# Sahetzi!da Mohammad Kamgar _Shah v. Jagdish Chandra Deo Dhabal Deo

- **Citation:** [1960] 3 S.C.R. 620
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Case number:** Civil Appeal No. 788 of 1957
- **Bench:** S. K. Das, J. L. Kapur, M. Hidayatullah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sahetzi-da-mohammad-kamgar-shah-v-jagdish-chandra-deo-dhabal-deo-1885
- **Pages:** 21

## Headnote

Income-fax-Assessment-Hindu undivided family carrying on
business outside British India-Partnership entered into by coparceners with strangers in British India financed by remittances received
from undivided family funds-Hindu undivided family, if resident
m taxable territories-Indian Income-tax Act, 1922 (XI of 1922),
ss. 4A(b).
.
N, a coparcener of the Hindu undivided family of G, carrying on business in Kathiwar, then outside British India, entered
into a partnership with strangers in Bombay in 1944.
A total
sum of Rs. 1,50,000 was remitted to N from the undivided family
-
l
,.. .. ;.,
-
'.i>
) -
3 S.C.R.
SUPREME COURT REPORTS
621
funds and utilised as
capital in the
partnership business.
N's
brother
joined the
partnership in
Bombay.
The
partnership
started another firm in Banaras and a third brother of N joined
the firm.
For the year of assessment
1945-46 the
Income-tax
Officer held that the Hindu undivided family of G was resident
in the taxable territories and included the said sum in the income
of the family under s. 4(l)(b)(iii) of the Indian Income-tax Act,
1922, as having been brought into or received in British India in
the relevant year and made the assessment on that
basis.
On
appeal by the
assessee the
Appellate
Assistant
Commissioner
affirmed the assessment but the Income-tax
Appellate Tribunal
holding that in the year of assessment the family was not resident in the taxable territories deleted the said sum from the assessed income.
The decision of the Appellate Tribunal was upheld by
the High Court in a reference under s. 66(1) of the Act made at
the instance of the appellant:
Held (per S. K. Das and J. L. Kapur, JJ.), that the expression 'control and
management'
occurring
in s. 4A(b) of
the
Indian Income-tax Act means de facto control and management
and the word
"affairs" means the affairs
of the
Hindu undivided family capable of being controlled and managed by the
said family as such.
It is .well-settled that a Hindu
undivided family cannot
exercise any controlling power of management of a partnership
entered into by a coparcener
with strangers either under
the
Indian Partnership Act, 1932, or under the Hindu law.
The
partnerships in the instant case could not,
therefore,
constitute
affairs of the Hindu undivided family within the meaning of
s. 4A(b) of the Act, although the incomes from the said partnerships might belong to the said family, and could not determine
its residence.
The place of accrual of income of a Hindu undivided family
and the place of its residence need not necessarily be the same
under the Indian Income-tax Act, 1922.
V. V. R. N. M. Subbayya Chettiar v. Commissioner of Incometax, Madras, [1950) S.C.R. 961, Kshetra Mohan Sannyasi Charan
Sadhukhan v. Commissioner of Excess Profits Tax, West Bengal,
[1953] 24 I.T.R. 488 and B. R. Naik v. Commissioner of Incometax, [1946] 14 I.T.R. 324, referred to.
Per Hidayatullah, J.-Under s. 4A(b) of the Indian Incometax Act, what are really affairs of the Hindu undivided family
must be decided in the light of the Hindu law, and not the law
of Partnership.
It is well settled that a coparcener of a Hindu
undivided
family cannot claim any item of property or share of his own and,
consequently, where certain coparceners enter into partnerships
with strangers by investing capital from out of the undivided
family funds, as in the instant case, the income from the business
must belong
to the
undivided family.
Where the
Hindu undivided family
enters into
a business
activity in the
taxable
territories through its coparceners, invests money and earns income, even though the partnership which results may not be an
17-6 SCI/ND/82
1960
Commissioner of
Income-tax
Bombay City
v.
N and lat Gandalal
1960
Commissioner of
lncame-tax,
Bombay City
v.
