V Chettiar v CIT

7/30/2019 V Chettiar v CIT

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V.V.R.N.M. Subbayya Chettiar v. C.I.T.

AIR 1951 SC 101


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Section 6 : RESIDENCE IN INDIA.

For the purposes of this Act, - (1) An individual is said to be resident in India

in any previous year, if he

is in India in that year for a period or periodsamounting in all to one hundred and eighty-

two days or more; or


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(2) 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.


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(3) A company is said to be resident in India in

any previous year, if

(i) It is an Indian company; or

(ii) During that year, the control and

management of its affairs is situated wholly inIndia.


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(4) Every other person is said to be resident in

India in any previous year in every case,


management of his affairs is situated wholly

outside India.


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A person is said to be "not ordinarily resident"in India in any previous year if such person is

(a) An individual who has not been resident in

India in nine out of the ten previous yearspreceding that year, or has not during theseven previous years preceding that year beenin India for a period of, or periods amountingin all to, seven hundred and thirty days ormore, or


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(b) A Hindu undivided family whose manager

has not been resident in India in nine out of

the ten previous years preceding that year, or

has not during the seven previous years

preceding that year been in India for a period

of, or periods amounting in all to, seven

hundred and thirty days or more.


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Facts:

The appellant is the karta of a joint Hindu

family and has been living in Ceylon with his

wife, son and three daughters, and they are

stated to be domiciled in that country.


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He carries on business in Colombo under the

name and style of the General Trading

Corporation, and he owns a house, some

immovable property and investments in India.

He has also shares in two firms situated at

Vijayapuram and Nagapatnam in India.


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In the year of account, 1941-42, which is the

basis of the present assessment, the appellant

is said to have visited India on seven

occasions and the total period of his stay in

India was 101 days.


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During such stays in India , he personallyattended to a litigation relating to the family

lands both in the trial court and in the court ofappeal.

He was also attending the income tax

proceedings relating to the assessment of thefamily income, appearing before the IncomeTax Authorities at Madras.


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The other facts relied upon by the Income TaxAuthorities were that he did not produce thefile of correspondence with the business in

Colombo so as to help them in determiningwhether the management and control of thebusiness was situated in Colombo and he hadstarted two partnership businesses in India on

25th February, 1942, and remained in India forsome time after the commencement of thosebusinesses.


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Upon the facts so stated, the Income Tax

Officer and the Assistant Commissioner of

Income Tax held that the appellant was a

resident within the meaning of Section 6 (2)

Income Tax Act, and was therefore liable to be

assessed in respect of his foreign income.


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The Income Tax Appellate Tribunal however

came to a different conclusion and held that in

the circumstances of the case it could not be

held that any act of management or control

was exercised by the appellant during his stay

in India and therefore he was not liable to

assessment in respect of his income outsideIndia.


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This view was not accepted the Madras High Court .

The HC held that the Tribunal had misdirected itself in

determining the question of the residence of theappellants family and that on the facts proved , thecontrol and management of the affairs of the familycannot be held to have been wholly situated outsideIndia, with the result that the family must be deemed

to be resident in India within the meaning of Section6(2) of the Income Tax Act.


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In this appeal, the appellant has questioned the

correctness of the High Courts decision in

connection with the assessment of the appellant

to income tax for the year 1942-43.

The question of law referred was as follows:

Whether in the circumstances of the case, theassessee (a Hindu undivided family) is resident in

India under Section 6(2) of the Income Tax Act.


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Section 6(2) states that:

For the purposes of this Act -

(2) A Hindu undivided family, firm or otherassociation of persons is said to be resident in

India in any previous year in every case ,


management of its affairs is situated wholly

outside India.


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It will be noticed that Section 6 deals with

residence in the taxable territories, of

(a) individuals,

(b) a Hindu undivided family,

(c) firm or other association of persons.

(d) company


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This provision appears to be based very largelyon the rule which has been applied in Englandto cases of corporations, in regard to which

the law was stated thus by Lord Loreburn inDe Beers v. Howe [5 Tax Cas 198]:

A company cannot eat or sleep, but it cankeep house and do business. We ought,therefore, to see where it really keeps houseand does business..


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The decision of in Calcutta Jute Mills v. Nicholsonand

Cesena Sulphur Company v. Nicholson [(1876) 1Ex D 428]

involved the principle that a company resides forpurposes of income tax where its real business iscarried on.

Those decisions have been acted upon ever since.

Therefore the true rule, and the real business iscarried on where the central management andcontrol actually abides.


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It is clear that what is said in Section 6 of the

Income Tax Act is what Lord Loreburn

intended to convey by the words where the

central management and control actually

abides.


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The principles which are now well-established inEngland and which will be found to have been veryclearly enunciated in Swedish Central Railway CompanyLimited v. Thompson [9 Tax Cas 373] which is one of

the leading cases on the subject, are: (1) that the conception of residence in the case of a

fictitious person, such as a company, is as artificial asthe company itself, and the locality of the residence

can only be determined by analogy, by asking where isthe head and seat and directing power of the affairs ofthe company.


