Citation Codes

Equivalent Citations

citation codes

Case Number

Tax Cases Nos. 60 of 1958 and 6 of 1961 (References Nos. 35 of 1958 and 6 of 1961)

Judges

Jagadisan
Srinivasan, JJ.

Acts

See more information ...

Smart Summary

Summary of the Judgment delivered by Jagadisan, J.

Factual and Procedural Background

Mohamed Rowther of Muthupet (Tanjore district) migrated to Penang in 1938 and carried on a lighterage business there. He had two Indian wives and nine children (referred to as the Indian heirs) and a Malayan wife and one son (referred to as the Malayan heirs). He executed a will on 9 August 1943 and died on 17 August 1943. He appointed three executors: Amir Mohideen, Mohamed Noorudeen and Sheik Ahmed. Probate of the will was obtained from a Japanese court on 12 December 1944 and later confirmed by the British court after re-occupation.

Of the three executors, only Amir Mohideen actively managed the Penang lighterage business until his management was taken over by power-of-attorney agents of the Indian heirs on 18 December 1946. The Indian heirs in India learned of the death only after British re-occupation (1945) and remitted $15,000 on 3 September 1945 to the executors to enable continuation of the lighterage business. A power of attorney dated 26 August 1946 was executed by the Indian heirs in favour of Dawood Ghani and Hameed Sultan; Dawood Ghani travelled between India and Malaya, and Hameed Sultan remained in Penang from 1946.

The Income-tax Officer, Nagapattinam, assessed the estate's income for calendar years 1945–1948 (relevant previous years 1946-47 through 1949-50) treating the heirs as an association of persons and assessing the entire estate income to that unit. The Indian heirs appealed, arguing they were merely co-heirs (not an association), and that they should be treated as non-residents. The Appellate Assistant Commissioner dismissed the appeals. The Income-tax Appellate Tribunal held that an association of persons existed but limited it to the Indian heirs (excluding Malayan heirs), excluded rental income under section 9(3), and assessed the foreign business income to the extent of 101/120 (Indian heirs' share). The Tribunal rejected the non-resident contention.

The Tribunal referred two questions of law: (a) T.C No. 60 of 1958: whether the assessments of the eleven Indian heirs as an association of persons on 101/120 parts of the Penang lighterage business for the four assessment years were valid; and (b) after directions for a fresh statement, T.C No. 6 of 1961: whether the assessments made on the assessee in the status of an association of persons, resident and ordinarily resident in the taxable territory, are valid in law. These references were heard together.

Legal Issues Presented

Whether the assessments of the eleven Indian heirs of Mohamed Rowther as an association of persons on 101/120 parts of the Penang lighterage business for the four assessment years 1946-47 to 1949-50 are valid (T.C No. 60 of 1958).
Whether, on the facts and in the circumstances of the case, the assessments made on the assessee in the status of an association of persons, resident and ordinarily resident in the taxable territory, are valid in law (T.C No. 6 of 1961).

Arguments of the Parties

Indian heirs (Assessees) — main contentions

They were merely co-heirs under Mohammedan law with defined shares in the estate and not an "association of persons" that could be assessed as a unit.
The assessment should be made against each heir individually in respect of his or her share of income.
They should be treated as non-residents (control and management of affairs wholly outside taxable territories) and therefore not taxable as residents under section 4A(b).