Nandlal Gandalal
S. K. Das :J.
622
SUPREME COURT REPORTS
[1960]
"affair" of the family, there is still a business activity resulting
in the partnership and the partnership is the evidence of that
business activity.
This 3.ctivi

## Text

_Characters 0–39,514 of 48,651. This is a partial read: ask again with offset=39514 for what follows._

1960
Sahetzi!da
Mohammad
Kamgar _Shah
v.
Jagdish Chandra
Deo Dhabal Deo
Das Gupta J.
1960
April 21.
620
SUPREME COURT REPORTS
[1960]
In the present case the suit .is based on the second
lease of 1919 which was executed in favour of the then
Receiver.
The acknowledgments by which limitation
is
claimed to have been saved is by a previous
Receiver of the Estate through whom the appellant
who is the present Receiver has derived his liability to
pay the debt.
Section 19 is therefore in terms applicable
as
the
acknowledgments have been signed
personally by those previous Receivers, and no recourse
is needed by the p!Jintiff to the second part of Explanation II.
This position was indeed fairly concluded
by Mr. .Jha who agreed that in view of this it was not
necessary for us to decide whether the Receiver of an
Estate is by that fact itself an agent of the owners of
the estate duly authorised to make acknowledgments
under s. 19 of the Limitation Act.
There can be no' doubt that the acknowledgments
on which the plaintiff relies are
acknowledgments
within the meaning of s. 19 of the Limitation Act and
save limitation in respect of the period prior to August
12. l 935.
The Courts below were therefore right in
rejecting the defendant's plea of limitation.
As both the contentions raised before us fail, the
appeal is dismissed with costs.
Appeal dismissed.
THE COMMISSIONER OF INCOME-TAX,
BOMBAY CITY, HOMBAY
v.
NANDLAL GANDALAL.
(S. K. DAS, J. L. KAPUR and M. HIDAYATULLAH, .JJ.)
Income-fax-Assessment-Hindu undivided family carrying on
business outside British India-Partnership entered into by coparceners with strangers in British India financed by remittances received
from undivided family funds-Hindu undivided family, if resident
m taxable territories-Indian Income-tax Act, 1922 (XI of 1922),
ss. 4A(b).
.
N, a coparcener of the Hindu undivided family of G, carrying on business in Kathiwar, then outside British India, entered
into a partnership with strangers in Bombay in 1944.
A total
sum of Rs. 1,50,000 was remitted to N from the undivided family
-
l
,.. .. ;.,
-
'.i>
) -
3 S.C.R.
SUPREME COURT REPORTS
621
funds and utilised as
capital in the
partnership business.
N's
brother
joined the
partnership in
Bombay.
The
partnership
started another firm in Banaras and a third brother of N joined
the firm.
For the year of assessment
1945-46 the
Income-tax
Officer held that the Hindu undivided family of G was resident
in the taxable territories and included the said sum in the income
of the family under s. 4(l)(b)(iii) of the Indian Income-tax Act,
1922, as having been brought into or received in British India in
the relevant year and made the assessment on that
basis.
On
appeal by the
assessee the
Appellate
Assistant
Commissioner
affirmed the assessment but the Income-tax
Appellate Tribunal
holding that in the year of assessment the family was not resident in the taxable territories deleted the said sum from the assessed income.
The decision of the Appellate Tribunal was upheld by
the High Court in a reference under s. 66(1) of the Act made at
the instance of the appellant:
Held (per S. K. Das and J. L. Kapur, JJ.), that the expression 'control and
management'
occurring
in s. 4A(b) of
the
Indian Income-tax Act means de facto control and management
and the word
"affairs" means the affairs
of the
Hindu undivided family capable of being controlled and managed by the
said family as such.
It is .well-settled that a Hindu
undivided family cannot
exercise any controlling power of management of a partnership
entered into by a coparcener
with strangers either under
the
Indian Partnership Act, 1932, or under the Hindu law.
The
partnerships in the instant case could not,
therefore,
constitute
affairs of the Hindu undivided family within the meaning of
s. 4A(b) of the Act, although the incomes from the said partnerships might belong to the said family, and could not determine
its residence.
