This is an application under Section 66, sub-section (2), of the Income-tax Act, 1922, praying that the Income-tax Tribunal be directed to state the case and to refer it to the High Court on the following questions of law arising out of the appellate order of the Tribunal dated 5th January, 1949 :-
'(i) Whether in the circumstances of the case the construction put on Section 4A(b) was justifiable and rightly made.
(ii) Whether there is any material on the record to warrant the finding that the ownership of the property under assessment and of the business as carried on in Pakistan rests on the same association of persons.
(iii) Whether the Indian State income has been rightly and justifiably assessed under Section 12(2) (c) of the Income-tax Act.
(iv) Whether the material evidence put before the department has been rightly assessed and scrutinized according to the rules of law.
(v) Whether in the circumstances of the case and in view of the material on the record the assessment made by the department is in accordance with law fair and proper.'
The facts of the case, briefly, are that Badshah Mohd., Sardar Mohd., Mohd. Shoeb and Ghulam Shoeb, the four brothers, carry on an extensive business in Dir State, where they also own considerable property. They export ghee, hides, skins, timber, etc., to Pakistan, where their goods are sold by commission agents on their behalf. They also hold permits to import salt in Dir and Chitral States. Apart from the above business they own immovable property in the shape of a house in Sabzi Mandi, Peshawar City. The Income-tax Officer, Peshawar, has assessed the total income of these four brother, which according to him comprises the income from the house property in British India, the business carried on in British India, and the business carried on without it. The Income-tax Officer held that the four brothers, whom he called an association of persons were resident in British India under Sections 4A (b) and 4B (c) of the Income-tax Act, and, therefore, they were liable to be assessed to income-tax in British India.
The assessees appealed against this order, and the appeal was dismissed by the Appellate Assistant Commissioner of Income-tax, Rawalpindi. The assessees filed a further appeal before the Income-tax Appellate Tribunal, Pakistan, Lahore, which was also dismissed on 5th January, 1949. The assessees then made an application under Section 66(1) of the Income-tax Act to the Income-tax Appellate Tribunal asking them to refer to the High Court the questions of law, which according to them had arisen out of the appellate orders of the Tribunal passed on 5th January, 1949. This application was dismissed on 13th July, 1949.
The assessee have now come up to this Court under Section 66(2) of the Income-tax Act.
A preliminary objection has been raised by the learned counsel appearing for the Income-tax Commissioner, N. W. F. P. and Punjab, that the assessees application is barred by time.
Under Section 66(2), if the Appellate Tribunal on an application made in that behalf by the assessee or the Commissioner as the case may be refuses to state the case to the High Court on the ground that no question of law arises, the assessee or the Commissioner may within six months from the date on which he is served with notice of refusal apply to the High Court that the Appellate Tribunal may be required to state the case and refer the case to it.
The period of six months under the above section commences from the date when the notice of refusal is served on the assessee. As to how the notices under the Income-tax Act are to be served reference is made to Section 63 of the Act, which provides that a notice under this Act may be served on the person therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure. Under sub-section (2) of the same section any notice which is meant for an association of persons has to be addressed to the principal officer of such association of persons.
In the case before me the Appellate Tribunal dismissed the application, as has already been observed, on 13th July, 1949. There is nothing on the record to show as to how was this order of refusal communicated to the assessee, and to whom was it addressed. There are, however, three affidavits of Sardar Mohd., one of the assessees, of one Faiz Mohd. Khan and of one Mohd. Akram Khan, a Moharrar in the Octroi Post in Dir State, placed on the record. These three affidavits disclose that a certain order from the Income-tax Appellate Tribunal was delivered to Mohd., one of the assessees, came to know that the Appellate Tribunal had passed some order on his application. He deputed Faiz Mohd. Khan to make inquiries as to what this order was, and to get a copy of it. They applied for the copy on 21st January, 1950, and received it on 24th January, 1950. It was then that the assessees came to know that their application under Section 66(1) of the Income-tax Act had been refused. The assessees claim that their application in this Court, which was instituted on 18th March, 1950, is within time from the date of their knowledge.