Income-tax Department / Income-tax Officer — position reflected in the record

The estate's income should be assessed treating the heirs as an association of persons (unit of assessment).
The entire income of the estate was brought to tax on that basis, and the non-resident plea was rejected by the Income-tax Officer.
Before the Income-tax Officer in later assessment orders, concessions were recorded by or on behalf of the assessee treating the estate as resident and ordinarily resident for certain years (reflected in assessment order notes for assessment years 1948-49 and 1949-50).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Indira Balakrishna v. Commissioner of Income-tax [1956] 30 I.T.R 320	Mere co-ownership is not sufficient to justify assessment treating co-owners as an association of persons.	The Court relied on this principle to emphasize that co-ownership/co-heirship alone does not automatically create an association of persons; there must be unity of income-making purpose.
S.C Mazumdar v. Commissioner Of Income-Tax [1947] 15 I.T.R 484	Co-ownership is not destroyed by court-appointed management (e.g., receivers); such situations do not of themselves convert co-owners into an association for assessment.	Cited to show that legal incidents like appointment of receivers or managers do not per se make co-heirs an association; but the Court also noted facts may nevertheless attract association status if unity of purpose exists.
Estate of Mohd. Oomer Sahib v. Commissioner of Income-tax [1958] 33 I.T.R 767	If co-heirs exhibit unity of purpose in carrying on a business (even through receivers) with the objective of earning profits, they may constitute an association of persons for assessment.	The Court treated this authority as directly analogous: where heirs authorised or acquiesced in a common management to continue the business with the objective of earning profits, an association of persons could be recognized. This precedent was used as the principal factual and legal comparator to uphold the Tribunal's finding that Indian heirs formed an association for the Penang business.
V.V.R.N.M Subbayya Chettiar v. Commissioner Of Income Tax, Madras (Supreme Court decision cited)	Interpretation of "control and management": it signifies the controlling and directive power ("the head and brain") functioning at a particular place with some degree of permanence; allows that the seat of power may be divided between places.	The Court invoked this interpretation in construing section 4A(b) to determine whether the association's control and management was situated wholly outside taxable territories, focusing on de facto control and its seat.
B.R. Naik v. Commissioner of Income-tax; Commissioner of Income-tax v. Erin Estate; K.V. Narasimha Rao Bahadur v. Commissioner of Income-tax [1950] 18 I.T.R 181	"Control and management" means de facto control and management, not merely a right or power to control; the test is what is actually done in relation to business affairs relevant to taxation.	These authorities were used collectively to explain that residence under section 4A(b) depends on actual exercise of control and management within taxable territory, and that the onus is on the assessee to show that control was wholly outside India.
Commissioner of Income-tax v. Palaniapfta Chettiar (as cited)	Mere receipt in India of copies of business books does not by itself amount to exercise of control over a foreign business.	Cited to illustrate limits on what constitutes control from India; the Court used it to show that isolated acts (like receiving books) do not necessarily establish control and management within India.
Commissioner of Income-tax v. Gangabishan Mohanlal (as cited)	Mere presence of the karta (or a partner/member) in India for some time does not necessarily imply control of a foreign business during that period.	Relied upon to caution that mere physical presence or intermittent activity in India does not automatically make the association resident; factual proof of de facto management is required.

Court's Reasoning and Analysis

The Court proceeded in two broad analytical strands: (A) whether the Indian heirs constituted an "association of persons" for assessment purposes; and (B) whether that association was resident and ordinarily resident in the taxable territory (section 4A(b)).

A. Association of Persons — legal test and application

The Court restated the settled legal principle that co-ownership or co-heirship under Mohammedan law (where heirs have definite shares) does not by itself make the group an association of persons for income-tax assessment. The crucial test is unity of purpose directed specifically to earning income — a voluntary combination for a common endeavour — rather than mere unity of title.

Applying that test to the facts, the Court identified multiple indicia showing the Indian heirs acted with a unity of income-making purpose:

The remittance of $15,000 by the Indian heirs to Penang on 3 September 1945 to revive the lighterage business, and the agreed statement that the executors "revived the lighterage business" with that overdraft, indicated collective financial support and consent by the Indian heirs to continuation of the business.
The power of attorney dated 26 August 1946 included a clause (clause 11) stating the agents were to "take charge and possession of the estate from ... who are in charge ... on our behalf", which the Court read as a clear indication that the business was then being run by executors with the consent of the Indian heirs.
The will itself did not expressly authorize the executors to continue the business, and there was no evidence of court sanction to run the business; nonetheless, the conduct of the heirs (financial remittance, power-of-attorney authorization, and acquiescence) demonstrated joint permission and desire for the business to be continued through executors/agents because the heirs were in India and not able personally to run the business.

The Court relied on Estate of Mohd. Oomer Sahib as a directly relevant precedent where heirs continuing a business via receivers/executors with a common objective of earning profits were treated as an association of persons. On these materials the Court held that the Tribunal correctly found that the Indian heirs formed an association of persons in running the Penang business through the executors and agents; accordingly they could be assessed as a unit.

Result on this point: The question in T.C No. 60 of 1958 was answered against the assessee (i.e., the assessment of the Indian heirs as an association of persons on 101/120 parts was held valid). The assessee was ordered to pay the department's costs and counsel's fee Rs. 250.

