The Commissioner of Income Tax vs The Shanmugham Rubber Estate Kaulalampur

The question in this reference is whether the respondent firm was resident in British India within the meaning of Section 4-A (b) of the Indian

Income Tax Act. That section says that for the purposes of the Act 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. In other words, if the control and management

of its affairs is partly within British India the family, firm or association of persons as the case may be, is deemed to be resident in British India for

the purposes of the Act.

The partners in the assessee firm are six Nattukottai Chettiars. The partnership was formed on the 19th December, 1935, for the purpose of

acquiring and working a rubber plantation in Malacca known as the Shanmugham Rubber Estate. The partnership deed provided that two of the

partners should in rotation have control of the partnership business. All the partners had money-lending businesses in the Federated Malay States

and the deed permitted a controlling partner to act, if he so desired, through the agent of his own money-lending business in that country. This

provision, however, would not affect the legal position if the controlling partners or one of them was resident in British India and retained control of

his agent. In this case the question does not, however, turn, on whether the controlling partners acted through their individual agents and therefore

no further reference need be made to this matter.

The year of account, was the year 1940-41. The controlling partners during that period were M. RM. S. Chockalingam Chettiar and SP. M.

Ramanathan Chettiar. The former lived throughout the year at Karaikudi in this presidency. The latter lived in the Native State of Pudukottah which

lies some 25 miles away from Karaikudi. The Income Tax Officer held that the firm was resident in British India within the meaning of Section 4-A

(b) because part of the control was exercised by M. RM. S. Chockalingam Chettiar from Karaikudi. On an appeal by the assessee the Appellate

Assistant Commissioner held that there was no control exercised from British India and this opinion was accepted by the Appellate Tribunal. The

reference has been made at the instance of the Commissioner of Income Tax, Madras, u/s 66(1) of the Act, as the Commissioner maintains that

wrong conclusions have been drawn from admitted or proved facts. The question referred is widely drawn and is in these terms:

Whether in the circumstances of the case the respondent firm was resident in British India u/s 4-A (b) of the Act?

In holding that there had been no control exercised in British India the Appellate Assistant Commissioner was impressed by the fact that no

letters had been produced which showed that M. RM. S. Chockalingam Chettiar had exercised control during the period of account. The assessee

firm maintained that no copies of letters written from British India to the persons in charge of the plantation had been kept. Considering that the

partners are Nattukottai Chettiars who are very careful in business matters, this is hard to believe; but for the purpose of deciding this reference we

will assume it to be true that no copies were kept. Several letters written from the agents of the partners in Malacca were produced and one

written by the agent of M. RM. S. Chockalingam Chettiar, dated the 4th May, 1939, showed that he was seeking instructions with regard to a sum

of Rs. 5,000 which represented profits which had been made by the estate. He said that large areas were to be replanted and agreements with the

contractors must be drawn up. Each partner might have to contribute to the expenses and he wanted the sanction of his principal for the

employment of the Rs. 5,000 for the purpose of the replanting. This letter shows that when it was necessary, the controlling partner in British India

was consulted and asked to give his directions. As we have indicated, this letter was not written during the period of account, but it has not been

suggested that there was any change in the system of control made during that period. Inasmuch as the partnership deed provided for the control of

two partners and one of the controlling partners was resident in British India, the proper inference to be drawn, especially when the letter of the 4th

May, 1939, is borne in mind is that part of the control at any rate was within British India. The Appellate Assistant Commissioner in the course of

his order said that it was reasonable to infer that the locus of control was usually in Malacca where also all the partners were when the partnership

agreement was drawn up and the business was started. We cannot accept this as the proper inference to be drawn. As we have indicated, the

material for drawing the conclusion with regard to the control are the terms of the partnership deed, the residence of Chockalingam Chettiar in

British India during the year of account and the fact that he had been asked by his agent for directions in an estate matter.

The Appellate Tribunal accepted the Appellate Assistant Commissioner''s inference from the proved facts as being correct and in'' upholding his

order went on to state that inasmuch as the partnership deed provided for the exercise of control by two partners, one partner acting alone could

not manage. This statement is obviously erroneous. The partnership deed did not provide that in acts of control both partners should signify their

agreement. There would be control within the meaning of Section 4A(b) if one partner took part in the direction or management of the estate.

It has been said on behalf of the assessee that as the Income Tax Appellate Commissioner held that there was no control exercised in British

India and the Tribunal has accepted this finding, no question of law arises. This argument loses sight of the fact that the proper effect of a proved

fact is a question of law, as the Privy Council had occasion to point out in Dharuya Mal v. Moti Sagar (1927) 52 M.L.J. 663 : L.R. 54 IndAp 178

: ILR 8 Lah. 573 . On the proved facts the Income Tax Appellate Tribunal was not entitled to conclude that there was no control exercised in

British India. There is here a question of law and in this reference we are entitled to correct the mistake. In fact, the Tribunal has asked us to state

whether in the circumstances of the case the respondent was resident within British India within the meaning of the section. We have no hesitation

in holding that the assessee was so resident. The respondent will pay the Commissioner''s costs, Rs. 250.

On several occasions this Court has had to draw the attention of the Commissioner of Income Tax to the inconvenience caused to it by Income

Tax Officials giving only the Tamil dates in orders passed by them and we have requested the Commissioner to see that the English dates are

always given as well. The Court has been assured that this will be done. In the order of the Appellate Assistant Commissioner in this case

numerous Tamil dates are referred to without the corresponding English dates being given. This has caused delay in the hearing of the case because

we have had to pause to obtain from Mr. Rama Rao Sahib the corresponding English dates. The Commissioner has control over the Income Tax

Officers and the Appellate Assistant Commissioner in these matters and we trust that in future he will see that his orders in this respect are obeyed.