The learned counsel appearing for the Income-tax Commissioner, N. W. F. P. and Punjab, has conceded that the notice of refusal was sent to the assessee by post, but he has declined to produce before me any postal receipt, or the acknowledgement receipt, if there was any. If these two receipts had been produced this Court would have been in a position to know whether the notice of refusal was addressed to the principal officer of the association of persons as is laid down in Section 63(2) of the Income-tax Act, and was therefore delivered to the right person and the time on account of this reason started to run immediately as laid down in Section 66 of the Act.
The Income-tax Commissioner has also not cared to reply to the three affidavits, by a counter-affidavit, In the absence of the two receipts and the counter-affidavit of the Income-tax Commissioner, I am constrained to hold that the assessee came to know of the refusal of their application by the Income-tax Appellate Tribunal on 24th January, 1950, when they received the copy of the final order, and from that date their application in this court is within time.
The preliminary objection is consequently overruled. The only point which requires determination at this stage is, whether any question of law arises out of the order of the Appellate Tribunal, because it is only on a question of law that a reference can validly be made to the High Court. Although five questions of law have been referred to in the application by assessees, the learned counsel appearing for them has confined himself to only two questions of law raised in parts 1 and 2 of paragraph 5 of the application.
The Income-tax Officer, the Appellate Assistant Commissioner of Income-tax and the Appellate Income-tax Tribunal have all arrived at the conclusion that the association of persons, which consists of the four brothers, is resident in British India, which now means Pakistan under Sections 4(A) (b) and 4B (c) of the Income-tax Act. Section 4A(b) runs as follows :-
'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'.
Section 4 B(c) is to the following effect :-
'a company, firm or other association of persons is ordinarily resident in British India if it is resident in British India'.
The Appellate Assistant Commissioner, while confirming the decision of the Income-tax Officer, that the assessees were resident in Pakistan, held : 'They seem to have been coming to British India to supervise the construction of their properties which took place during the year of account, and also to supervise the sale of their goods. Sometimes they come with the goods themselves.' This paragraph has been quoted with approval by the Income-tax Appellate Tribunal, and it can safely be taken that these are the facts found by them. On these facts the question is whether it can be held that the association of persons in question in this case is resident in Pakistan.
The learned counsel for the Income-tax Commissioner has argued that it is not a question of law.
It is settled principle of law that the accuracy or otherwise of an inference from the given facts is always a question of law. In my view it is a question of law, whether on account of the facts that the assessees have been coming into Pakistan to supervise the construction of their properties and also to supervise the sale of their goods and sometimes bringing the goods with themselves, the assessees can be said to be residents of Pakistan within the meaning of Sections 4A(b) and 4B(c). I consequently require the Income-tax Appellate Tribunal to state the case and to refer it to the High Court on the following question of law :-
'Whether on the facts found and the circumstances of the case the finding of the Income-tax Appellate Tribunal that the petitioner, the association of persons, is resident in Pakistan is tenable in law ?'
It was next contended on behalf of the petitioner that it has been found by the Income-tax Officer and confirmed by the two Appellate Tribunals that the property in Peshwar was held by four brother, while the business was being carried on by the four brothers and their sons. They, therefore, together could not be called the same association of persons.
The Income-tax Appellate Tribunal, while rejecting the above contention, wrote in their order : 'This is hairsplitting argument and the loose expression in the Appellate Assistant Commissioners order is contrary to actual facts. Mr. Sardar Mohd. who was present at the hearing, admitted before us that his sons have no interest in the business. In our opinion on the facts found by the Income-tax authorities there can be no escape from the conclusion that the status of the association of persons had been correctly assigned to the appellant and the business profits rightly assessed in its hands.'
From the above paragraph one can see that the finding is that the property belongs to the four brothers and so does the business. It has not been found that the business is the property of the four brother and their sons. It is a matter of common knowledge that the words 'and sons' and sometimes 'and brothers' are merely ornamental additions to association of persons name and have little or no significance. In any case on the facts found, viz., that the sons have no interest in the business, I do not think any question of law arises in this case on account of that matter. I consequently reject the second contention of the learned counsel for the petitioner.
The petition is allowed to the extent mentioned above.
As the petition has only partially succeeded, I order the parties to bear their own costs.
STATEMENT OF CASE.
