The Reader

Dear CA. Brajesh Agarwal,

As per sub-sections (2), (3) and (4) of section 6 :       

"(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.

                (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 in India.

(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."

(i) Meaning of the term 'affairs' The word 'affairs' in section 6(2) means the affairs of an HUF which are capable of being controlled and managed by the family as such. Where a coparcener enters into partnership with strangers, the HUF exercises no controlling power of management over the partnership.-Vide CIT v. Nandlal Gandalal (1960) 40 ITR 1 (SC). The 'affairs' referred in section 6(2) are the affairs which have some relation to the business, whose income, profits and gains are sought to be taxed and not the private or domestic affairs of the individual partners having no relation to the firm's business.-Vide CIT v. Erin Estate (1951) 20 ITR 412 (Mad).

The word 'affairs' mean affairs which are relevant for the purpose of the Income Tax Act and which have some relation to income.-Vide V.VR. N.M. Subbayya Chettiar v. CIT (1951) 19 ITR 168 (SC).

(ii) Meaning of the term 'control and management' : If the seat of control is divided, the family may have more than one place of residence; 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. The expression 'control and management' signifies controlling and directive power, 'the head and brain' as it is sometimes called. Furthermore, it is settled that the expression 'control and management' means de facto control and management and not merely the right or power to control and manage.-Vide Nandlal Gandalal's case (supra)

(iii) Where control and management is situated : The situation of control and management is where the head, the seat and the directing power happen to be situated. This was so held in San Paulo (Brazilian) Rly Co. v. Carter (1896) AC 31 (HL). It was observed in this case that the head and brain is situated where vital decisions concerning the policies of the business, such as raising finance and its appropriation for specific purposes, appointment and removal of staff, expansion, extension or diversification of business is taken.

(iv) Relevance of absence or presence of Karta : Unless it is proved that the Karta alone has sole power of control and management of the HUF's affairs, it cannot be said that the HUF is non-resident merely because the Karta was not in the taxable territories in that year.-Vide RM.AL.ST. Annamalai Chettiar v. ITO (1958) 34 ITR 88 (Mad). Mere presence of Karta in India does not indicate that he is exercising control from India.-Vide CIT v. (PR. PL) Palaniappa Chettiar (1945) 13 ITR 269 (Mad).

(v) Change in Karta : In case of change in Karta, residential status of the previous Karta is also to be taken into account.-Vide S. Marimathu Pillai v. CIT (1945) 13 ITR 186 (Mad).

(vi) Occasional or sporadic visit of non-resident Karta to India : It was held in K.V. Narasimha Rao Bahadur v. CIT (1950) 18 ITR 181 (Mad), that occasional or sporadic visits of a non-resident Karta to India where the family business is carried on and casual directions given by him regarding the business while in Ind

'Control and management' means de facto control and management, and not merely the right or power to control and manage. An association of persons can claim to be a non-resident only by adducing proof that nothing was done within the taxable territory in relation to the business outside the territory, which can be described as a necessary integral part of the business activity in furtherance of the business. The mere physical presence of the members of the association in India is not sufficient to attribute to them the character of 'resident.'-Vide Estate of A. Mohamed Rawther v. CIT (1963) 49 ITR 39 (Mad).

You are advised to compare the specific facts of your case in the light of the above judgments.

With regards,

CA. B. L. Bhojwani,

Kota