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Commissioner of Income-tax Vs. Pl. M. Tt. Firm - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 322 of 1966 (Reference No. 84 of 1966)
Judge
Reported in[1973]87ITR260(Mad)
ActsIncome Tax Act, 1961 - Sections 6(2)
AppellantCommissioner of Income-tax
RespondentPl. M. Tt. Firm
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateK. Srinivasan and ;K.C. Rajappa, Advs.
Cases ReferredIn Estate of A. Mohamed Rowther v. Commissioner of Income
Excerpt:
direct taxation - assessment - section 6 (2) income tax act, 1961 - whether tribunal was right in holding that assessee should be assessed as non-resident for assessment year 1962-63 - assessee proved that entire control and management of affairs of business was wholly outside india - submitting return as resident and acceptance of same will not preclude assessee from contending that during particular assessment year he was not resident - question answered in affirmative. - .....the firm was constituted on november 10, 1937. on july 15, 1942, the four partners executed a power of attorney in favour of one v. mariappa pillai, who is residing in ceylon. the assessee-firm had all along been assessed as a resident and ordinarily resident, but for the assessment year 1962-63, the assessee claimed that it should be assessed as a non-resident on the ground that the management and control of the business vested in the power of attorney agent who was a permanent resident of ceylon and that no part of the management and control is exercised from india. the income-tax officer rejected the claim in the view that the power of attorney gave a series of directions to the agent which in itself constituted exercise and control and that what was left to the discretion of the.....
Judgment:

V. Ramaswami, J.

1. The following question has been referred under Section 256(1) of Income-tax Act, 1961 (hereinafter called 'the Act').

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee should be assessed as a 'non-resident' for the assessment year 1962-63 ?'

2. The assessee is a firm of four partners carrying on business in Ceylon in pawn-broking and money-lending. All the four partners are residing in India. The firm was constituted on November 10, 1937. On July 15, 1942, the four partners executed a power of attorney in favour of one V. Mariappa Pillai, who is residing in Ceylon. The assessee-firm had all along been assessed as a resident and ordinarily resident, but for the assessment year 1962-63, the assessee claimed that it should be assessed as a non-resident on the ground that the management and control of the business vested in the power of attorney agent who was a permanent resident of Ceylon and that no part of the management and control is exercised from India. The Income-tax Officer rejected the claim in the view that the power of attorney gave a series of directions to the agent which in itself constituted exercise and control and that what was left to the discretion of the agent was to manage the day to day business of the firm. The Appellate Assistant Commissioner also held that the document only empowered the agent to take necessary steps to recover monies due to the firm, but nothing specifically was mentioned therein about his power to lend money on behalf of the firm. He was also of the view that it was not necessary that actual control should have been exercised from India and that it was sufficient even if the partners had exercised tacit control.

3. The Tribunal allowed the appeal filed by the assessee and held that the power of attorney vested the entire control and management of the business in the agent and that the assessee was not having any management or control over the business wholly or in part and in that view held that the assessee was liable to be assessed only as a non-resident for the assessment year 1962-63. Section 6(2) of the Act, which is the relevant provision, reads as follows :

'A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.'

4. The corresponding provision in the 1922 Act is Section 4A(b). We have therefore to see whether the assessee has established that no part of the control or management of its affairs is situated in India during the assessment year.

5. At this stage it would be useful to refer to the relevant clauses of the deed dated July 15, 1942, appointing Mariappa Pillai as the power of attorney. After stating that the partners were carrying on in partnership as pawn-brokers and money-lenders in Ceylon the deed proceeded to state that the partners were desirous of appointing some fit and proper person as their attorney to manage and transact their business in Ceylon and appointed the said Mariappa Pillai 'to be the true and lawful attorney of us and each of us and of the survivors and on our behalf and in the name of us.........for all and each and every or any of the following purposes :

To superintend, manage and control the said business and to make all such applications and to do all such acts, deeds and matters and things as may become necessary from time to time under the provisions of the Pawn Brokers Ordinance or any other law or statute.

6. To ask, demand, sue for, recover and receive of and from all persons liable now or hereafter to pay and deliver the same respectively all moneys, effects and things whatever now owing or payable in respect of the said business or which shall or may at any time hereafter be due owing payable to me and on payments or delivery thereof to give, sign and execute receipts, releases and other discharge for the same respectively and thereupon to manage employ and deal with the same as we or any of us could or might lawfully do and on non-payment or non-delivery thereof or of any part thereof to commence, carry on and prosecute any action or actions, suit or suits or other proceedings whatever before any court or courts in the said island, for receiving and completing the payment or delivery thereof.

