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R.S.S. Shanmugam Pillai and Sons Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 39 of 1968 (Reference No. 10 of 1968)
Judge
Reported in[1974]95ITR109(Mad)
ActsIndian Income Tax Act, 1922 - Sections 4A and 66(5); Income Tax Act, 1961 - Sections 6(2)
AppellantR.S.S. Shanmugam Pillai and Sons
RespondentCommissioner of Income-tax
Appellant AdvocateS.V. Subramaniam, Adv. for ;Subbaraya Aiyar, Sethuraman and Padmanabhan
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Excerpt:
.....- sections 4a and 66 (5) of income tax act, 1922 and section 6 (2) of income tax act, 1961 - assessee-firm filed return as non-resident - income-tax officer held firm to be resident as per section 4a (b) - holding based on sole ground of partner's statement in one of letters communicated to other partner - no other material to support holding - entire correspondences between two partners during assessment year would be of considerable value in deciding question - rejection of relevant evidence relating to correspondences not proper - finding recorded without consideration of evidence placed by assessee - question referred cannot be answered in view of defective finding - open for tribunal under section 66 (5) to rehear appeal considering relevant materials to decide status of..........year ending march 31, 1961, during the period october 7, 1960, to january 28, 1961.2. the assessee-firm filed its return of income for the previous years ending march 31, 1960, and march 31, 1961, in the status of a ' non-resident'. the income-tax officer examined the partner, patchimuthu pillai, on november 19, 1963, and he gave a statement to the effect that the other partner used to write letters consulting him regarding the management of the business. on the strength of this statement the income-tax officer held that the control and management of the firm's business was not wholly outside india during the relevant period and that, therefore, the firm was a 'resident' in the taxable territories within the meaning of section 4a(b) of the indian income-tax act, 1922.3. the.....
Judgment:

Ramanujam, J.

1. The assessee in this case is a firm carrying on business in general goods in Ceylon. The firm consists of 2 partners, K.P. Surndaralingam Pillai and V. Patchimwthu Pillai. Sundaralingam Pillai was apermanent resident of Ceylon. Patchimuthu, though he stayed in Ceylon, used to visit India from time to time, as his family was staying in India. During the accounting year ending March 31, 1960, Patchimuthu Pillai stayed in India during the period April 1, 1959, to September 23, 1959, and during the accounting year ending March 31, 1961, during the period October 7, 1960, to January 28, 1961.

2. The assessee-firm filed its return of income for the previous years ending March 31, 1960, and March 31, 1961, in the status of a ' non-resident'. The Income-tax Officer examined the partner, Patchimuthu Pillai, on November 19, 1963, and he gave a statement to the effect that the other partner used to write letters consulting him regarding the management of the business. On the strength of this statement the Income-tax Officer held that the control and management of the firm's business was not wholly outside India during the relevant period and that, therefore, the firm was a 'resident' in the taxable territories within the meaning of Section 4A(b) of the Indian Income-tax Act, 1922.

3. The assessee firm preferred appeals to the Appellate Assistant Commissioner in respect of both the assessment years 196.0-61 and 1961-62. Before the Appellate Assistant Commissioner the assessee-firm filed an affidavit from the partner, Pachimuthu Pillai, to the effect that he did not control or manage the affairs of the firm while he was in India, and that the entire management and control of the firm's business during the relevant periods was with the other partner, K.P. Sundaralingam Pillai, who was a permanent resident of Ceylon, This affidavit was not accepted by the Appellate Assistant Commissioner and he held, relying on the statement of the partner earlier referred to, that the control and management of the affairs of the firm was not situated wholly without the taxable territories. In that view he confirmed the assessment.

4. There were further appeals to the Tribunal. Before the Tribunal the assessee-firm produced the correspondence between the two partners to show that Patchimuthu Pillai was not consulted about the management and control of the business while he was in India, and that the entire control and management of the affairs of the assessee-firm was only in the hands of the other partner permanently residing in Ceylon. The Tribunal, however, felt that the assessee was not justified in not producing the correspondence before the assessing or the appellate authority and that, therefore, the same cannot be received as additional evidence at that stage. But the Tribunal had gone into the correspondence filed by the assessee and took the view that the correspondence was sufficient to prove that Patchimuthu Pillai was keeping himself in close touch with the day-to-day affairs of the firm and that he had not left the entire management and control of the business in the hands of the other partner. Thus the Tribunal took thecorrespondence produced by the assessee as supporting the partner's statement given before the Income-tax Officer on November 19, 1963, that the other partner used to consult him while in India regarding management of the business and as establishing the fact that the partner, Patchimuthu Pillai, did not divest himself of the control and management of the business in Ceylon while he 'was in India. For this conclusion the Tribunal also invoked the general principle of law that all the partners of a firm should be deemed to be in management and control of its business unless there is specific material to show that one of the partners had divested the control and management of the business by entrusting the control and management to the other partners. In that view the Tribunal upheld the view of the Income-tax Officer that the status of the assessee-firm is a ' resident ' and not a ' non-resident ' as alleged by the assessee.

