William Gentle, C.J.
1. This reference is made by the Income-tax Appellate Tribunal, at the instance of the Commissioner of Income-tax, Madras. The question raised is:
Whether in the circumstances of the case the assessee (a Hindu undivided family) is ' resident in British India under section 4-A ( b) of the Income-tax Act.
2. The.assessment was made upon the karta of a joint Hindu family in respect of its income as such. Since 1923 the karta has lived in Ceylon with his wife, son and three daughters ; it is stated they are domiciled in that country where, at one time, the karta carried on business in partnership with a stranger to the family ; in 1930 the partnership was dissolved and since that year a joint family business has been conducted in Colombo. The joint family owns immoveable property at Kanadukathan, Madras, including the ancestral family house ; that house is not let on lease but is occupied, in part at least, by the assessee's mother and where the karta stays when he visits British India. Other properties are leased at rentals which are collected by a clerk who is employed for the purpose of looking after the family properties. The karta of the family is assessed in British India in respect of its British Indian income. During the assessment years, 1940-41 and 1941-42, in addition to income derived from the family properties and the annual value of the ancestral house, the profits of the Ceylon business were included in the assessments on the ground that the joint family was resident in British India. The karta was successful in an appeal to the Income-tax Appellate Tribunal against the family being deemed to be resident. Nevertheless, in the assessment for the following year, 1942-43, in respect of the year of account 1941-42, the Income-tax Officer treated the family as resident in British India ; the karta was again successful in an appeal to the Tribunal, which held the family was not resident. This reference arises out of that finding.
3. At the hearing before the Tribunal some extracts from the kartays diary, dealing with his visits in British India during the relevant period, were admitted in evidence. The Tribunal accepted those extracts as correctly recording the date of each visit, the length of time spent in British India and what was done by him on those occasions. But the Tribunal came to the conclusion that the diary entries, as well as other factors and matters upon which the Commissioner of Income-tax relied, did not establish that the family was resident in British India during year of account. The Commissioner challenges the correctness of the Tribunal's decision and contends that, accepting the entries in this diary as proved facts, the inferences drawn from them by the Tribunal were wrong and that they establish that the family was resident within the meaning of section 4-A (b) of the Indian Income-tax Act. In this reference the Commissioner relies solely upon the entries in the diary, coupled with the ownership of their immoveable properties and matters connected therewith; he does not rely upon the other matters which were urged before the Tribunal to which reference was not made in argument and which can be ignored.
4. Section 4-A (b) was included in the Act by the Amending Act of 1939; it provides that :
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.
'Firm' and 'other association of individuals ' are included with ' Hindu undivided family' in the section; may be this was because each is comprised of individuals but it would seem that a firm is more analogous to a company, of which residence in British India is governed by clause (c) of section 4-A. Whilst a firm and a joint family have several common attributes when the latter owns a family business, but many, if not the greater number of Hindu joint families possess only property, moveable or immoveable or both, and have no business. However, since a firm and a joint family are both included in the same' section, when the same condition arise, each must be similarly dealt with.
5. Reference was made to several decisions of the English Courts. They mainly appertain to the meaning and effect of English statutes. There is no provision in an English Act which exactly corresponds to section 4-A (b) ; when the construction of an Indian Statute is sought, help is seldom obtained from decisions in England upon statutes which are worded differently, Some decisions of this Court were also cited which were given before the new section was incorporated in the Income-tax Act, and, in my view, for the present consideration, they are not of any assistance and reference to them is not required.
6. Three decisions in regard to Section 4-A(b) were cited. The Commissioner of Income-tax, Madras v. The Shanmugam Rubber Estates, Kualalampur : (1945)2MLJ93 related to a firm in Malacca, and the relevant facts in that case were : The partnership deed provided that 2 out of 6 partners should have control of the business in rotation; one of the controlling partners lived in British India ; a letter sent to him during the previous year, sought his instructions upon some affairs of the business in Malacca. It was held that the proper inference to draw from those facts was that part of the control was within British India and, consequently, the firm resided within the territory; at page 163 of the report, Sir Lionel Leach, C.J., observed that
If the control and the management of its affairs is partly within British India, the family, firm or association of persons, as the case may be, is deemed to be resident in British India for the purposes of the Act.
7. The Commissioner of Income-tax, Madras v. Gangabishan Mokanlal : (1945)1MLJ61 concerned a joint Hindu family living at Secunderabad which owned a business at Guntur in British India ; the karta stayed in Guntur for two nights ; it was held that, in the absence of any evidence of the exercise of control or management by the Karta during his visit, there was nothing to show that the control or management of the business was not wholly outside British India. In Bhimji R. Naik v. Commissioner of Income-tax, Bombay : 14ITR334(Bom) , a partner of a firm in South Africa lived in Bombay ; under the partnership deed, he had the right of control in the firm, but he never exercised that right; it was held that the firm was not resident in British India.
8. In each of those cases, the karta or the partner, as the case may be, had the right of control and management. In the Shunmugam Rubber Estate case : (1945)2MLJ93 , the partner exercised the right in British India whereby the firm was deemed to be resident in the country ; but in Gangabishan's case : (1945)1MLJ61 and Bhimji R. Naik : 14ITR334(Bom) , while the karta and the partner respectively had the right of control and management, it was not exercised within British India and the family and the firm were not deemed to-be resident.
9. As previously stated, the family owns property at Kanadukathan in British India. The karta was a defendant in a suit relating to the title to the property, which was decreed. The karta preferred an appeal (called the 'Palayanad appeal ') against the decree. The assessment of income-tax in the years 1940-41 and 1941-42 related to the income from that property, and, also, included the income from the Colombo business on the ground that the family was resident in British. India. The karta successfully appealed against the family being treated as resident but, although the appeal was successful whereby tax upon the Ceylon business was excluded, some amount of tax remained to be paid in respect of the immoveable property in British India. These facts existed during the year of account, 1941-42, in respect of which the assessment for the year, 1942-43, was made.
10. Bearing in mind the facts which are recited in the immediate preceding paragraph, it is now convenient to give the entries in the karta's diary. They record the following:
Between 7th April, 1941 and 29th March, 1942, the karta visited British India on seven occasions, spending an aggregate of 101 days in the country ; two of those occasions were occupied solely in travelling through British India on journeys from Ceylon to Burma and returning to Ceylon ; during three visits he attended to matters relating to the Palayanad appeal, including a consultation with counsel; one entry in the diary states that the main purpose of the visit was to attend to that appeal and to the income-tax appeal; another entry states that on one visit, he ' left for Madras for filing the Palayanad appeal'; on four occasions, the karta attended to matters connected with the income-tax appeal (two of such occasions being the same as when the Palayanad appeal was dealt with); he interviewed the Inspecting Assistant Commissioner of Income-tax regarding payment of tax (during one of the visits when he dealt with the income-tax appeal).
11. By Section 4-A(b) a joint family is ' resident ' unless the control and management of its affairs is situated wholly outside the territory. The Colombo business is an ' affair ' of the family but it is not suggested that its control and management was not wholly outside British India. But the property at Kanadukathan, undoubtedly, is also one of the affairs of the family; the family's assessment to income-tax, which relates to the above property, and payment of tax due is another such affair. The suit, including the appeal by the karta, in regard to the family property, is an affair of the family, or, at any rate, a matter connected with the affairs of its property. The karta himself preferred the appeal by virtue of his position. The main object of one of the kartas visits, as the diary records, was to attend to the Palayanad appeal. On that, as well as on two other visits, he did so and, also, at the same and other times, he attended to the income-tax appeal and interviewed the Assistant Commissioner regarding the payment of income-tax due from the family. The karta had the right of control and management of the affairs of the family, and that right was vested in him during the times of his several visits. While he was within British India, he did the several acts and things above mentioned. They are affairs of the family or relate to those affairs. The karta's acts and the things which he did were done in the exercise of his rights and were acts of control and management of the family affairs, and, also, they related to the property of the family which is situated in British India. They were acts of control and management in British India of the family's affairs. In those circumstances, the control and management of the family's affairs were not wholly situate outside British India, and, in consequence, the family must be deemed under Section 4-A(b) to have resided in British India during the period covered by the assessment year, 1942-43.
12. In my opinion, and for the reasons given, the question referred should be answered in the affirmative. The Commissioner of Income-tax is entitled to his costs, Rs. 250.
Patanjali Sastri, J.
13. I agree that the question referred should be answered in the affirmative, but in view of the importance of the question raised, I wish to add a few observations.