B. Residence / "control and management" — legal test and application

The Court examined section 4A(b), which deems a Hindu undivided family, firm or other association of persons to be resident in the taxable territories unless the control and management of its affairs is situated wholly without the taxable territories. The Court adopted the Supreme Court's exposition of "control and management" (the controlling and directive power, the "head and brain", functioning at a place with permanence) and emphasized that control and management is a question of de facto exercise and not merely legal right or remote power.

The Court applied these principles to year-by-year facts:

Calendar years 1945 and 1946: Amir Mohideen alone managed the Penang business on behalf of the heirs and exercised full, plenary managerial powers without direction from the Indian heirs. The release deed dated 18 December 1946 (consideration of $4,800 and an explicit undertaking by the trustee to hand over "the management and control of the business") indicated that until that handover the business was in Amir Mohideen's exclusive management and control. As Amir Mohideen was resident at Penang, the association must be deemed non-resident for 1945 and 1946 for the foreign business income (control and management was not situated within the taxable territories during those years).
Calendar years 1947 and 1948: Management was taken over by Dawood Ghani under a power of attorney executed by the Indian heirs; Dawood Ghani was not a non-resident and was physically present in India from 25 May 1947 to November 1948. Assessment orders recorded concessions made on behalf of the assessee that, in the absence of material showing Dawood Ghani did not exercise control or management of the foreign business during periods he was in India, the auditors had no objection to treating the estate as resident and ordinarily resident. The Court held the assessee could not successfully contend at this stage that it was non-resident for these years; the concessions and on-record materials established residence for assessment years 1948-49 and 1949-50.

The Court reiterated that the onus is on an assessee claiming non-resident status to prove that nothing was done within the taxable territory that formed a necessary integral part of the business activity; authorities cited support the principle that mere rights, receipt of books, or brief physical presence do not alone establish control, but where the facts show de facto control in India the association is resident.

Holding and Implications

Holding:

T.C No. 60 of 1958: The Tribunal's assessment of the eleven Indian heirs as an association of persons on 101/120 parts of the Penang lighterage business for the assessment years in question is valid. (Answered against the assessee.) The assessee must pay the costs of the department; counsel's fee Rs. 250.
T.C No. 6 of 1961: The association is to be treated as non-resident for calendar years 1945 and 1946 (assessment years 1946-47 and 1947-48) but as resident and ordinarily resident for calendar years 1947 and 1948 (assessment years 1948-49 and 1949-50). (Answered in favour of the assessee for 1945–46; against the assessee for 1947–48.) There will be no order as to costs in this reference.

Implications:

Direct consequence on parties: The Indian heirs may be assessed as a single unit (association of persons) for the Penang lighterage business on the shares identified by the Tribunal (101/120), as the Court upheld the Tribunal's finding of association. For residence, the foreign-business income is treated as arising to a non-resident association for calendar years 1945 and 1946 (thus not captured by resident taxation rules under section 4A(b)), while for 1947 and 1948 the association is resident and ordinarily resident and subject to resident assessment rules.
No broader implications beyond the case facts are discussed in the opinion; the Court applied established principles from prior authorities to the specific factual matrix and did not purport to lay down new general principles beyond those applications.

End of summary based exclusively on the provided opinion.

Show full summary ...

Estate Of A. Mohamed Rowther (By Power Agent) A.M Kadar Shaw Rowther v. Commissioner Of Income-Tax, Madras.