5. At the instance of the assessee, the following question has been referred to this court:

' Whether, on the facts and in the circumstances of the case, the assessee was a resident-firm within the meaning of Section 6(2) of the Income-tax 8Act, 1961, for the assessment years 1960-61 and 1961-62 '

6. As will be clear from the facts stated above, the question in dispute between the parties is as to whether the assessee-firm is ' resident ' as urged by the revenue or it is ' non-resident ' as urged by the assessee in the context of Section 4A(b) of the Indian Income-tax Act, 1922. As we are of the view that the question referred to us does not properly indicate the issue involved, we reframe the question thus :

' Whether there are materials before the Tribunal to hold that the assessee was a resident-firm within the meaning of Section 4A(b) of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 ?'

7. The Income-tax Officer proceeded on the basis of the statement given by the assessee on November 19, 1963, before him. An affidavit was filed from the same partner, Patchimuthu Pillai, to explain the statement given by him at the earlier stage. Before the Tribunal the assessee-firm sought to produce the copies of certain letters received by Patchimuthu Pillai from the other partner in Ceylon for the purpose of proving that the partner in Ceylon did not consult him in the matter of control and management of the firm's business. The Tribunal did not receive them as evidence at the stage of the appeal on the ground that the letters had not been produced before the Income-tax Officer and their genuineness has not been tested. The Tribunal also stated that unless the entire correspondence is produced, the true picture of what happened between the two partners cannot be had. But the Tribunal, however, perused the letters and stated that the letters produced by the assessee, instead of supportingits case, supported the case of the revenue, that Patchimuthu Pillai was keeping himself in close touch with the day-to-day affairs of the firm and that he had not left the entire management and control of the business in the hands of the other partner. After stating that the letters cannot be received at the appellate stage, as their genuineness had not been tested by the Income-tax Officer at the stage of the assessment, the Tribunal chose to refer to those letters to affirm the finding given by the Income-tax Officer. We are of the view that this is not a proper or satisfactory disposal of the appeal by the Tribunal.

8. It is no doubt true that the Tribunal has got a discretion either to admit the documents as additional evidence or to reject the same at the stage of the appeal. But the said discretion cannot be exercised in an arbitrary manner. If the Tribunal finds that the documents filed are quite relevant for the purpose of deciding the issue before it, it would be well within its powers to admit the evidence, consider the same or remit the matter to the lower authorities for the purpose of finding out the genuineness of the letters and considering the relevancy of the same. But if the Tribunal finds that the evidence adduced at the stage of the appeal is not quite relevant or that it is not necessary for the proper disposal of the appeal before it, in that case, the Tribunal could straightaway reject the evidence, which was sought to be produced for the first time at the stage of the appeal. In this case the Tribunal adopted a somewhat curious procedure. Having held that the letters cannot be admitted and acted upon at the stage of the appeal it chose to go through them and take a prima facie view that they are against the assessee. This way of dealing with the evidence adduced at the appellate stage has put the assessee to a considerable disadvantage. If the evidence had been merely rejected and the Tribunal has given its decision on the basis of the other materials on record, it would have been a different matter. But the Tribunal, after refusing to consider the evidence adduced at the appellate stage in support of the assessee's case, chose to refer to that evidence as disproving the assessee's case and as supporting the revenue. In those circumstances the assessee can canvass the findings given by the Tribunal based on such evidence only by filing those relevant letters before us and asking us to construe the same in the light of the assessee's contention. But that is not possible as the Tribunal has not entertained, the evidence in question. The Tribunal, of course, has stated that unless the entire correspondence is placed before it, it cannot get a true picture from the copies of only some letters produced by the assessee. If that is the ground on which letters are rejected, the Tribunal could have remanded the matter to the Appellate Assistant Commissioner with a direction to the assessee to produce the entire correspondence including the letters produced before the Tribunaland calling upon him to dispose of the matter afresh in the light of theentire correspondence that may be placed before it.

9. As already stated, for deciding the only questi9n that arises in thecase, whether the assessee-firm is a resident-firm as contemplated in Section 4A(b) of the Income-tax Act, the only material that was availablebefore the Income-tax Officer was the statement given by PatchimuthuPillai, one of the partners. The said statement was sought to be explainedby an affidavit from him before the Appellate Assistant Commissioner.Except these, there are no other material to indicate that the control andmanagement of the firm's business partly resided in the taxable territories.Therefore, the entire correspondence between the two partners during therelevant assessment years would be of considerable value in deciding thequestion at issue. The disposal of the appeal by the Tribunal afterrejecting relevant evidence is not proper and, in the interests of justice, thematter has to be re-heard, after considering the genuineness and relevancyof the correspondence filed by the assessee. We have, therefore, reachedthe conclusion that the question of law referred to us cannot be answeredin view of the defective finding given by the Tribunal, which has beenrecorded without consideration of all the evidence placed by the assessee.It will be open to the Tribunal to re-hear the appeal under Section 66(5) ofthe Indian Income-tax Act, 1922, and record a clear finding, after hearingthe parties and after considering all the relevant materials in the case, as towhether the control and management of the business of the assessee-firmresided in the taxable territories, as contemplated by Section 4A(b) of theAct.

10. The reference is, therefore, technically answered in favour of the assessee and the Tribunal is directed to re-hear the appeal afresh after considering such evidence that may be produced by the assessee. There will be no order as to costs in this tax case.


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