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TMI Blog1944 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... refully before the problem which arises can be dealt with. First of all, there is a recital, which says: "Whereas the said B.R. Naik has for many years past carried on business of a general merchant in Salisbury and elsewhere in South Rhodesia, and whereas he has agreed to admit the managers as partners in his said business upon the terms and conditions hereinafter set forth." Then clause 1 is the operative clause, which says that Rao Bahadur Naik hereby admits, as from May 22, 1937, the managers as partners in his general merchant's business. Clause 2, which is a somewhat unusual clause provides: "The managers shall not be disclosed as partners in the said business, and as far as the public is concerned they shall be held out as managers of the said business." Then clause 3 provides that the partnership shall take over the said business as a going concern including stock-in-trade, furniture and the assets therein described; and that clause also provides for a capital account and other matters. Clause 4 provides that the profits of the business shall belong as to fifty per cent. thereof to Rao Bahadur Naik and as to the remaining fifty per cent. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ially different from that of a man owning a business and having employees. But that argument is destructive of the whole reference, which proceeds on the basis that we are dealing with a partnership firm, as indeed is the case when the partnership deed is considered. The point referred to us arises in this way: Section 4-A of the Indian Income-tax Act sets out the circumstances in which individuals, Hindu undivided families, firms or other associations of persons, and companies are to be considered "resident" in British India for the purposes of the Act, such residence having a most material bearing on the incidence of taxation. The governing words of Section 4-A are: "For the purposes of this Act-." The section is then divided up into three sub-sections or clauses. Clause (a) deals with the case of individuals. Clause (b), which is the one with which we are concerned, provides: "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." Clause (c) is the clause, which deals with companies. Do the words " the control an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being: "whether the trade or business is carried on wholly or in part in the United Kingdom." I must confess that I do not find these cases helpful. By construing another Act, which contains totally different words, and in which the whole scheme and frame-work of the Act is very different with the statute under consideration, there is grave risk of introducing irrelevancy, which destroys the whole basis of comparison. Mr. Setalvad has referred us to a passage in the judgment of the Judicial Committee delivered by Sir George Lowndes in the case of Shaw Wallace & Co. v. Commissioner of Income-tax, Bengal [1932] 6 I.T.C. 178: I.L.R. 58 Cal. 1153. The passage, which appears at p. 180, is as follows: "Again their Lordships would disregard altogether the case law which has been so painfully evolved in the construction of the English Income-tax Statutes both the cases upon which High Court relied and the flood of other decisions which has been let loose in this Board. The Indian Act is not in pari materia; it is less elaborate in many ways, subject to fewer refinements and in arrangement and language it differs greatly from the provisions with which the Courts in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Whether in the circumstances of the case and on a true construction of the deed of partnership the assessee-firm was rightly held to be resident in British India within the meaning of Section 4-A(b) of the Indian Income-tax Act?" The conclusion of residence thus rests on two factors: (1) "Whether in the circumstances," and (2) "on a true construction of the deed of partnership." I shall deal with the second factor of the question first. The relevant clauses of the partnership deed are quoted in the judgment of the learned Chief Justice. The history of the firm, as found in the record, shows that Rao Bahadur Naik was the owner of the firm, and in 1934, by the partnership deed, he admitted the three persons, who were working as his managers till then in Salisbury, Rhodesia, as partners. The principal facts to be borne in mind in connection with this partnership deed are that the assets and liabilities of the old firm, which was owned by Rao Bahadur Naik, were taken over by the new firm, and Rao Bahadur Naik became the creditor of the firm for the amount. The partnership assets thereafter became the property of the partners. In the profits and losses of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, the firm is resident in British India, because the control and management of its affairs is not situated wholly without British India. Approaching the partnership agreement from that angle, the Tribunal held that, having regard to the words used in clause 14, as Rao Bahadur Naik who resided in India was in a position and had a right to control the business, the firm was no t one the cont rol and management of whose affairs was situated wholly outside British India. In my opinion, that is not the correct construction of the section. The Legislature has deliberately used the present tense in describing where the control and management should be in the relevant year. While the word "situated" involves an idea of some sort of permanency, it also involves an idea of the present existence, that is, effective existence of such control in the relevant year. It does not contemplate merely the right to control and manage. In dealing with the construction of this clause, it must be remembered that the object is to assess the whole firm. The object is not to assess the individual income of the partner who is resident within British India. His case will be covered by Section 4-A( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership agreement is therefore rejected. It was argued on behalf of the Commissioner that it was not necessary for a partner of a firm to issue instructions from year to year or from day to day in order to show that he had the control and management of the affairs of the firm. It was urged that, in the case of an individual owner, whose agents are running business in different places, the control and management of the affairs of the business is always situated in the owner. It was argued that in the case of a partnership like the present, there was no difference. I am unable to accept this contention because of the fundamental distinction between the position of a partner and that of the owner of a business. Persons conducting business on behalf of the owner in different places are doing so by virtue of the authority given to them by the owner. As between the owner and the agents, the extent of the authority is controlled and limited by their individual agreement and which authority (apart from cases where interest is created by the agreements in the agents), is liable to be terminated at the will of the principal. In the case of a partnership, while each partner is the agent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion, independently of the partnership deed. On the record as printed, we find affidavits of the partners of the assessee-firm and of merchants with whom they had dealings. They have not been dealt with. For the statement in the judgment that some sort of report of the business must have been received from time to time, there appears no foundation whatsoever in the judgment or in the statement of case. In this connection, I should like to draw the attention of the Tribunal to Bomford v. Osborne [1942] 10 I.T.R. Suppl. 27. Viscount Simon, Lord Chancellor, in delivering judgment, pointed out the necessity for reciting facts in matters of this kind. It was pointed out that the Commissioners had set out in a series of paragraphs lettered from (A) to (R) the facts which were proved or admitted before them. Having recited those in the judgment, the Commissioners then expressed their conclusions, in paragraph 5 of the case, in the terms there quoted. It should be noted that they were also numbered seriatim as (1)(2)(3).... The learned Lord Chancellor then observed as follows (p. 33): "The High Court can only discharge its proper function in dealing with a case stated if the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of facts we are unable to accept the one line in the judgment and in the statement of case as a finding of fact. It must be noted that when the application for a reference was sent to the Commissioner, he did not protest and contend that the question sought to be submitted was a question of fact, and, therefore, no reference should be made. The records of the Income-tax authorities show that such contention has been frequently raised, and very often upheld. The absence of such contention strongly supports the view urged on behalf of the assessee that the argument before the Tribunal centred round the construction of the partnership agreement, and other matters were not gone into at all. On the record it is difficult to say what was the exact course of events before the Tribunal, but we are not satisfied that the Tribunal had arrived at this conclusion as a fact. Under the circumstances, the reference is sent back to the Tribunal. In dealing with the matter, it is open to the Tribunal to consider the effect of the partnership agreement and the words used in it. It is a piece of evidence which they can use for arriving at their conclusion. The effect of the partnership ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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