14. The criterion of 'residence' as applied to a Hindu undivided family, firm or other association of persons for purposes of income-tax is laid down in Section 4-A(b) of the Indian Income-tax Act, 1922, as amended by Act VII of 1939. It reads thus:
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;
The question is whether the control and management of the affairs of the respondent Hindu undivided family was situated wholly outside British India in the year of account as found by the Income-tax Appellate Tribunal. At one stage of his argument, the learned Advocate-General appearing for the respondent assessee insisted that the question was one of fact and that the finding of the Tribunal was conclusive. I cannot assent to that view. Nor, evidently, did the Tribunal which referred the question under Section 66(1) think that its finding was not open to review, or they would not have made the reference. Whether the requirements of the test propounded in Section 4-A(b) have been kept in view and whether proper inferences from the proved facts have been drawn as to the control and management of the affairs of the respondent family being situated wholly without British India are matters of law.
15. For determining the residence for income-tax purposes of a limited company which can have no residence in the ordinary sense of the term the Courts in England have evolved the test of the seat of control and management of its business.
A company resides, for the purpose of income-tax, where its real business is carried on, and the real business is carried on where the central management and control actually abides.' De Beers Consolidated Mines v. Howe (1906) A.C. 455.
16. The same test was also applied by statute to partnerships carrying on trade or business (Finance Act, 1914, Section 10 ; Rule 12 of the Rules applicable to cases I and III of Schedule D, Income-tax Act, 1918). Later, it was held that '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 so may have more than one residence.' Swedish Central Railway Co. v. Thompson (1925) A.C. 495.
17. As residence was not defined in the Indian Income-tax Act, 1922, the Courts in this country also followed the above principles in determining the residence in the case of companies and firms for purposes of Section 4(2) of that Act. See The Commissioner of Income-tax, Madras v. T. S. Firm : (1927)53MLJ249 But the test was not applied to a Hindu undivided family which may or may not be a trading family and it was held to reside wherever its members lived. The Commissioner of Income-tax, Madras v. Somasundaram Chettiar : AIR1932Mad435 The amending Act of 1939, however, introduced elaborate definitions of ' residence ' and ' ordinary residence ' as applied to individuals, Hindu undivided families, firms, companies or other associations of persons (Sections 4-A and 4-B), making the seat of control and management the criterion of residence. It is, however, noticeable that, notwithstanding the dissimilarity pointed out in The Commissioner of Income-tax, Madras v. Somasundaram Chettiar : AIR1932Mad435 , a Hindu undivided family has been placed in the same position as a firm or other association of individuals in defining 'residence'.
18. The learned Advocate-General has, accordingly, urged that the principles laid down in The Commissioner of Income-tax, Madras v. T.S. Firm : (1927)53MLJ249 , for determining the residence of a firm are also applicable here. In that case, a Nattukottai Chetti firm carried on business in various places in British India and abroad. The partners resided in Ramachandrapuram in Pudukottah state and there exercised a general supervision and control, over the whole of the business. The branches in British India were generally controlled from Madras where the partners had a house which they occupied when they visited the place for giving instructions to the agent and to supervise the business in British India. On these facts it was held that the firm was not resident in British India and the foreign profits remitted to the firm were not taxable. Coutts-Trotter, C.J., who delivered the judgment of the Special Bench referred to the English cases cited above and observed:
Had it been found as a fact that the control of the whole business, that is to say, the business including the branches outside British India was exercised both from Ramachandrapuram and Madras, it may very well be that the principle of the Swedish Central Railway Company's case (1925) A.C. 495 would apply and that the central management of the business as a whole might be considered to be split up between Ramachandrapuram and Madras. I cannot see anything in the findings to give the slightest colour to any suggestion of the kind.
Relying on the above passage the learned Advocate-General contended that what we had to see was whether the affairs of the respondent family as a whole including the business carried on at Colombo were controlled from British India also during the visits of the karta to this country in the course of the year of account, and, if not, his exercise of acts of management in respect of some of the affairs of the family cannot make the family ' resident in British India ' within the meaning of Clause (b) of Section 4-A.
