F Y KHAMBHATY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference involves two questions, one relates to the jurisdiction of the Tribunal under S. 33(5) of the IT Act, 1922, and the other relates to the status of the firm of M/s F. Y. Khambhaty which carried on business at Kano in Nigeria and in which the assessee was a partner along with one Lahorewala and was having a share of sixty per cent as against the share of forty per cent of the said Lahorewala. The first question was referred to this Court by the Tribunal in the reference made by the Tribunal on 10th June, 1960, while the second question has been referred to us as a result of an order passed by this Court on 29th Nov., 1962, in Income tax Application No. 13 of 1962.

(2.) THE two questions arise as a result of assessments having been made against the assessee, F.Y. Khambhaty, and the said firm of Kano, hereinafter referred to as the Kano firm, for the asst. yrs. 1950 51 to 1953 54. The relative previous years, in so far as the assessee's share of profits in the profits of the Kano firm is concerned, were the financial years ending 31st March, 1950, 31st March, 1951, 31st March, 1952, and 31st March, 1953. We are concerned in this reference with the assessee, F. Y. Khambhaty, in his status as an individual, but since the assessments in question involve his share of profit in the Kano firm, the question arising under the second proviso to S. 4(1) would be relevant.

(3.) THE business of the Kano firm consisted in importing to Nigeria agate stones and other miscellaneous articles such as sandal wood, cloth, etc., and selling them in retail at Kano. There is no dispute that the agate stones were almost exclusively purchased at Cambay from a concern known as the Cambay Agate Stones and Jewellery Corporation, hereinafter referred to as the Cambay firm. It is also not in dispute that during the period from 1st Nov., 1947, to 30th Aug., 1951, the assessee resided in Cambay and obviously, therefore, Lahorewala during this period would be managing the Kano firm at Kano. There was also another concern known as Khambhaty Trading Company carrying on its business at Cambay of which the assessee's wife, one Saffoobai, was the ostensible owner. By an agreement dt. 5th Jan., 1950, made between Khambhaty Trading Company and the said Cambay firm, it was agreed that the Cambay firm should supply all agates required by the Kano firm and on the purchases so made by or on behalf of the Kano firm, the assessee's wife as the proprietor of Khambhaty Trading Company should be paid commission at the rate of ten per cent Though it was the case of the assessee that his wife was the proprietor of the said Khambhaty Trading Company, that case was disbelieved and both the taxing authorities as also the Tribunal have held in the assessment proceedings against the assessee as also against the Kano firm that Saffoobai was only the benamidar of the assessee and that the business of Khambhaty Trading Company was really the business belonging to the assessee. That part of the orders in both the assessments is no longer in dispute before us and, therefore, we will have to proceed on the footing that the Khambhaty Trading Company was the concern of the assessee. The assessee was at first assessed by the ITO as resident and an ordinary resident for all the three years. The ITO included in the assessee's income for these assessment years his share of profits in the Kano firm on the basis that he was controlling during these years the Kano firm from Cambay. The share of profits in that firm so included in the assessee's taxable income was as follows: