COMMISSIONER OF INCOME-TAX Vs. VEKRSAVUMIAMURTHY

JUDGEMENT

(1.) This reference arises out of an. assessment to income-tax and excess profits duty made on the respondent as the manager of a Hindu undivided family of the year 1940-41.

(2.) The family was carrying on business at Kaketiruppupudur (Ramnad district) in British India and in Ceylon and its income from both these sources has been taxed on the footing that the family was " resident " and " ordinarily resident " in British India. In each case the income taxed was of the" previous year," which was the Tamil year Pramathi ending 12 April, 1940, for the Indian business and the financial year ending 31 March, 1940, for the foreign business, the assessee's accounts in the two places having been made up to those dates respectively. There was no dispute that the family was " resident " in British India within the meaning of Section 4(1)(b) read with Section 4-A of the Indian Income-tax Act, 1922, as. amended by the Income-tax (Amendment) Act (VII of 1939.) The assessee, however,, contended that the family was " not ordinarily resident " in British India within the meaning of the second proviso to Section 4(1) read with Section 4-B and that, accordingly, the income arising to it from the business in Ceylon should not be included in the assessment, there being no suggestion that such business was controlled in India or that such income was brought into British India.

(3.) Now, a Hindu undivided family is deemed to be " ordinarily resident " in British India if its manager is ordinarily resident in British India [4-B (b)] and an individual and " not ordinarily resident " in British India " in any year if he has not been resident in British India in nine out of the ten years preceding that year or if he has not during the seven years preceding that year been in British India for a period of, or for periods amounting in all to, more than two years" [4-B (a)]. The assessee's attempt before the Income-tax authorities to prove that his family was not resident in British India in nine out of the ten years prior to the year of account having proved unsuccessful, he shifted his position before the Income-tax Appellate Tribunal (Madras Bench) and sought to bring the case under the latter part of the Clause (a), contending that the " seven years " referred to in that clause must be taken to be seven calendar years. The Tribunal ordered a fresh inquiry and it was found (i) that the manager of the family was in British India from 541r (this was subsequently corrected into 606) days on the aggregate during the period of the seven calendar years from 1 January, 1929, to 31st December, 1938, preceding, the year of account, whether of the Ceylon or the Indian business; (ii) that he was in British India for 731 days on the aggregate during the seven Tamil years preceding Pramathi, the year of account of the Indian Business; and (in) that he was in British India for 731 days on the aggregate during the seven financial years preceding the financial year 1939-40 which was the year of account of the Ceylon business. It will thus be seen that if the seven "years" mentioned in Clause (a) be taken as seven-calendar years, the manager cannot be said to have been in British India during that period for more than two years and the assessee's joint family would be entitled,, under the second proviso to Section 4 (1) as a person " not ordinarily resident " in British India, to claim the exclusion of the foreign income from the assessment. The claim was accepted by the tribunal and the assessment was ordered accordingly to be reduced. The Commissioner of Income-tax having challenged the correctness, of that view, the Tribunal has referred the following question to this Court for its decision: Whether in the circumstances of the case, in computing the period or periods when the manager of the Hindu undivided family had not been in British India, the seven years in Section 4-B of the Income tax Act should be taken as seven calendar years or seven previous years. It may be mentioned here that the assessee raised before the Tribunal an alternative contention, viz., that, even if the aggregate period of the manager's stay in British India during the relevant years be taken as 731 days, it cannot be said to be " more than two years " as the seven years, however reckoned, must include at least one leap year. But the Tribunal did not decide the point and it is not before us.