BHIMJI NAIK Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This reference was before this Court on September 29, 1944, when we decided that upon the true construction of Sub-section 4A(I) of the Indian Income-tax Act, which deals with the question of residence of a Hindu undivided family, firm or other association of persons, the control and management therein mentioned must be de facto control and management and not de jure control and management and we sent this matter back to the Tribunal to find the necessary facts (see Bhimji Naik V/s. Commissioner of Income-tax Bombay (1944) 47 Bom. L. H. 187), The assessee firm in this case admittedly carries on its business in South Africa. The suggestion of the Commissioner was and is that Rao Bahadur Naik, who founded the business and returned to live in India, still retains the control and, management of its affairs. Sub- section (b) of Section 4A of the Indian Income-tax Act provides: For the purposes of this Act- (b) 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. Sub-section (c) deals with the case of a company and provides: A company is resident in British India in any year if the control and management of its affairs is situated wholly in British India in that year, or There follows another proviso which is not material.

(2.) Control and management of the affairs of a business must be effected through the media of human minds, and in dealing with a plurality of persons who either jointly or severally exercise powers of control and management over a particular business, and who may be either generally or from time to time in different places and in communication by letter, telephone or telegram, it may be difficult to ascertain where the control and management is situated. Especially is this so, when, as in this case, the section refers to the control and management being situated wholly without British India. In one sense an American business man, who pays a short visit to this country and while here by cablegram gives some instructions to his firm in America, could be said to make his firm resident in British India for Income-tax purposes. But in my opinion the canons of construction do not demand the conclusion of any such extreme result. I think that a liberal meaning is to be given to the words "wholly situated" and that it must be ascertained in every case where in fact the control and management of the business is situated, apart from the temporary journeyings of the active partners or the residence of the dormant ones. Some assistance is to be gained by comparing the language of Sub-section (b) with that of Sub-section (c), which deals with companies, and which I have already quoted. A company has a registered office and its directors hold their board meetings and its members their annual general meetings at a particular place. These are indicators which must assist in any consideration of the situation of the control and management of a company, and free it from some of the difficulties which arise in the case of a firm, however in the case of a firm, the problem ought, in my opinion, to be approached from the same angle.

(3.) If this is correct, the further facts found by the Tribunal present little difficulty to our holding that this firm was managed and controlled outside British India. There are on record three affidavits, one of which is deposed to by Hap Bahadur Naik himself, he having died during the pendency, of these proceedings, and in that affidavit he says: :- The said business and its affairs are solely and wholly controlled and managed by the partners residing in South Rhodesia. I have not at any time either controlled and managed or attempted to control and manage the affairs of the said business. I say that the; control and management of the affairs of the said business are situated wholly without British India.