(The Judgment of the Court was delivered by VISWANATHA SASTRI, J.)
The question that has been referred to us is in these terms :-
'Whether the assessee firm is a resident in British India within the meaning of Section 4A (b) of the Income-tax Act.'
With reference to income-tax, the assessment years in question are 1939-40, 1940-41, 1941-42 and 1942-43. With reference to excess profits tax, the chargeable accounting periods are 1st September, 1939 to 31st December, 1939, 1st January, 1940 to 31st December, 1940, 1st January, 1941 to 31st December, 1941. Though the assessments relate to different accounting periods, both before us and the Income-tax authorities as well as the Appellate Tribunal, the case has been presented on the footing that the essential facts and circumstances are the same throughout. The facts are shortly these. The assessee is a registered firm of seven partners carrying on the business of tea planters in Ceylon. The partnership owns tea estates compendiously styled 'The Erin Estate'. Tea is grown on this estate and is manufactured into a marketable product and sold in Ceylon through brokers or commission agents. The price is realised in Ceylon. These trading operations are carried on in Ceylon on behalf of the firm by an agent Ponnambalam Pillai who is residing there. It is not correct to state, as has been done in the statement of the case drawn up by the Appellate Tribunal, that Ponnambalam Pillai had a power-of-attorney from the partners empowering him to manage and control the business in Ceylon. Such a statement is opposed to the express sworn statement of the two major partners, Andiappa Pillai and Nagalingam Pillai. The power-of-attorney, to which apparently a reference was meant, has been placed before us and we find it is not a power-of-attorney executed by the firm or by any of the partners of the firm in their capacity as such partners. Though the partnership had been in existence from before 1938, a deed of partnership dated 5th March, 1942, was drawn up setting out the shares of the partners in the Erin Estate and providing for sundry connected with the partnership business. Clause 3 of the partnership deed ran thus :-
'The estate shall be managed by the Superintendent Sriman A. P. S. T. Ponnambalam Pillai who has hitherto been in charge of the same and managing the same or by a person appointed by the majority of the partners. (Majority opinion is to be determined by the number of shares and not by the number of partners constituting the partnership)'.
Out of the total number of 147 shares, Andiappa Pillai owned 50 shares, Veerappa Pillai owned 43 shares and Nagalingam Pillai owned 18 shares. The other four partners held nine shares each. All the partners were permanent residents of certain villages in the Trichinopoly District. These facts are common ground.
The order of the Appellate Tribunal does not deal adequately with the evidence and the material that has been produced in the case. Beyond referring to a few Introductory facts and extracting in extenso the statement of the partner Andiappa Pillai, the order of the Appellate Tribunal makes no attempt to evaluate the evidence that had been placed before the assessing authorities and also before the Tribunal. It does not pay attention to the language of Section 4A (b) of the Income-tax Act but refers to two English decisions and dismisses them as beside the point. Indeed, the grounds of decision of the Appellate Tribunal are contained only in one paragraph of its order which may be set out in full :-
'In our opinion, this case comes for decision as to whether the manager was controlling or as to whether the partners were controlling. From the facts stated above, it seems that the whole control was really situated in Ceylon. We get some support from the judgment of Mr. Justice Seshagiri Ayyar, reported in 1 Income-tax Cases 37 at page 47 where his Lordship seems to have taken the view that by giving general instructions the business is not carried on from the country from which those instructions were issued. The so called letters relied upon by the Departmental representative are either informative or required for general instructions and they do not therefore contradict the fact that the control is certainly situated in Ceylon, i.e., wholly outside the British India.'
The matter that had to be investigated and decided by the Appellate Tribunal was whether the control and management of the firms business was situated wholly outside British India. In the sentence of the passage above extracted, the Tribunal seems to assume the very fact that has to be proved, namely, that the control was situated in Ceylon. The letters which have been treated so summarily did require further and more serious consideration at the hands of the Tribunal.
It has been contended before us on behalf of the assessee that as the Appellate Tribunal held that no control or management was exercised in British India by the partners, its finding must be accepted by us as a finding of fact binding on this Court and that no question of law arose on such finding. As pointed out in the order under Section 66(2) of the Income-tax Act directing the present reference and in the decision of this Court in Commissioner of Income-tax v. Shanmugam Rubber Estate the question whether the control and management of a firms business or affairs is not a mere question of fact. See also the decision in Inland Revenue Commissioners v. Lysaght dealing with a question of 'residence'. Though the Tribunals findings of fact are not open to review by this Court, the correctness of the inference which the Tribunal has drawn from facts which are proved or admitted may be a question of law : see American Thread Company v. Joyce, Inland Revenue Commissioners v. British Salmson Aero Engines Ltd. The argument of the assessee in this case is merely an attempt to secure for a bald finding on a mixed question of law and fact that unassailability which properly belongs to a finding on a question of pure fact arrived at after a consideration of the relevant evidence : cf. Great Western Railway Co. Ltd. v. Bater, Lysaght v. Inland Revenue Commissioners. Indeed, Viscount Simon in the case in Bomford v. Osborne held that there may be cases where the revenue authority having proved or admitted facts before it, might deduce therefrom further conclusions which are themselves conclusions of fact, but in such cases there might emerge a question of law, the question of law being whether the facts proved or admitted provided evidence to support the revenue authoritys further conclusions of fact. In Cameron v. Prendergast Viscount Maugham observed that if the Tribunal stated or referred to the evidence and held upon that evidence that certain results followed, it was open to the Court to differ from that conclusion. In any case, it has been held over and over again both by the Judicial Committee and this court that the proper legal effect of facts proved or admitted is essentially a question of law. It is needless to cite authority for this elementary proposition.