The Judgment of the Court was delivered by

Jagadisan, J.:— One Mohamed Rowther of Muthupet in Tanjore district migrated to Penang in 1938 and carried on a lighterage business in the Penang Harbour. He married two wives in India, by whom he had nine children. For the sake of convenience, we would refer to them in this judgment as the Indian heirs. He also married a Malayan wife and had a son by her. This wife and son would be referred to in this judgment as the Malayan heirs. Mohamed Rowther had a successful business career, and, besides the lucrative business at Penang, he came to own large extent of house properties and agricultural lands in India. During his absence in Malaya his son-in-law, one Dawood Ghani, was managing the properties in India under a power of attorney. Mohamed Rowther executed his last will and testament on 9th August, 1943, and died on 17th August, 1943. His estate devolved upon the two Indian wives, their nine children, the Malayan wife and her only son. Under the will, he had, however, appointed three executors and trustees to administer the properties belonging to him until they were divided and distributed to his heirs-at-law; and they were (i) Amir Mohideen, (2) Mohamed Noorudeen and (3) Sheik Ahmed. Penang was under Japanese occupation at the time of Mohamed Rowther's death and for some time thereafter. The executors obtained probate of the will from the Japanese court on 12th December, 1944. After the British re-occupation some time in 1945, this probate was confirmed by the British court. All the three executors, however, did not take up the management of the estate of the deceased, Mohamed Rowther. It was only Amir Mohideen who appears to have carried on the lighterage business in his capacity as executor till it was taken over by the power of attorney agent of the Indian heirs on 18th December, 1946. The news of the death of Mohamed Rowther was received by the Indian heirs only after the British re-occupation in 1945. On 3rd September, 1945, the Indian heirs remitted a sum of $ 15,000 through the Indian Overseas Bank Ltd., to the executors to enable them to carry on the lighterage business. Hameed Sultan, the eldest son of the deceased Mohamed Rowther, and Dawood Ghani, his son-in-law, left India on or about 10th June, 1946, for Penang. A power of attorney was executed in favour of Dawood Ghani and Hameed Sultan by the Indian heirs on, 26th August, 1946. Actually, the management of the business at Penang was taken over by these power of attorney agents from the functioning executor, Amir Mohideen, on 18th December, 1946. Dawood Ghani returned to India on 25th June, 1947, and again left for Malaya in November, 1948. Hameed Sultan appears to have been staying on at Penang from 1946 onwards.

2. The Income-tax Officer, Nagapattinam, assessed the income of the estate of the deceased, Mohamed Rowther, in the hands of his heirs and legal representatives for the calendar years 1945, 1946, 1947 and 1948, the previous years relevant to the assessment being 1946-47, 1947-48, 1948-49 and 1949-50. His heirs, Indian as well as Malayan, were treated as an association of persons under the Indian Income-tax Act, and the entire income of the estate was brought to tax, treating the association as the unit of assessment. The contention raised on behalf of the Indian heirs that they were merely co-heirs of a deceased Mohammedan, that they did not constitute an association of persons, and that the assessment should be made as against each heir in respect of his or her share income was negatived by the Income-tax Officer. Their further plea that they should be treated as non-residents also did not find favour with the officer. The following tabular statement gives the particulars of the income Indian and foreign, of the estate during the relevant assessment years:

Previous year Assessment Indian Foreign Total income 1 2 3 4 5 Rs. Rs. Rs. Calendar year 1945 1946-47 1,440 5,454 6,894 1946 1947-48 1,440 22,908 24,348 1947 1948-49 1,440 55,659 57,099 1943 1949-50 1,440 46,360 47,800

3. The assessees, the Indian heirs, preferred appeals to the Appellate Assistant Commissioner against the said assessments and reiterated their contention that they did not form a unit of assessment, and that it would be inappropriate to call them an association of persons and that the control and management of the affairs of the estate of the deceased, Mohamed Rowther, were wholly outside India, that they should be deemed to be nonresidents under section 4A of the Act, and that the orders of assessment made by the Income-tax Officer were illegal and improper. The Appellate Assistant Commissioner, in a brief unsatisfactory order, dismissed the appeals.

4. Appeals to the Income-tax Appellate Tribunal were taken by the assessees. The Tribunal reached the conclusion that there was an association of persons which could be the unit of assessment on the facts and circumstances set forth above, but that the association of persons must consist only of the Indian heirs, excluding the Malayan heirs. The Tribunal excluded the rental income from properties in India, acting under section 9(3) of the Act. What was brought to tax by the Tribunal was the income from the foreign business to the extent of 101/120 shares of the Indian heirs, excluding the shares of 19/120 of the Malayan heirs. The assessee's plea that they were non-residents was, however, repelled.

5. At the instance of the assessees, the Tribunal referred the following question of law, which forms the subject-matter of T.C No. 60 of 1958:

“Whether the assessments of the eleven Indian heirs of Mohamed Rowther (deceased) as an association of persons on 101/120 parts of the Penang lighterage business for the four assessment years 1946-47 to 1949-50 are valid?”

6. On a reference application made to this court under section 66(2) of the Act, the Tribunal was directed to submit a fresh statement of facts raising the following question, which forms the subject-matter of T.C No. 6 of 1961:

“Whether, on the facts and in the circumstances of the case, the assessments made on the assessee in the status of an association of persons, resident and ordinarily resident in the taxable territory, are valid in law?”

