1960 (4) TMI 3 - SC - Income Tax

Whether the firm of Amulakh Amichand and unless it is wholly outside the taxable territories the family will be taken to be resident in such territories for the purposes of the Act. But where as in this case in respect of the partnership business the family as such has nothing to do with its control and management we fail to see how the existence of such a partnership will determine residence of the family within the meaning of section 4A(b). Appeal dismissed.

Issues Involved:
1. Representation of the Hindu undivided family (HUF) in the partnership firm.
2. Residency status of the HUF for tax purposes.

Issue-wise Detailed Analysis:

1. Representation of the Hindu undivided family (HUF) in the partnership firm:

The primary question was whether Nandlal represented the Hindu undivided family of Gandalal in the firm Amulakh Amichand & Co., Bombay, and subsequently in the Banaras firm. The Tribunal concluded that Nandlal and later Girdharlal joined the Bombay and Banaras firms as representatives of the HUF, and the money for starting the business came from the HUF. Consequently, the Tribunal held that Nandlal was correctly assessed in the status of a Hindu undivided family.

2. Residency status of the HUF for tax purposes:

The second issue was whether the HUF of Gandalal was resident in the taxable territories for the relevant assessment year. The Tribunal ruled in favor of the assessee, stating that the businesses in Bombay and Banaras could not be considered the affairs of the HUF of Gandalal. The Tribunal noted that these businesses belonged to separate entities and not to the HUF, even though the HUF would receive a share of the profits. Therefore, the Tribunal concluded that the HUF was not resident in the taxable territories.

The High Court upheld the Tribunal's decision, interpreting "the affairs of the Hindu undivided family" in Section 4A(b) of the Indian Income-tax Act, 1922, as referring to business affairs concerned with income and taxation, not private or domestic affairs. The High Court agreed with the Tribunal that the partnership businesses were not the affairs of the HUF but of the individual coparceners.

The Supreme Court focused on whether the HUF of Gandalal was resident in the taxable territories under Section 4A(b) of the Act. The Court examined the control and management of the HUF's affairs, emphasizing that the expression "control and management" means de facto control and management, not merely the right or power to control. The Court concluded that the partnership businesses in Bombay and Banaras were not affairs of the HUF capable of being controlled and managed by the HUF as such. Therefore, the existence of the partnership did not determine the residence of the HUF within the meaning of Section 4A(b).

Separate Judgment by HIDAYATULLAH, J.:

HIDAYATULLAH, J., disagreed with the majority opinion. He argued that the control and management of the HUF's affairs were partly exercised in British India by the coparceners who managed the partnership businesses. He emphasized that the partnership businesses involved family funds and were managed by the coparceners in British India, which constituted control and management of the HUF's affairs. Therefore, he concluded that the HUF should be considered resident in British India for the relevant assessment year.

Conclusion:

The Supreme Court, in the majority judgment, dismissed the appeal and upheld the High Court's decision that the HUF of Gandalal was not resident in the taxable territories for the relevant assessment year. The appeal was dismissed with costs.

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