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7/30/2019 V Chettiar v CIT
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V.V.R.N.M. Subbayya Chettiar v. C.I.T.
AIR 1951 SC 101
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Section 6 : RESIDENCE IN INDIA.
For the purposes of this Act, - (1) An individual is said to be resident in India
in any previous year, if he
is in India in that year for a period or periodsamounting in all to one hundred and eighty-
two days or more; or
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(2) A Hindu undivided family, firm or other
association of persons is said to be resident in
India in any previous year in every case ,
except where during that year the control and
management of its affairs is situated wholly
outside India.
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(3) A company is said to be resident in India in
any previous year, if
(i) It is an Indian company; or
(ii) During that year, the control and
management of its affairs is situated wholly inIndia.
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(4) Every other person is said to be resident in
India in any previous year in every case,
except where during that year the control and
management of his affairs is situated wholly
outside India.
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A person is said to be "not ordinarily resident"in India in any previous year if such person is
(a) An individual who has not been resident in
India in nine out of the ten previous yearspreceding that year, or has not during theseven previous years preceding that year beenin India for a period of, or periods amountingin all to, seven hundred and thirty days ormore, or
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(b) A Hindu undivided family whose manager
has not been resident in India in nine out of
the ten previous years preceding that year, or
has not during the seven previous years
preceding that year been in India for a period
of, or periods amounting in all to, seven
hundred and thirty days or more.
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Facts:
The appellant is the karta of a joint Hindu
family and has been living in Ceylon with his
wife, son and three daughters, and they are
stated to be domiciled in that country.
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He carries on business in Colombo under the
name and style of the General Trading
Corporation, and he owns a house, some
immovable property and investments in India.
He has also shares in two firms situated at
Vijayapuram and Nagapatnam in India.
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In the year of account, 1941-42, which is the
basis of the present assessment, the appellant
is said to have visited India on seven
occasions and the total period of his stay in
India was 101 days.
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During such stays in India , he personallyattended to a litigation relating to the family
lands both in the trial court and in the court ofappeal.
He was also attending the income tax
proceedings relating to the assessment of thefamily income, appearing before the IncomeTax Authorities at Madras.
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The other facts relied upon by the Income TaxAuthorities were that he did not produce thefile of correspondence with the business in
Colombo so as to help them in determiningwhether the management and control of thebusiness was situated in Colombo and he hadstarted two partnership businesses in India on
25th February, 1942, and remained in India forsome time after the commencement of thosebusinesses.
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Upon the facts so stated, the Income Tax
Officer and the Assistant Commissioner of
Income Tax held that the appellant was a
resident within the meaning of Section 6 (2)
Income Tax Act, and was therefore liable to be
assessed in respect of his foreign income.
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The Income Tax Appellate Tribunal however
came to a different conclusion and held that in
the circumstances of the case it could not be
held that any act of management or control
was exercised by the appellant during his stay
in India and therefore he was not liable to
assessment in respect of his income outsideIndia.
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This view was not accepted the Madras High Court .
The HC held that the Tribunal had misdirected itself in
determining the question of the residence of theappellants family and that on the facts proved , thecontrol and management of the affairs of the familycannot be held to have been wholly situated outsideIndia, with the result that the family must be deemed
to be resident in India within the meaning of Section6(2) of the Income Tax Act.
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In this appeal, the appellant has questioned the
correctness of the High Courts decision in
connection with the assessment of the appellant
to income tax for the year 1942-43.
The question of law referred was as follows:
Whether in the circumstances of the case, theassessee (a Hindu undivided family) is resident in
India under Section 6(2) of the Income Tax Act.
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Section 6(2) states that:
For the purposes of this Act -
(2) A Hindu undivided family, firm or otherassociation of persons is said to be resident in
India in any previous year in every case ,
except where during that year the control and
management of its affairs is situated wholly
outside India.
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It will be noticed that Section 6 deals with
residence in the taxable territories, of
(a) individuals,
(b) a Hindu undivided family,
(c) firm or other association of persons.
(d) company
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This provision appears to be based very largelyon the rule which has been applied in Englandto cases of corporations, in regard to which
the law was stated thus by Lord Loreburn inDe Beers v. Howe [5 Tax Cas 198]:
A company cannot eat or sleep, but it cankeep house and do business. We ought,therefore, to see where it really keeps houseand does business..
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The decision of in Calcutta Jute Mills v. Nicholsonand
Cesena Sulphur Company v. Nicholson [(1876) 1Ex D 428]
involved the principle that a company resides forpurposes of income tax where its real business iscarried on.
Those decisions have been acted upon ever since.
Therefore the true rule, and the real business iscarried on where the central management andcontrol actually abides.
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It is clear that what is said in Section 6 of the
Income Tax Act is what Lord Loreburn
intended to convey by the words where the
central management and control actually
abides.
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The principles which are now well-established inEngland and which will be found to have been veryclearly enunciated in Swedish Central Railway CompanyLimited v. Thompson [9 Tax Cas 373] which is one of
the leading cases on the subject, are: (1) that the conception of residence in the case of a
fictitious person, such as a company, is as artificial asthe company itself, and the locality of the residence
can only be determined by analogy, by asking where isthe head and seat and directing power of the affairs ofthe company.