7. We have heard these reference cases together and they can be conveniently disposed of by a common judgment.

8. We shall first deal with the question of the status of the Indian heirs —whether they would constitute an association of persons assessable as a unit under the Indian Income-tax Act, or whether they are merely co-heirs of a deceased Mohammedan liable to be assessed, each in respect of his share income from the totality of the estate. Under the Mohammedan law, the death of an individual vests his estate in his heirs in definite and ascertained shares to be computed in accordance with the personal law governing them (Hanafi law or Shia law). The co-heirs of a deceased Mohammedan are merely co-owners of a common estate, each with a specific, defined and I ascertained share. Of course, these heirs take the property subject to various charges being paid out, like debts, funeral expenses, etc. It is now settled law that mere co-ownership is not sufficient to justify an assessment by the department, treating the co-owners as an association of persons (see Indira Balakrishna v. Commissioner of Income-tax [1956] 30 I.T.R 320.). This co-ownership is not destroyed even if it so happens that the management of the joint undivided estate is entrusted to the care of a manager by a court or if the properties vest in custodia legis by reason of the appointment of the receiver (see S.C Mazumdar v. Commissioner Of Income-Tax* [1947] 15 I.T.R 484.). But there is nothing impracticable or impossible for co-owners or for co-heirs to attract the characteristics of an association of persons under the Indian Income-tax; Act if the facts and circumstances of the case so warrant. An association of persons is a unit of assessment under the Indian Income-tax Act. The precise meaning of the expression has come up for consideration on several occasions before the courts. The word “association” indicates plainly the voluntary combination for a common endeavour and not a mere legal status resulting from operation of law. Co-owners, co-heirs or co-legatees do not constitute such association in respect of the income of the joint or common asset by reason only of their jural relationship. But, if they unite themselves with the objective of earning income, they constitute an association of persons for assessment purposes and they cannot take advantage of their legal position to resist assessment on that basis. The essential criterion that attracts the label of “association of persons” in the income-tax department is the unity of the income-making purpose rather than the unity of title in the income-yielding asset.

9. This question has been discussed and dealt with elaborately by a Division Bench of this court in Estate of Mohd. Oomer Sahib v. Commissioner of Income-tax [1958] 33 I.T.R 767.. In that case, a Mohammedan who was carrying on business of manufacture and sale of beedies died intestate on December 17, 1942, leaving as his heirs, N, a son by his predeceased wife, L, his widow, and his four children by L. The widow, L, and D, a maternal uncle of N, carried on the business after the death of O. A suit for partition was instituted by N (represented by D as his next friend), and pending these proceedings, on 17th March, 1943, two advocates were appointed as joint receivers of all the properties of O, on the basis of a compromise between all the heirs. The widow filed another suit for partition, and, in her application for the continuance of the joint receivers which N opposed, the court ordered the continuance of the receivers on 25th May, 1943. The receivers continued in charge of the business till 25th November, 1946, when the business was put up for auction in the suit for partition and N bought the business. The income-tax department proceeded under section 41(1) of the Act and assessed the profits of the business for the calendar years 1943 to 1946 in the hands of the joint receivers on the basis that the profit accrued to an association of persons consisting of the heirs. The Tribunal confirmed this assessment. This court held that joint receivers were receivers appointed by the court within the meaning of section 41(1), that neither the fact that the heirs of 0 inherited the business on his death and owned it thereafter as co-sharers with defined shares and the income belonged to the group of heirs with defined shares, nor the fact that they were entitled to and did receive their share of the profits, constituted them an association of persons, that the fact that the group of co-sharers did not constitute a firm or a partnership had no relevance to the question whether they constituted an association of persons, that as the business was continued without any interruption after the death of and all the heirs all through wanted receivers to be appointed to conduct the business, there was a unity of purpose and objective between them which was sufficient to constitute them an association of persons, the ultimate object of which was that profits should be earned on their behalf.

10. We have no doubt that, in the instant case, the executor, Amir Mohideen, who alone of the three executors got into the management of the business at Penang, functioned only as a result of the common consent of all the heirs, both Indian and Malayan. We are, of course, not now concerned with the Malayan heirs, as they have been excluded from the association of persons by the Tribunal. So far as the Indian heirs are concerned, there is ample evidence to show—and indeed, there is a clear finding of fact on this point by the Tribunal—that Amir Mohideen carried on the business on behalf of the Indian heirs with their concurrence and cooperation. The remittance of $ 15,000 in September, 1945, from India to Penang is significant and is explicable only on the ground that the heirs in India agreed to the business being carried on by one or other of the executors at Penang. In the statement of the case, which is an agreed statement between the department and the assessee, it is observed by the Tribunal as follows:

“The Indian heirs obtained an overdraft accommodation from the Indian Overseas Bank Ltd. for $15,000, with which the executors revived the lighterage business on September 3, 1945, with the eighteen lighters available and continued to carry it on.”