The place of accrual of income of a Hindu undivided family
and the place of its residence need not necessarily be the same
under the Indian Income-tax Act, 1922.
V. V. R. N. M. Subbayya Chettiar v. Commissioner of Incometax, Madras, [1950) S.C.R. 961, Kshetra Mohan Sannyasi Charan
Sadhukhan v. Commissioner of Excess Profits Tax, West Bengal,
[1953] 24 I.T.R. 488 and B. R. Naik v. Commissioner of Incometax, [1946] 14 I.T.R. 324, referred to.
Per Hidayatullah, J.-Under s. 4A(b) of the Indian Incometax Act, what are really affairs of the Hindu undivided family
must be decided in the light of the Hindu law, and not the law
of Partnership.
It is well settled that a coparcener of a Hindu
undivided
family cannot claim any item of property or share of his own and,
consequently, where certain coparceners enter into partnerships
with strangers by investing capital from out of the undivided
family funds, as in the instant case, the income from the business
must belong
to the
undivided family.
Where the
Hindu undivided family
enters into
a business
activity in the
taxable
territories through its coparceners, invests money and earns income, even though the partnership which results may not be an
17-6 SCI/ND/82
1960
Commissioner of
Income-tax
Bombay City
v.
N and lat Gandalal
1960
Commissioner of
lncame-tax,
Bombay City
v.
Nandlal Gandalal
S. K. Das :J.
622
SUPREME COURT REPORTS
[1960]
"affair" of the family, there is still a business activity resulting
in the partnership and the partnership is the evidence of that
business activity.
This 3.ctivity of a
permanent
character
is
sufficient
for
purposes
of income-tax
law to
constitute an
"affair" of the
family within the
meaning of s.
4A(b) of the
Indian Income-tax Act.
Approvier v. Rama Subba Aiyan, [1866] 11 M.I.A. 75, Katma
Natchiar v. Rajah of Slzivaganga, [1864] 9 M.I.A. 539, Mangalchand
Mohanlal, In re, [1952] 21 I.T.R. 164, Murugappa Chetty & Sons
v. Commissioner of Income-tax, [1952] 21 I.T.R. 311 and Kaniram
Hazarimull v. Commissioner of Income-tax, [1955] 27 I.T.R. 294,
referred to.
V. V. R. N. M. Subbayya Chettiar v. Commissioner of lncometax, Madras, [1950] S.C.R. 961, considered.
Control and management, in the case of a Hindu undivided
family, can be exercised by one or more of its coparceners, even
though partly, and if such coparceners reside in the taxable territories and manage its
affairs, the family
must be treated as
resident in such territory.
CIVIL
APPELLATE
JURISDICTION:
Civil Appeal
No. 788 of 1957.
Appeal by special leave from the judgment and
order dated February 16, 1%5, of the Bombay High
Court in Income-tax Reference No. 38 /x of 19.54.
C.
K.
Daphtary,
Solicitor-General
of India,
R. Ganapath;1 l;1er and D. Gupta, for the appellant.
R. ]. Kolah, S. N. Andley,
.J.
B.
Dadachanji,
Rameshwar Nath and P. L. Vohra, for the
respondent.
1960.
April 21.
The .Judgment of S. K. Das and
Kapur, JJ., was delivered by S. K. Das, J. Hidayatullah, J. delivered a separate Judgment.
S. K. DAs, J.-This is an appeal by special leave
from the judgment and orders of the High Court of
Bombay dated February 16, 19.'i.'i, in a reference un<ler
section 66(1) of the Indian Income-tax Act, 1922, hereinafter called the Act. The reference was made in the
following circumstances :
The Hindu undivided family of one Gandalal carried
on business in cloth in Wa<lhwan in Kathiawar, which
at the relevant time was outside British India.
The
family consisted of Gan<la1"1 and his four sons, (l)
Girdharlal, (2) Hansrai. (3) Nandlal and (4) Ramniklal.
In J 944 Nandlal came to Bombay and started a cloth
business in partnership with other persons, the partnership
being
known
as
Amulakh Amichand & Co.
