(Judgment of the Court was delivered by the Honourable the Chief Justice).
The question in this reference is whether the respondent firm was resident in British India within the meaning of Section 4A (b) of the Indian Income-tax Act. That section says that for the purposes of the 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. In other words, if the control and 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.
The partners in the assessee firm are six Nattukottai Chettiars. The partnership was formed on the 19th December 1935 for the purpose of acquiring and working a rubber plantation in Malacca known as the Shanmugham Rubber Estate. The partnership deed provided that two of the partners should in rotation have control of the partnership business. All the partners had money-lending businesses in the Federated Malay States and the deed permitted a controlling partner to act, if he so desired, through the agent of his own money-lending business in that country. This provision, however would not affect the legal position if the controlling partners or one of them was resident in British India and retained control of his agent. In this case the question does not however turn on whether the controlling partners acted through their individual agents and therefore no further reference need be made to this matter.
The year of account was the year 1940-41. The controlling partners during that period were M. RM. S. Chockalingam Chettiar and SP.M. Ramanathan Chettiar. The former lived throughout the year at Karaikudi in this presidency. The latter lived in the Native State of Pudukottah which lies some 25 miles away from Karaikudi. The Income-tax Officer held that the firm was resident in British India within the meaning of Section 4A (b) because part of the control was exercised by M. RM. S. Chockalingam Chettiar from Karaikudi. On an appeal by the assessee the Appellate Assistant Commissioner held that there was no control exercised from British India and this opinion was accepted by the Appellate Tribunal. The reference has been made at the instance of the Commissioner of Income-tax, Madras, under Section 66 (1) of the Act, as the Commissioner maintains that wrong conclusions have been drawn from admitted or proved facts. The question referred is widely drawn and is in these terms :-
'Whether in the circumstances of the case the respondent firm was resident in British India under Section 4A(b) of the Act ?'
In holding that there had been no control exercised in British India the Appellate Assistant Commissioner was impressed by the fact that no letters had been produced control during the period of account. The assessee firm maintained that no copies of letters written from British India to the persons in charge of the plantation had been kept. Considering that the partners are Nattukottai Chettiars who are very careful in business matters, this is hard to believe; but for the purpose of deciding this reference we will assume it to be true that no copies were kept. Several letters written from the agents of the partners in Malacca were produced and one written by the agent of M. RM. S. Chockalingam Chettiar, dated the 4th May 1939, showed that he was seeking instructions with regard to a sum of Rs. 5,000 which represented profits which had been made by the estate. He said that large areas were to be re-planted and agreements with the contractors must be drawn up. Each partner might have to contribute to the expenses and he wanted the sanction of his principal for the employment of the Rs. 5,000 for the purpose of the re-planting. This letter shows that when it was necessary, the controlling partner in British India was consulted and asked to give his directions. As we have indicated, this letter was not written during the period of account, but it has not been suggested that there was any change in the system of control made during that period. Inasmuch as the partnership deed provided for the control of two partners and one of the controlling partners was resident in British India, the proper inference to be drawn, especially when the letter of the 4th May 1939 is borne in mind is that part of the control at any rate was within British India. The Appellate Assistant Commissioner in the course of his order said that it was reasonable to infer that the locus of control was usually in Malacca where also all the partners were when the partnership agreement was drawn up and the business was started. We cannot accepted this as the proper inference to be drawn. As we have indicated the materials for drawing the conclusion with regard to the control are the terms of the partnership deed, the residence of Chockalingam Chettiar in British India during the year of account and the fact that he had been asked by his agent for directions in an estate matter.
The Appellate Tribunal accepted the Appellate Assistant Commissioners inference from the proved facts as being corrected and in upholding his order went on to state that inasmuch as the partnership deed provided for the exercise of control by two partners, one partner acting alone could not manage. This statement is obviously erroneous. The partnership deed not provide that in acts of control both partners should signify their agreement. There would be control within the meaning of Section 4A (b) if one partner took part in the direction or management of the estate.
It has been said on behalf of the assessee that at the Income-tax Appellate Commissioner held that there was no control exercised in British India and the Tribunal has accepted this finding, no question of law arises. This argument loses sight of the facts that the proper effect of a proved fact is as a question of law, as the Privy Council has occasion to point out in Dhanna Mal v. Moti Sagar. On the proved facts the Income-tax Appellate Tribunal was not entitled to correct the mistake. In fact, the Tribunal has asked us to state whether in the circumstances of the case the respondent was resident within British India within the meaning of the section. We have no hesitation in holding that the assessee was so resident. The respondent will pay the Commissioners costs, Rs. 250.
On several occasions this Court has had to draw the attention of the Commissioner of Income-tax to the inconvenience caused to it by Income-tax officials giving only the Tamil dates in order passed by them and we have requested the Commissioner to see that the English dates are always given as well. The Court has been assured that this will be done. In the order of the Appellate Assistant Commissioner in this case numerous Tamil dates are referred to without the corresponding English dates being give. This has caused delay in the hearing of the case because we have had to pause to obtain from Mr. Rama Rao Sahib the corresponding English dates. The Commissioner has control over the Income-tax Officers and the Appellate Commissioner in these matters and we trust that in future he will see that his orders in this respect are obeyed.
Reference answered accordingly.