand, we have the fact that the head and karta of the

assessee's family who controls

and manages its affairs

v. v. R. N. M. permanently lives in

Colombo and the family is domi-.

Subbayya .

Oh•ttiar ciled in Cey Ion. On the other hand, we have cert am

v. acts done by the karta himself in British India, which,

Oommisaioner o[though not conclusive by themselves to establish the ·

In"me-ta>, existence of more than one centre of control for the

Madras. affairs of the family~ are by no means irrelevant to the

Faz! Ali J. 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 evi­

dence 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 tlie nor­

mal presumption

must be given effect to, appears to

us to be a legitimate conclusion.

In this view, the

appeal must be dismissed with costs, but we should

like to observe

that as this

case has to be decided mainly

with reference

to the question of onus of proof, the

decision in this appeal must be confined to the year of

assessment to which this case relates,

and it would be

open to the appellant to show in future years

by

proper evidence that the seat of control and

manage­

ment of the affairs of. the family is wholly outside

British India.

Mukherjea J. MuKHERJEA J.-1 agree with my learned brother,

:f:azl Ali J., both in his reasoning and in his conclu­

s10n.

d kh

CHANDRASEKHARA AIYAR J.-I concur in the 1'udg-

Chan rase ara f I .

Ai.yar

1

. ment o my earned brother, Faz! Ah J.

Appeal dismissed.

Agent for the appellant : M. S. K. Sastri.

Agent for the respondent: P.A. Mehta.

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