Having regard to the meagreness of the order of the Tribunal in so far as it deals with the facts relevant for a determination of the question at issue and having regard to the fact that the letters which were produced before the revenue authorities and the Tribunal are referred to in the Judgment of the Tribunal in a casual manner, we enquired of the learned counsel appearing on both sides whether the genuineness or authenticity of these letters is admitted by them. Both of them stated that the letters were genuine and that they were acted upon by the department. Consequently, we have felt ourselves at liberty to refer to these letters even thought they have not been made part of the printed case placed before us. It is regrettable that no attention was paid to the preparation of the records necessary for supporting the case of the Commissioner of Income-tax at the time when the reference was made to this Court.
In Commissioner of Income-tax v. Calcutta Agency Ltd., the Supreme Court has observed that the jurisdiction of this Court in the matter of income-tax references is advisory and that the decision of the Tribunal on facts is final. Their Lordships observed that the duty of the High Court was to start by looking at the facts found by the Tribunal and answer the question of law on that footing and that any departure from this rule would convert the High Court into a fact finding authority which it is not. Unlike the case before the Supreme Court, the statement of the case in the present case was not prepared with the knowledge or approval of both the parties. They did not peruse the statement of the case and did not make any suggestions which they might have made in respect thereof. To the extent to which the Tribunal had found facts, we have accepted those facts; that is to say, that the Erin Estate belonged to the assessee firm; that tea was planted in the estate and sold in Ceylon; that one Ponnambalam Pillai was an agent or superintendent looking after the trading operations in Ceylon; and that the monies realised by the sales of tea through brokers in Ceylon were paid into a local bank on which the agent operated. The letters referred to in the order of the Tribunal, and which therefore must have presumably formed part of the evidence on which the Tribunal base its conclusion have not yet been analysed and the value of their contents has not been noticed. In view of the fact these letters were placed before the Appellate Tribunal and the revenue authorities and were also referred to in the order of the Tribunal we have felt overselves at liberty to look into them though they have not been made part of the printed case. We have also before us the affidavits filed by the partners and also the statements made by them before the Income-tax authorities.
Before we analyse the evidence and summarise its effect, we might as well indicate the proper method of approach to the question of law that is involved in the reference. This is all the more necessary because the Tribunal does not seem to have appreciated the meaning and scope of Section 4A(b) of the Income-tax Act on which the decision of the question depends.
Section 4A (b) runs 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.'
We refer to the Section as it stood at the relevant dates. We had occasion to deal with the meaning and scope of the provision in our judgments in Narasimha Rao Bahadur v. Commissioner of Income-tax, Talipatigala Estate v. Commissioner of Income-tax and Commissioner of Income-tax v. AR. PL. S. PL. Firm. There is, however, now available an authoritative exposition of the law in a recent judgment of the Supreme Court in Subbiah Chettiar v. Commissioner of Income-tax, which renders it unnecessary for us to examine the earlier decisions. The following propositions may be taken as fairly well-established by the decision of the Supreme Court. The Onus of proving facts necessary to establish that the control and management of the affairs of a firm is situate wholly outside British India is on the assessee. The language of Section 4A (b) shows that a firm is normally presumed to be resident in British India but such a presumption an be rebutted by showing that the case comes within the second part of the provision, viz., that the control and management of its affairs is situated wholly without British India. The onus which is a cast by the section on the assessee must be discharged by the production of evidence, that is, or must be available with the assessee. The non-production of such material and available evidence is an infirmative circumstance that has to be taken into account against the assessee in arriving at a conclusion on the question whether the control and management of the affairs of the firm was situate wholly outside British India. The meaning and scope of Section 4A (b) was expounded by Patanjali Sastri, J., in Subbiah Chettiar v. Commissioner of Income-tax in a passage which was cited with approval on appeal by the Supreme Court. The learned Judge said :-
'Control and management signifies in the present context, the controlling and directive power, the head and brains 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 separate places.'