19. On the other hand, Mr. Rama Rao Sahib, for the Commissioner of Income-tax stressed the word ' wholly.' in Clause (b) and suggested that if the karta of a family living abroad stayed in British India for however short a period and during such stay exercised some acts of control or management in respect of any part of its affairs the family must be held to be resident in British India. In support of this contention he relied on Bhimji R. Naik v. Commissioner of Income-tax, Bombay : 14ITR334(Bom) ; The Commissioner of Income-tax, Madras v. Gangabishan Mohanlal : (1945)1MLJ61 and The Commissioner of Income-tax, Madras v. The Shanmugam Rubber Estates, Kualalampur : (1945)2MLJ93 . In my opinion neither of these contentions in its extreme form is warranted by the language of Clause (b) of Section 4-A.
20.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 recognise the possibility of the seat of such power being divided between two distinct and separated places. Clause (b) accordingly requires that the power of control and direction of the affairs of the family or firm should not have a seat of operation in British India. I find nothing in that clause to support the view that the acts of control and management exercised in British India by the person having the power of control should extend to the whole affairs of the family or firm in order to make it 'resident' in British India. -On the other hand, the insistence on the situation rather than exercise of the control and management makes it difficult to accept the suggestion that an isolated or casual act of management and control exercised in British India by a karta who lives abroad is sufficient to bring the family within Section 4-A(b). This view, as applied to Clause (c), would lead to the result of a company controlled and managed in British India being relieved of its status as a resident in British India by its directors or other controlling authority proceeding to an Indian State and there exercising stray acts of management in regard to its affairs--a result which could not have been contemplated by the Legislature.
21. The decisions relied on by Mr. Rama Rao Sahib only establish that mere stay in British India of the persons having the right and power of control without an actual exercise of such power is insufficient to bring the family or firm under Section 4-A(b). They lend no support to the suggestion now put forward by counsel.
22. Turning now to the facts found in the present case it appears that the karta of the respondent family has been living in Colombo with his wife and children for some years carrying on a family business there. He owns considerable ancestral immoveable property and has sundry investments in British India which are looked after by a clerk who is paid a salary of Rs. 25 per mensem. His ancestral family house is at Kanadukathan (in British India) where his mother is living. He pays frequent visits to British India and during these visits stays in his family house with his mother. In the year 1940-41 he stayed there in the aggregate for 69 days and in the year of account 1941-42, he visited British India on seven occasions of which two were concerned with his journey to and from Rangoon. The total period of his stay in British India was 101 days. 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 to income-tax proceedings relating to the assessment of his family income, appearing before the Income-tax authorities at Karaikudi and Madras. On one of these occasions he obtained an extension of time for payment of the tax after interviewing the authority concerned and explaining to him the troubles experienced on account of the war with Japan. These are all undoubtedly affairs of the family, and the karta in whom the right and power of control and management of the family affairs was vested exercised control and management over such of its affairs as called for his attention during the year, from the established place of residence at Kanadukathan where one of the members of the family continued to live. It is true that no act of control or management appears to have been exercised by the karta in relation to the business at Colombo during his stay in British India, but that business is only one of the affairs of the family, and the learned Advocate-General's suggestion that the non-exercise of control over it from British India rendered the control and management which the karta exercised in respect of the other affairs of the family from the ancestral family home ineffective in law to bring the family within Section 4-A(b) cannot be accepted. As I have already observed, the theory that the control and management exercised in British India must, for the purposes of Clause (b) of Section 4-A, extend to the whole of the affairs of the family derives no support from the language of that clause. In this connection it must also be borne in mind that, unlike a firm or a company which has no existence apart from its business, a Hindu undivided family may or may not carry on business and even where it trades, such activity is but one of its affairs.
23. The Income-tax Appellate Tribunal have, in my opinion, approached the case from a wrong angle. They state:
The only point that we have to find out in this case is whether there was an act of management or control within British India during his stay there.
24. This apparently implies acceptance of the Commissioner's point of view which, as I have already indicated, is not correct. But having thus formulated the point for their decision, their conclusion, in the light of the proved facts of the case, is, to say the least, remarkable.
The evidence relied upon by the Departmental Representative from which he wants us to draw an inference that there were acts of management have been considered by us and we come to the finding that no act of management or control was exercised by the appellant during his stay in British India.
In my opinion, the Tribunal have misdirected themselves in determining the question of 'residence' of the respondent family, and, further, they have not drawn the correct inference from the proved facts. On these facts, the control and management of the affairs of the family cannot be held to have been situated wholly abroad, with the result that the family must be deemed to have been resident in British India within the meaning of the Income-tax Act. I agree with the answers proposed by my Lord and also with his order as to costs.