7. Generally to do, execute and perform all such further and other acts, deeds, matters and things whatsoever which our said attorney shall think necessary or proper to be done in and about, or concerning the same as fully and effectually to all intents and purposes as we might or could do if we were personally present and did the same in our proper persons, it being our intent and desire that all matters and things respecting the same shall be under the full management, control and directions of our said attorney, we hereby promising and agreeing to ratify, allow and confirm all and whatsoever our said attorney shall lawfully do or cause to be done in the premises by virtue hereof.

8. And we do hereby direct that all acts which shall be had, made or done by our said attorney before he shall have received notice of our death or the revocation of the authority contained in these presents shall be as binding and valid to all intends and purposes as if the same had taken place previous to our death or before such revocation, any rule of law or equity to the contrary notwithstanding.'

9. It is seen from these clauses set out above that the entire de facto control of the business was given to the power of attorney agent. It enables the agent to carry on the entire business in the name of the principal and also use the principal's name in all the transactions entered into by him and that all his acts will be binding and effective on the principal. The authority is ineffective only when the power was revoked as contained in the deed or when the principal is dead. In other words, the power entrusted to the agent is plenary and entitled the agent to conduct the business in the light of his own wisdom. The deed does not even reserve a right to the principal to give instructions to the agent as to the manner or method of conducting the business. Having regard to the terms of the deed, it seems to us that not even a de jure control remains with the principal except the power to revoke the authority vested in the agent.

10. The assessee had discharged its burden by proving that it had appointed the power of attorney agent to run the business and that power did not reserve any right in itself to have any control or management of its business. There is nothing in evidence to show that in spite of the terms of the document the actual control and management of the business was not wholly vested in the agent. In fact, it was not the case of the department at any stage that the deed was not acted upon, but the Income-tax Officer proceeded to interpret the document as though some control is retained by the assessee and the power of attorney agent was acting under the directions of the partners. There was no evidence in support of this view and the Tribunal has actually given a finding that that view was not correct and the power of attorney vested the entire control and management of the business in the agent. As pointed out by the Tribunal, it was open to the department to further investigate into the accounts and examine the account books of the firm, scrutinise the passports and visas, if any, and to gather other evidence to prove that the partners or some of them did exercise actual control or management of the business in spite of the full power given to the agent to manage and run the business but that has not been done.

11. As has been held in a number of cases, mere proof of power or capacity to control and manage was not enough but a de facto or actual control and management of the business was necessary in order to hold that the assessee is to be assessed as a resident with reference to his business outside India. It is now necessary to refer to two of the decisions of this court in Talipatigala Estate v. Commissioner of Income-tax, : [1950]18ITR320(Mad) , and Estate of A. Mohamed Rowther v. Commissioner of Income-tax, : [1963]49ITR39(Mad) . It was held in Talipatigala Estate v. Commissioner of Income-tax, that 'if the business is transacted abroad by agents with plenary powers of management and control and the principal does not take any part in the conduct or supervision of the business beyond keeping himself occasionally informed of the business conditions, that the residence of the principal does not determine the place of control of the business.'

12. In Estate of A. Mohamed Rowther v. Commissioner of Income-tax, the facts were these: One Mohamed Rowther died in Penang leaving a will under which he appointed some executors. One of the executors, Amir Mohideen, got into the management of the business at Penang and functioned as such as a result of common consent of all the heirs of the said Mohamed Rowther, The question arose as to the residential status of the heirs with reference to the business carried on by the executor at Penang. On the finding that in so far as the conduct of the business was concerned Amir Mohideen was in full and complete charge of the business and was not under the directions of the Indian heirs, it was held by this court that the heirs of Mohamed Rowther are to be assessed as non-resident in respect of the business.

13. On the facts of the present case we are of opinion that the assessee had discharged the onus that lay upon it and proved that the entire control and management of the affairs of the business was wholly outside India.

14. One other ground given by the department for holding that the assessee has to be assessed as a resident was that in the earlier assessments it was assessed as resident. It is not the case of the department that in any of the previous years the question of status as 'resident' or 'nonresident' was considered and decided. Further, it is the state of affairs in existence in a particular year of account that determines the question of resident or non-resident of the assessee or that year and not how he was treated in the previous years. His submitting the returns as a resident and acceptance of the same by the department will not preclude the assessee from contending that during a particular assessment year he was not a resident.

15. For the foregoing reasons, we answer the reference in the affirmative and against the revenue with costs. Counsel fee Rs. 250.


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