11. There is clear indication in the recitals of the power of attorney dated August 26, 1946, executed by the Indian heirs in favour of Dawood Ghani that the business was under the management of executors with the consent of the Indian heirs. Clause 11 of that power reads:

“To take charge and possession of the estate from E.P Mohamed Noorudeen and S. Amir Mohideen who are in charge of and in possession of the estate and management of the business at Penang on our behalf.”

12. It must be noted that the testator did not specifically authorise the executors to carry on the business after his death. The will is very brief in its terms and the appointment of executors and the bequests devised are in these terms:

“I appoint E.P Mohamed Noorudeen, Amir Mohideen and T.V Sheik Mohamed to be the executors and trustees of this my will.

I give, bequeath and devise all my estate and property whatsoever and wheresoever situate unto my trustees upon trust to distribute them among my said wives and their children by me according to Mohammedan law of the Hanafi sect.”

13. There is no evidence to show that the executors who obtained probate of the will before the Japanese court as well as before the British court obtained sanction of the court to run the lighterage business. On those materials, the only conclusion that is possible is that the Indian heirs jointly permitted and desired the continuance of the business in the hands of the executors at Malaya, particularly because they were persons competent to run the business and because the heirs were all in India, none of them being in a position to go to Penang and take over the business. In our opinion, the Tribunal has taken the correct view that the Indian heirs formed themselves into an association of persons in running the business at Penang through the agency of the executors and that, therefore, they are liable to be treated as a unit of assessment. The question referred in T.C No. 60 of 1958 is therefore answered against the assessee who will pay the costs of the department. Counsel's fee Rs. 250.

14. The relevant statutory provision on the question whether the association is a resident or not is section 4A(b) which runs thus:

“For the purposes of this Act……

(b) a Hindu undivided family, firm or other association of persons is resident in the taxable territories unless the control and management of its affairs is situated wholly without the taxable territories”

15. In order to ascertain whether the control and management of the affairs of the association was inside or outside the taxable territories, regard must be had only to the manner in which the Penang business was carried on and to the part played by the Indian heirs in respect of such management. The interpretation of the term “control and management” occurring in section 4A(b) is found in the decision of the Supreme Court in V.V.R.N.M Subbayya Chettiar v. Commissioner Of Income Tax, Madras delivering the judgment of the court, quotes with approval the following observation of Patanjali Sastri J., as he then was:

Control and management signifies in the present context, the control-ling and directive power, ‘the head and brain’ as it is sometimes called, and ‘situated’ implies the functioning of such power at a particular place with some degree of permanence, while wholly would seem to recognise the possibility of the seat of such power being divided between two distinct and separated places.”

16. At page 172 Fazl Ali J. observes:

“we take it that the word ‘affairs’ must mean affairs which are relevant for the purpose of the Income-tax Act and which have some relation to income.”

17. Ordinarily, the income from a business arises only at the place where the business is carried on. If the owner of the business, however, resides elsewhere, that is, a place outside the business place, his tax liability for the purpose of income-tax would depend upon his place of residence. It is presumed that an owner of a business has the control and management of the business whether or not he is physically present on the spot where the business is carried on. But, at the same time, it must be remembered that “control and management” means de facto control and management, and not merely the right or power to control and manage. This has been laid down in B.R Naik v. Commissioner of Income-tax, Commissioner of Income-tax v. Erin Estate and K.V Narasimha Rao Bahadur v. Commissioner of Income-tax [1950] 18 I.T.R 181.. In other words, an assessee—we mean a Hindu undivided family, firm or an association of individuals—can claim to be a non-resident only by adducing proof that nothing was done within the taxable territory in relation to the business outside the territory, which can be described as a necessary integral part of the business activity in furtherance of the business. The mere physical presence of the karta of the family, or a partner of the firm, or the members of the association of individuals in India is not sufficient to attribute to them the character of “resident” as defined in section 4A of the Act. To quote the words of Viswanatha Sastri J. in Commissioner of Income-tax v. Erin Estate “control and management therefore means de facto control and management. The existence of a mere right or power of control and management is not the criterion…. It is not what the partners of the firm in the present case have power to do, but what they actually do that is of importance in determining the place where the control is exercised. When section 4A(b) refers to the control and management of its affairs by the firm, it means the affairs which have some relation to the business whose income, profits and gains are sought to be taxed…” It is not possible to lay down in precise or definite terms as to what activity would answer this description, as every-thing depends upon the nature of the business and the degree of activity and the facts and circumstances of a particular case. It has been held that the mere receipt in India by the karta or a partner of copies of business books would not by itself amount to an exercise of control. (Commissioner of Income-tax v. Palaniapfta Chettiar). The mere presence of the karta for some time in India has been held not to imply control of the foreign business during that period from India (Commissioner of Income-tax v. Gangabishan Mohanlal). These principles are no doubt fairly clear but their application is not always easy, as there are borderline cases in which i it would be very difficult to appreciate the precise nature of the so-called-activity in India relating to a foreign business. But the onus is upon the assessee, who claims to be a non-resident, to prove that the entire control and management of the affairs of the association or Hindu undivided family or firm was wholly outside the taxable territories.