In compliance with the order of the Honourable Court of the Judicial Commissioner, N. W. F. P., we proceed to state the case under Section 66(2) of the Income-tax Act in respect of the charge years 1943-44 and 1944-45. As the facts concerning both the years are identical, a consolidated statement of the case has been drawn up.
2. In the relevant years the assessee, an association of persons, consisting of four brothers, Badshah Muhammad, Sardar Muhammad, Muhammad Shoeb and Ghulam Shoeb, carried on extensive business in the State of Dir (Indian State) where they also owned considerable agricultural lands. In the State they had taken on lease some forests for exploitation and they obtained a permit for the import of salt in the States of Dir and Chitral. It is common ground that in the relevant accounting years the assessees exported considerable quantities of ghee, hides, skins, timber etc., to British India (comprising, inter alia, the Provinces of Pakistan), where the goods were sold on their behalf by Arhatias. The assessed income for both the years comprises (1) bona fide annual value of house property owned by the association in Peshawar, (2) income arising or accruing in British India, (3) profits and gains of the Indian States brought into British India, and (4) income accruing in the Indian States not brought into British India. The last item has been included in the total income for rate purposes only. The assessee has been included in the total income for rate purposes only. The assessee has been treated by the Income-tax authorities as 'resident and ordinarily resident in British India' within the meaning of Sections 4A(b) and 4B(c) of the Income-tax Act as adapted for Pakistan. One of the objections raised before the Tribunal was that the assessee was a non-resident. This objection did not find favour with the Tribunal which came to the conclusion that the Income-tax authorities had rightly treated the assessee as 'resident' and 'ordinarily resident'. All other points having failed, the Tribunal dismissed the appeal and confirmed the assessments for both years.
3. Thereupon the assessee made an application under Section 66(1) requiring the Tribunal to refer certain alleged questions of law to the Honourable Court of the Judicial Commissioner. One of the questions sought to be referred was :
'Whether in the circumstances of the case the Tribunal has rightly construed Section 4A(b) and 4B(c) of the Income-tax Act.'
Dealing with this question the Tribunal observed as follows :-
'The assessee did not produce any accounts. In the facts and circumstances of the case the Tribunal came to the conclusion that a part of the control and management of the assessees affairs was situated in British India. The assessee has not raised the question that the finding of fact arrived at by the Tribunal is not based on any material or that the inference drawn by the Tribunal from proved or admitted facts is not warranted.......... As we have already pointed out, it was common ground that the matter was governed by Section 4A(b). No question of interpretation ever arose. All that was required to be found was whether the control and management of the affairs of the association were situate wholly without British India. On this part of the case the Tribunal arrived at the conclusion based on facts'.
4. The other questions raised were also found to be either questions of fact or not strictly arising out of the Tribunals orders. In the result the applications for reference for both the years were refused by the Tribunal.
5. Aggrieved by the Tribunals order of refusal, the assessee made an application to the Honourable Court of the Judicial Commissioner under Section 66(2) of the Act. His Lordship has come to the conclusion that it is a question of law whether on the facts found or proved in the case, the assessees can be said to be 'resident' of Pakistan (British India) within the meaning of Section 4A(b) and 4B(c). His Lordship has accordingly required the Tribunal to state the case and refer it to the High Court on the following question of law :-
'Whether on the facts found and the circumstances of the case the finding of the Income-tax Appellate Tribunal that the petitioner, the association of persons, is resident in Pakistan is tenable in law ?'
6. The members of the association reside permanently in the State of Dir. It is, however, an admitted fact that in the relevant accounting years they paid frequent visits to British India (now Pakistan) and during their stay they put up with their arhatias. They came to Peshawar to purchase lands and properties. Such house properties have been remodelled and substantial construction has been effected. It has been found as a fact that the assessees came to Peshawar in British India to supervise the construction of their properties and also to supervise the sale of their goods. Sometimes they came with the goods which were sold in British India. The assessees case that when they stayed with their arhatias, they did not transact any business with them was disbelieved. The Tribunal also pointed out that 'it is not without significance that the accounts were not produced'. On these facts the Tribunal came to the conclusion that the Income-tax authorities were justified in drawing the inference that a part of the control and management of the assessees affairs was situated in British India. Under Section 4A(b) the association will be taken to be a resident in British India unless the control and management of its affairs is situated wholly without British India. In the present case the assessees placed no materials to show that the entire control and management was situated in the Indian States. In Egyptian Hotels Ltd. v. Mitchell, Lord Summer pointed out that 'some actual participation in carrying on the trade is necessary, though it may not go beyond passive oversight and tacit control'. Even if such control of management is exercised partially in British India that would constitute residence in British India.
