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Issues:
1. Interpretation of provisions of section 4A(b) of the Indian Income-tax Act, 1922 regarding the residency status of a firm. 2. Determination of whether control and management of a firm's affairs is situated wholly outside the taxable territories. 3. Analysis of the factual evidence regarding the control and management of a firm to establish residency status. 4. Assessment of the role and authority of a partner in representing a firm for tax purposes. Detailed Analysis: The judgment delivered by the High Court of Allahabad involved a case where the respondent, M/s. Raza Textiles Ltd., was directed to pay tax on a commission remitted to M/s. Nathir Mal and Sons, Djakarta, Indonesia. The dispute arose regarding the residency status of M/s. Nathir Mal and Sons under section 4A(b) of the Act. The court analyzed the provisions of the Act and relevant case law to determine that even partial control and management within taxable territories could establish residency. The court referred to previous decisions emphasizing the de facto control and management required for residency classification, especially in the context of a partnership firm. The court examined the correspondence exchanged between M/s. Jwala Fabrics and N. Lokumal, a partner of M/s. Nathir Mal and Sons, to ascertain the actual exercise of control and power over the firm's affairs. It was observed that N. Lokumal, based in India, effectively managed the contract details and negotiations, indicating his authority as a partner of the foreign firm. The court emphasized that the partner's actions on behalf of the firm, even if described under different titles, were binding under the Indian Partnership Act, establishing his role in the firm's decision-making process. Based on the evidence presented through the letters and the partner's involvement in the business transactions, the court concluded that the control and management of M/s. Nathir Mal and Sons were partially within taxable territories. This finding supported the earlier decision of the single judge in quashing the tax order by the Income-tax Officer. The court upheld the importance of factual evidence in determining residency status and reiterated the significance of de facto control and management in such assessments. In light of the detailed analysis of the residency criteria under section 4A(b) and the factual evidence regarding control and management, the High Court dismissed the appeal and affirmed the decision to quash the tax order against the respondent firm. The judgment highlighted the legal principles governing the determination of residency status for taxation purposes and the critical role of factual evidence in establishing such status under the relevant provisions of the Income-tax Act.
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