-
3 S.C.R.
SUPREME COURT REPORTS
623
Nandlal's share in the partnership was ten annas and
that of his three partners, who belonged to the family
of Amulakh Amicband, six annas. It was stated that the
family of Amuiakh Amichand which was a well known
business family of Bombay, did not supply any capital
to the partnership and Nandlal alone was the financing
partner.
On April 13, 1944, Nandlal received a sum
of Rs. 50,000 from tbe Hindu undivided family of which
he was a member, and a further sum of Rs. 50,000
on April 27, 1944.
Two other sums aggregating to
Rs. 50,000 were also received from the Hindu undivided family on June 8, 1944, and June 29, 1944.
The
case of the assessee was that a sum of Rs. 1,00,000
was given to each son by the father and the sums of
money received on June 8, 1944, and June 29, 1944,
were a loan by the Hindu undivided family to Nandlal.
Therefore, the case of the assessee was that Nandlal
became the partner of the firm of Amulakh Amichand
in his individual capacity.
The case of the Department, however, was that the
total sum of Rs. 1,50,000 sent to Nandlal by the Hindu
undivided family was utilised as capital in the cloth
business of the partnership known as Amulakh Amichand & Co. Subsequently, Girdharlal, another brother
of Nandlal, came to Bombay and joined the firm. Out
of the share of ten annas of Nandlal, Girdharlal was
given a share of five annas.
The partnership firm of
Amulakh Amichand & Co. then started a cloth business
at Banaras, and the partners of the firm at Banaras were
the partners of the Bombay firm of Amulakh Amichand
& Co. and an outsider from Banaras.
A third brother
of N_andlal also joined the Banaras firm, but he did not
bring any capital.
For the assessment year 1945-46
the
Income-tax
Officer held that the Hindu undivided family of
Gandalal ·was resident in the taxable territories (namely,
British India), and hence he included the sum of
Rs. l ,5{),000 in the income of the family under s. 4(1)
(b )(iii) of the Act as having been brought into or
received in British India in the relevant year and made
an assessment on that basis.
The assessee appealed to
the Appellate Assistant Commissioner, Bomba.y, but
without success.
Then, there was an appeal to the
1960
Commissioner of
Income· tax,
Bombay Ciry
v.
Nandlal Gandalal
S. K. DasJ.
1960
Commissioner of
Income-tax,
Bombay City
v.
Jl(andlal Gandalal
S. K. Das].
624
SUPREME COURT REPORTS
[1960j
Income-tax Appellate Tribunal, Bombay.
Two questions were raised before the Tribunal :
"(l) Whether Nandlal represented the Hindu undivided family of Gandalal of Wadhwan now in
Saurashtra, in the firm Amulakh Amichand & Co.,
Bombay, and later on in the firms Amulakh Amichand & Co., Bombay and Banaras.
(2) Whether
the
Hindu
undivided family of
Gandalal was resident in the taxable territories m
the relevant years of account."
The Tribunal held on the first question that Nandlal
and later Girdharlal joined the Bombay firm and also
the Banaras firm of Amulakh Amichand & Co. as representing the Hindu undivided family of Gandalal
and the money for starting the Bombay business came
from the Hindu undivided family.
Accordingly, the
Tribunal held that Nandlal was properly assessed in
the status of a Hindu undivided family. On the second
question the Tribunal held in favour of the assessee
and came to the following conclusion:
"The business at Bombay and later on the business
at Banaras cannot in our opinion, be considered to be
the affairs of the Hindu ·undivided family of Gandalal.
These two businesses belonged to two separte entities,
namely, the Bombay firm of Amulakh Amichand &
Co. and the Banaras firm of Amulakh Amichand &
Co. True, the Hindu undivided family would in due
course of time receive a share of profit from these
two firms, but all the same we do not think that it
could be said that the firms of Bombay and Banaras
constitute the affairs of the Hindu undivided family.
The businesses in Bombay and Banaras, according to
the Partnership Act, belonged to Nandlal and others.
We are, therefore, of opinion that for assessment years
1945-4fi ... the Hindu undivided family was not resident
in the taxable territories."
The actual relief which the Tribunal gave to the
assessee was expressed in the following words:
"For the assessment year
l 945-45,
the assessee's
status would be Hindu undivided familv but non-resident.