7. As required by the Honourable Court of the Judicial Commissioner, we submit the following question for its opinion under Section 66(2) :-
'Whether on the facts found and the circumstances of the case the finding of the Income-tax Appellate Tribunal that the petitioner, the association of persons, is resident in Pakistan (British India) is tenable in law ?'
Before we part with the case it may be pointed out that the notice of refusal under Section 66(1) was sent to the assessee by registered post as was rightly conceded by the learned counsel appearing for the Income-tax Commissioner. It was, however, unfortunate that he 'declined' to produce before the Honourable Court the postal receipt or the duly signed acknowledgement slip. In point of fact the registered envelope containing the notice was received by Muhammad Akram Jan, who singed the acknowledgment slip on behalf of 'Shoeb baradar' on the 6th August, 1949. Then, as far back as the 21st January, 1950, the assessees authorised representative wrote to the Registrar of the Tribunal as follows :-
'1. That two applications under Section 66(1), Nos. 8 and 9 of 1949-50, were refused by the honourable members of the Tribunal on 13th July, 1949.
2. That the copy of the order of refusal, dated 13th July, 1949, has been mislaid.
It is therefore prayed that a certified copy of the refusal order may kindly be granted at an early date.'
It was misrepresented by the assessees before the Honourable Judicial Commissioner that they came to know on 24th January, 1950, that their application under Section 66(1) had been refused. Be that as it may, since the application has already been admitted by the Honourable Court as having been presented within time, the matter need not be pursued further. The Department Representative, however, represents that the Commissioner of Income-tax feels aggrieved by the remark made in the order that he 'has also not cared to reply the three affidavits by a counter-affidavit'. It is alleged before us that neither the Commissioner nor his counsel was served with a copy of the affidavits. This may or may not be so, and it is too late now for us to bring this matter to the notice of the Honourable Court when the application under Section 66(2) has already been admitted and we have been ordered to state the case.
SHEIKH MOHD. SHAFI, J. - As per order of this Court dated 27th of January, 1951, the Income-tax Appellate Tribunal, Pakistan, Lahore, has referred the case to this Court on the following question of law :-
'Whether on the facts found and the circumstances of the case the finding of the Income-tax Appellate Tribunal that the petitioner, the association of persons, is resident in Pakistan is tenable in law.'
The facts of the case are given in detail in the order referred to above, and need not be repeated here.
It is agreed by both the counsel appearing before us that this Court is not competent to investigate matter of facts in reference under Section 66 (2) of the Pakistan Income-tax Act.
The findings of fact in this case arrived at by the Income-tax authorities are that Badshan Mohammad, Sardar Mohammad, Mohammad Shoeb and Ghulam Shoeb, the four brother, form the association of persons. They have an extensive business in Dir State. They export ghee, hides, skins, timber, etc. to Pakistan, where these commodities are sold through commission agents. They have also got a house in Sabzi Mandi, Peshawar City, which has recently been constructed under the supervision of the assessees. They have purchased a Serai in Peshawar worth Rs. 18,000 (Eighteen thousands). On these facts then what has to be determined in this case is whether the assessees can be said to be residents in Pakistan under Sections 4A(b) and 4B(c) of the Pakistan Income-tax Act. Under Section 4A(b) an association of persons is resident in Pakistan unless the control and management of its affairs is situated wholly without Pakistan. The use of the word 'Wholly' clearly signifies that if the control and management of a part of the affairs of a certain association of persons is situated in Pakistan, then that association of persons shall be presumed to be the resident in Pakistan. Now, so far as the association of persons in question is concerned, the finding of fact is that they export saleable commodities to Pakistan. This is clearly the control and management of a part of the affairs of the association of persons in Pakistan. Apart from that, they have a house as well as a Serai in the name of all the four brothers in Pakistan. There is no evidence on the record to show that the four brothers, or any one of them, do not at times reside in this house. The question must therefore be answered in the affirmative. Orders announced. Reference answered in the affirmative.