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(2) Control and management signifies, in the
present context, the controlling and directivepower, the head and brain as it is sometimescalled, and situated implies the functioning ofsuch power at a particular place with somedegree of permanence, while wholly would
seem to recognize the possibility of the seat ofsuch power being divided between two distinctand separated places.
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As a general rule, the control and
management of a business remains in the
hand of a person or a group of persons, and
the question to be asked is wherefrom theperson or group of persons controls or directs
the business.
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Mere activity by the company in a place does
not create residence, with the result that a
company may be residing in one place and
doing a great deal of business in another.
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(3) The central management and control of a
company may be divided, and it may keep
house and do business in more than one
place, and, if so, it may have more than oneresidence.
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(4) In case of dual residence, it is necessary to
show that the company performs some of the
vital organic functions incidental to its
existence as such in both the places, so that infact there are two centres of management.
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These principles have to be kept in view in properly construing
Section 6 of the Income Tax Act.
The words used in this provision clearly show firstly, that, normally, a Hinduundivided family will be taken to be resident in the taxable territories, but such apresumption will not apply if the case can be brought under the second part of the
provision. Secondly, we take it that the word affairs must mean affairs which arerelevant
for the purpose of the Income Tax Act and which have some relation to income.Thirdly, in
order to bring the case under the exception, we have to ask whether the seat ofthe direction
and control of the affairs of the family is inside or outside British India. Lastly, theword
wholly suggests that a Hindu undivided family may have more than oneresidence in the
same way as a corporation may have.
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Secondly, the word affairs must meanaffairs which are relevant for the purpose ofthe Income Tax Act and which have some
relation to income.
Thirdly, in order to bring the case under the
exception, we have to ask whether the seat ofthe direction and control of the affairs of thefamily is inside or outside India.
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Lastly, the word wholly suggests that a
Hindu undivided family may have more than
one residence in the same way as a
corporation may have.
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The question which now arises is what is the
result of the application of these principles to
this case, and whether it can be held that the
central control and management of the affairsof the assessees family has been shown to be
divided in this case.
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The mere fact that the assessee has a house
at Kanadukathan, where his mother lives,
cannot constitute that place the seat of
control and management of the affairs of thefamily.
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Nor much importance can be attached to the fact thatthe assessee had to stay in India for 101 days in aparticular year.
He was undoubtedly interested in the litigation withregard to his family property as well as in the incometax proceedings, and by merely coming out to India totake part in them, he cannot be said to have shifted the
seat of management and control of the affairs of hisfamily, or to have started a second centre for suchcontrol and management.
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Also starting of two partnership businesses, asmere activity cannot be the test of residence.
It seems that the High Court have taken rather anarrow view of the meaning of Section 6 ,because they seem to have proceeded on theassumption that merely because the assessee
attended to some of the affairs of his familyduring his visit to India in the particular year, hebrought himself within the ambit of the rule.
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On the other hand, it seems that the morecorrect approach to the case was made by theAppellate Assistant Commissioner of Income
Tax in his order : During a major portion of the accounting
period the appellant was controlling thebusinesses in Burma and Saigon and there is
no evidence that such control was exercisedonly from Colombo.
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No correspondence or other evidence was
produced which would show that any
instructions were issued from Colombo as
regards the management of the affairs in Indiaespecially as it was an unauthorized clerk who
was looking after such affairs.
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The presumption therefore is that wheneverhe came to India the appellant was lookingafter these affairs himself and exercising
control by issuing instructions.... It has beenadmitted that there are affairs of the family inIndia. Has it been definitely established in thiscase that the control and management of such
affairs has been only in Colombo? I have tohold it has not been established for thereasons already stated by me.
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There can be no doubt that the onus of proving facts whichwould bring his case within the exception, was on theassessee.
The appellant was called upon to adduce evidence to showthat the control and management of the affairs of thefamily was situated wholly outside the taxable territories,but the correspondence to which the AssistantCommissioner of Income Tax refers and other materialevidence which might have shown that normally and as amatter of course the affairs in India were also beingcontrolled from Colombo were not produced.
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The position therefore is this.
On the one hand, we have the fact that the
head and karta of the assessees family who
controls and manages its affairs permanently
lives in Colombo and the family is domiciled in
Ceylon.
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On the other hand, we have certain acts done
by the karta himself in India, which, though
not conclusive by themselves to establish the
existence of more than one centre of controlfor the affairs of the family, are by no means
irrelevant to the matter in issue and therefore
cannot be completely ruled out ofconsideration in determining it.
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In these circumstances, and in the absence of
the material evidence to which reference has
been made, the finding of the Assistant
Commissioner, that the onus of proving suchfacts as would bring his case within the
exception had not been discharged by the
assessee and the normal presumption mustbe given effect to, appears to us to be a
legitimate conclusion.
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In this view, the appeal must be dismissed withcosts.
However as this case has to be decided mainlywith reference to the question of onus of proof,the decision in this appeal must be confined tothe year of assessment to which this case relates,and it would be open to the appellant to show in
future years by proper evidence that the seat ofcontrol and management of the affairs of thefamily is wholly outside India.