18. In the present case, it is plain and obvious that, for the calendar years 1945 and 1946, the association of persons, which was represented only by Amir Mohideen at Malaya, must be deemed to be a non-resident. Amir Mohideen was in charge of the business solely and exclusively, no doubt, for and on behalf of the Indian heirs. But, in so far as the conduct of the business was concerned, he was in full and complete charge of the business and was not under the directions of the Indian heirs. This position cannot be disputed in view of the terms of the release deed executed by Amir Mohideen in favour of Dawood Ghani on 18th December, 1946, when the latter took over the management of the business from him. The document reads:

“In consideration of the 4,800 dollars, being the commission payable to the trustee, paid by the beneficiaries to the trustee (the receipt whereof the trustee hereby acknowledges) and the indemnity hereinafter contained, the trustee hereby agrees to hand over to the beneficiaries the management and control of the business and other effects belonging to the estate of the said Ana Mohamed Rowther.”

19. This clause is sufficiently clear to indicate that, till the business was handed over by Amir Mohideen, it was under his management and control with plenary powers to conduct it in the light of his own wisdom. Amir Mohideen was certainly a non-resident, he having resided at Penang during the relevant period. In our opinion, there is no justification for treating the association of persons as a resident for the two years 1945 and 1946 in respect of the foreign business income. In respect of the later years 1947 and 1948, the business was run by Dawood Ghani, he having taken over the management from Amir Mohideen and holding a power of attorney from the Indian heirs. It, is common ground that Dawood Ghani is not a nonresident. Dawood Ghani admittedly came to India from Penang on 25th May, 1947, and remained here till November, 1948. He was therefore resident in India from 25th May, 1947, up to November, 1948. In the assessment order relating to the assessment year 1948-49, the Income-tax Officer has recorded the following concession made on behalf of the assessee: “In the absence of materials to show that during this period he did not exercise any control or management of the foreign business or of the Indian, affairs of the estate, the auditors expressed no objection to my treating the ‘estate as’ resident and ordinarily resident’.” In the assessment order of the Income-tax Officer relating to the year of assessment 1949-50 the following concession made on behalf of the assessee is recorded: “During the accounting year therefore he (Dawood Ghani) remained in India from January 1, 1948, to November, 1948, for about II months. In the absence of materials to show that during this period he did not exercise any control or management of the foreign business or of the Indian affairs of the estate, the auditors expressed no objection to treating the estate as resident and ordinarily resident under section 4A(b) of the Act.”

20. It is impossible for the assessee to contend at this stage that in respect of the accounting years, calendar years 1947 and 1948, they must be deemed to be non-resident. We are of opinion that the concession on behalf of the assessee was rightly and properly made on the materials on record and that it is too late in the day for them to contend that they are non-residents. It follows that for the years 1947 and 1948 (assessment years 1948-49 and 1949-50) the association of persons cannot be treated as a non-resident but must be deemed to be a resident and an ordinarily resident as defined under the Act.

21. The question referred to us for decision in T.C No. 6 of 1961 is therefore answered in favour of the assessee in respect of the calendar years 1945 and 1946 (assessment years 1946-47 and 1947-48) and against the assessee in respect of the calendar years 1947 and 1948 (assessment years 1948-49 and 1949-50). There will be no order as to costs in this reference.

22. Order accordingly.

Estate Of A. Mohamed... v. Commissioner Of Inco...