In so far as the assessed incom~ is concerned
the sum of Rs. 1,50,000 which was
included under
section 4(1 )(b)(iii) has to be deleted. The rest of the
-
-
.- '
3 S.C.R.
SUPREME COURT REPORTS
625
income accrued to the Hindu undivided family in the
taxable territories."
At the instance of the Commissioner of Income-tax,
Bombay, who is the appellant before us, the Tribunal
stated a case and referred the following question of
law to the High Court of Bombay for its decision
under s. 66(1) of the Act.
The question was in these
terms:
"Whether the Hindu undivided family of Gandalal represented by Nandlal in the firm of Amulakh
Amichand & Co. of Bombay was resident in the
taxable territories in the year of account relevant for
the assessment year 1945-46."
The answer to the question depended on the true
scope and effect of s. 4A(b) of the Act.
The High
Court held that the expression "the affairs of the
Hindu undivided family" in s. 4A(b) did not have
reference to the private or domestic affairs of the
family, but referred to affairs concerned with income
and taxation thereon. It said:
"vVe might put the matter in this way that when
a coparcener carries on
business in
partnership on
behalf of the Hindu undivided family, the affair is of
the coparcener and not of the family, but when the
business is carried on by the family itself then it is the
affair of the family and not of the coparceners."
"The result is that we must agree, with the view
taken by the Tribunal and we must answer the question submitted to us in the negative."
After the decision of the High Court the appellant
obtained special leave and has come to us in pursuance
of special leave granted by this Court.
We must make it clear in the verv outset that the
first question raised before the Tribu'nal and decided
by it against the assessee does not now fall for consideration. v\Thatever income Nandlal and Girdharlal
received from the
two businesses
at Bombay
and
Banaras was income in their hands of the Hindu
undivided family.
With that income we are not now
concerned.
We are concerned with the second question, namely, whether the Hindu undivided family of
Ganclalal was resident in the taxable territories in the
1960
Commissioner of
Income-tax,
Bombay Cit)'
v.
S. K. Das].
1960
Commissiotler of
ltiiome·tax,
Bombay Ci~r
v.
.Natidlal Gandaial
S. K. Das].
626
SUPREME COURT REPORTS
[l 960]
relevant year so as to make the sum of Rs. 1,50,000
taxable under s. ·t(l)(b)(iii) of the Act on the basis of
such residence. Clearly enough, if the Hin du undivided
family of Gandalal was not resident in the taxable
territories in the relevant year, the wm of Rs. J ,.50,000
would not be taxable under s. 4(1)(b)(iii) of the Act.
\,Ye must, therefore, keep in mind the narrow scope of
the question before us, which is whether the Hindu
undivided family of GandaJal could be said to be
resident in the taxable territories (i.e., British India)
in the relevant year under the provisions of s. 4A(b)
of the Act, even though the family carried on its own
cloth business wholly outside the taxable territories.
It is necessary as well as convenient to read s. 4A(b)
at this stage :
"4A. For the purposes of this Act-
(b) a Hindu undivided family, firm or other association of persons is resident in the taxable territories
unless the control and management of its affairs is
situated wholly without the taxable territories."
In V. V. R. N. M. Subbayya Chettiar v. Commisioner
of Income-tax Madras (') this Court held that the test
for deciding the residence of a Hindu undivided family
laid down in s. 4A(b) of the Act was based very
largely on the rule which had been applied in England
to cases of corporations, and though normally a Hindu
undivided family would be taken to be resident in
British India, such presumption would not apply if
the case could be brought under the second part of the
provision.
It was also observed therein that the word
"affairs" must mean affairs which are relevant for
the purpose of the Income-tax Act and
which have
some relation to income: it was stated that in order
to bring the case under the exception, the court has
to ask whether the seat of the direction and. control of
the affairs of the family is inside or outside British
India, and the word "wholly" suggests that a Hindu
undivided family may have more than one "residence"
in the same way as a corporation may have.
The
position in Hindu law with regard to a coparcener,
even when he is the Karta, entering into partnership
(1) [1950] S.C.R. 961.