The control and management of a firms business is situated at the place where, as was said in De Beers Consolidated Mines Ltd. v. Howe 'where the central management and control actually abides' or, as stated in San Paulo Railway Co., Ltd. v. Carter 'the head and brain of a particular adventure is situate' or as stated elsewhere 'the head and seat and the directing power is situated'. Control of a business does not necessarily mean the carrying on the business. The place of control may be different from the place where the physical operations of the business are carried on and the place of where trading activities are carried on need not necessarily be the place of control or management. A place wherefrom oversight or supervision or even tacit control of the affairs of the business by the owner of the business conducted abroad is regularly exercised would be a place where the control and management is situate. There may be control and management at a particular place where the partners of the firm reside even though occasions for active intervention with the conduct of business operations elsewhere do not arise on account of the business activities being carried on smoothly by local agents or servants : see Egyptian Hotels Ltd. v. Mitchell; Ogilvie v. Kitten Control and management therefore means de facto control and management. The existence of a mere right or power of control and management is not the criterion. This is what the decision in Bhimji R. Naik v. Commissioner of Income-tax referred to by the assessee laid down. It is not what the partners of the firm in the present case have power to do, but what they actually do that is of importance in determining the control is exercised. When Section 4A (b) refers to the control and management of its affairs which have some relation to the business whose income, profits and gains are sought to be taxed and not the private or domestic affairs of the individual partners having no relation to the firms business. The execution of a power-of-attorney by one of the partners in this case in respect of his own individual or private affairs. Finally Section 4A(b) itself adopts the principle recognised by Swedish Central Railway Company v. Thompson that the control and management of the firms affairs may be divided and may abide in more than one place. If so, the firm has a dual residence in each of the places where it 'performs some of the vital or organic functions incidental to its existence as such', to quote the language of Fazl Ali, J., in the Supreme Court.
Judged by these tests, which are also the tests formulated by us in Narasimha Rao Bahadur v. Commissioner of Income-tax, how does the present case stand All the partners were residents of the Trichinopoly District. The major partners, that is to say, the partners who hold the largest number of shares, Andiappa Pillai and Nagalingam Pillai were attending to the firms affairs from Trichinopoly. The estate was managed by a superintendent, Ponnambalam Pillai, who was paid a salary of Rs. 300 per mensem. There was no power-of-attorney in his favour in connection with the management of the firms business. There was nothing in writing to substantiate the assertion of the assessees learned advocate that Ponnambalam Pillai had plenary powers of management or to show that his status was higher than that of the head of an establishment maintained for the purpose of producing, manufacturing and marketing tea in Ceylon. We have been taken through the letters written by Andiappa Pillai, the partner from Trichinopoly District, to Ponnambalam Pillai in Ceylon. There is also a letter written by Veerappa Pillai alone going occasionally to Ceylon. The superintendent took instructions from the partners in Trichinopoly with reference to the purchase or sale of tea coupons and tea. He reported to them the current prices in the Ceylon market and took instructions as regards the sale of coupons. He took instructions as regards the improvements to be effected on the estate by the construction of buildings. True copies of the day books and the balance sheet were sent every month to the partners in Trichinopoly. Ponnambalam Pillai, the local agent, regularly reported to the partners the conditions of the estate, the progress of the work on the estate, the extent of manuring done and the current prices of tea leaves and tea coupons. As regards the manuring of the tea gardens, he asks for definite instructions whether manuring could be done on a large scale and the partner Andiappa Pillai instructed him to do the manuring extensively. With regard to the buildings, he took instructions as to whether a particular building should be stopped. Even as regards the salary payable to petty servants of the estate, he took instructions as to whether an increment could be granted. The partner from Trichinopoly gave instructions sanctioning such an increment. Instructions were also given to him to accumulate and keep on hand a reserve fund ranging from Rs. 7, 500 to Rs. 10,000 from out of the realisations of the tea sales. With reference to labour disputes on the estate, the partner from Trichinopoly directed him to settle such disputes amicably exercising a wise discretion as a man of the spot. Every year at the beginning of the year, a budget estimate was framed for the work to be done on the estate and submitted to the partners and sanctioned by them. Whenever any large expenditure in excess of the budgeted expenditure was incurred without previous sanction, the agent immediately reported it for approval to the partners at Trichinopoly. The partner at Trichinopoly was giving directions to the Superintendent as to what should be done in the connection with the management of the estate. The fact that the partners only shows that the superintendent was doing his work properly and without giving occasion for complaint. The cumulative effect of the correspondence above referred to as well as the other circumstances adverted to by us clearly point to the fact that the control and management of the affairs of the assessee firm were not of the control of the management and the supervision of the affairs of the firm abided in Trichinopoly where all the partners resided.
For these reasons, we answer the question referred to us in the affirmative and hold that the assessee firm is a resident in British India. The assessee will pay Rs. 250 the costs of the Commissioner of Income-tax in this reference.
Reference answered in the affirmative.