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(2) Control and management signifies, in the

present context, the controlling and directivepower, the head and brain as it is sometimescalled, and situated implies the functioning ofsuch power at a particular place with somedegree of permanence, while wholly would

seem to recognize the possibility of the seat ofsuch power being divided between two distinctand separated places.


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As a general rule, the control and

management of a business remains in the

hand of a person or a group of persons, and

the question to be asked is wherefrom theperson or group of persons controls or directs

the business.


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Mere activity by the company in a place does

not create residence, with the result that a

company may be residing in one place and

doing a great deal of business in another.


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(3) 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, if so, it may have more than oneresidence.


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(4) In case of dual residence, it is necessary to

show that the company performs some of the

vital organic functions incidental to its

existence as such in both the places, so that infact there are two centres of management.


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These principles have to be kept in view in properly construing

Section 6 of the Income Tax Act.

The words used in this provision clearly show firstly, that, normally, a Hinduundivided family will be taken to be resident in the taxable territories, but such apresumption will not apply if the case can be brought under the second part of the

provision. Secondly, we take it that the word affairs must mean affairs which arerelevant

for the purpose of the Income Tax Act and which have some relation to income.Thirdly, in

order to bring the case under the exception, we have to ask whether the seat ofthe direction

and control of the affairs of the family is inside or outside British India. Lastly, theword

wholly suggests that a Hindu undivided family may have more than oneresidence in the

same way as a corporation may have.


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Secondly, the word affairs must meanaffairs which are relevant for the purpose ofthe Income Tax Act and which have some

relation to income.

Thirdly, in order to bring the case under the

exception, we have to ask whether the seat ofthe direction and control of the affairs of thefamily is inside or outside India.


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Lastly, the word wholly suggests that a

Hindu undivided family may have more than

one residence in the same way as a

corporation may have.


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The question which now arises is what is the

result of the application of these principles to

this case, and whether it can be held that the

central control and management of the affairsof the assessees family has been shown to be

divided in this case.


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The mere fact that the assessee has a house

at Kanadukathan, where his mother lives,

cannot constitute that place the seat of

control and management of the affairs of thefamily.


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Nor much importance can be attached to the fact thatthe assessee had to stay in India for 101 days in aparticular year.

He was undoubtedly interested in the litigation withregard to his family property as well as in the incometax proceedings, and by merely coming out to India totake part in them, he cannot be said to have shifted the

seat of management and control of the affairs of hisfamily, or to have started a second centre for suchcontrol and management.


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Also starting of two partnership businesses, asmere activity cannot be the test of residence.

It seems that the High Court have taken rather anarrow view of the meaning of Section 6 ,because they seem to have proceeded on theassumption that merely because the assessee

attended to some of the affairs of his familyduring his visit to India in the particular year, hebrought himself within the ambit of the rule.


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On the other hand, it seems that the morecorrect approach to the case was made by theAppellate Assistant Commissioner of Income

Tax in his order : During a major portion of the accounting

period the appellant was controlling thebusinesses in Burma and Saigon and there is

no evidence that such control was exercisedonly from Colombo.


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No correspondence or other evidence was

produced which would show that any

instructions were issued from Colombo as

regards the management of the affairs in Indiaespecially as it was an unauthorized clerk who

was looking after such affairs.


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The presumption therefore is that wheneverhe came to India the appellant was lookingafter these affairs himself and exercising

control by issuing instructions.... It has beenadmitted that there are affairs of the family inIndia. Has it been definitely established in thiscase that the control and management of such

affairs has been only in Colombo? I have tohold it has not been established for thereasons already stated by me.


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There can be no doubt that the onus of proving facts whichwould bring his case within the exception, was on theassessee.

The appellant was called upon to adduce evidence to showthat the control and management of the affairs of thefamily was situated wholly outside the taxable territories,but the correspondence to which the AssistantCommissioner of Income Tax refers and other materialevidence which might have shown that normally and as amatter of course the affairs in India were also beingcontrolled from Colombo were not produced.


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The position therefore is this.

On the one hand, we have the fact that the

head and karta of the assessees family who

controls and manages its affairs permanently

lives in Colombo and the family is domiciled in

Ceylon.


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On the other hand, we have certain acts done

by the karta himself in India, which, though

not conclusive by themselves to establish the

existence of more than one centre of controlfor the affairs of the family, are by no means

irrelevant to the matter in issue and therefore

cannot be completely ruled out ofconsideration in determining it.


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In these circumstances, and in the absence of

the material evidence to which reference has

been made, the finding of the Assistant

Commissioner, that the onus of proving suchfacts as would bring his case within the

exception had not been discharged by the

assessee and the normal presumption mustbe given effect to, appears to us to be a

legitimate conclusion.


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In this view, the appeal must be dismissed withcosts.

However as this case has to be decided mainlywith reference to the question of onus of proof,the decision in this appeal must be confined tothe year of assessment to which this case relates,and it would be open to the appellant to show in

future years by proper evidence that the seat ofcontrol and management of the affairs of thefamily is wholly outside India.

V Chettiar v CIT

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