. -
•.
'
-,..
3 S.C.R.
SUPREME COURT REPORTS
627
with others in carrying on a business is equally well
settled.
The partnership
that is
created
is a contractual partnership and will be governed by the provisions of the
Indian
Partnership Act,
1932.
The
partnership is not between the family and the other
partners; it is a partnership between the coparcener
individually and his other partners (see Kshetra Mohan
Sannyasi Charan Sadhukhan v. Commissioner of Excess
Profits Tax, West Bengal) (
1).
The coparcener is undoubtedly accountable to the family for the income
received, bnt the partnership is exclusively one between the contracting members, including the individual coparceners and the strangers to the family.
On
the death of the coparcener the surviving members of
the familv cannot claim to continue as partners with
strangers nor can thev institute a suit for dissolution
of p;;;.tnership; nor c~n the stranger partners sue the
surviving mern bers as partners for the
coparcener's
share of the loss.
Therefore, so far as the partnership
is concerned, both under Partnership law and under
Hindu law. the control and managem~nt is in the hands
of the individual coparcener who is the partner and
not in the family.
\low, it is undisputed that but for the partnership
business at Bombay or Banaras the Hindu undivided
family of Gandabl was not resident in the taxable
territories in the relevant year. The point for decision,
therefore, is does the existence of the said partnership
establish the residence of the family?
This r::iises two questions· before us: firstly, whether
the firm of Amulakh Amichand & Co. is one of the
affairs of the Hindu undivided family of Gandalal
because that is the only affair 'vhich has relation to
the income sought to be taxed and on which the
appellanl relies for determining the residence of the
family; secondly, where the control and management
of the said affair. looker! at from the point of view of
the Hindu undivided family, is situate.
We think
that in the context of the facts found in the case,
these two qnestions
are interlinked.
The expression
"control and management"
under s. 4A(b) signifies
controlling- :rnd directive power, "the head and brain"
(l) [19'>3] 24 I.T.R. 488.
1960
Commissioner of
Income-tax,
Bombay City
v.
Nand!al Gan.fa/al
S. K. Das].
1960
Commissioner of
Income-tax,
Bo.71bay City
v.
Nand!al Gandalal
S. K. Das].
628
SUPREME COURT REPORTS
[19601
as it is sometimes
called.
Furthermore,
it is settled
we think, that the expression control and management" means de facto control and management and
not merely the right or power to control and manage
(see B. R. Na1k v. Commissioner of Income-tax (')). It
is also quite clear, we think, that if a coparcener
becomes a partner (on behalf of the joint family) with
strangers in a
firm which carries on business in the
taxable territories, that bv itself will not determine
the residence of the family unless the control and
management of the firm is at least, in part, in the
Hindu undivided family.
On the facts of this case,
the Hindu undivided family or for that matter, the
Karta of that family, that is Gandalal, could exercise
no power of controlling management over the partnership firm, either under
Partnership law
or under
Hindu law.
It seems to us that the word "affairs"
in s. 4A(b) must mean affairs of a Hindu undivided
family which are capable of being controlled and
managed by the said Hindu undivided family as silch.
vVherc a coparcener enters into partnership
with
strangers. the Hindu undivided family exercises no
controlling power of management over the partnership
firm.
In that view of the matter the partnership firm
cannot be an "affair" of the Hindu undivided family
capable of being controlled and managed by the Hindu
undivided family as· such. · It may be here observed
that the decision in V. V. R. N. M. Subhayya Chettiar
v. Commissioner of Income-tax, Madras (')
proceeded
on the basis of onus only and as was specifically stated
therein, it was confined to the year of assessment to
which the case rebted and it was left open to the
appellant of that case to show in future years by
proper evidence that the seat of control and management. of the affairs of the family was wholly outside
British India.
In the case before us the Tribunal no
doubt found on the first. question raised before it that
Nandlal and Girdharlal joined the
Bombay
and
Banaras firms as coparceners of the Hindu undivided
family and the money for starting the business came
from the Hindu undivided family.
That finding by
itself however does not determine the residence of the
(I) [1946] 4 I.T.R. 324.
(2) [19501 S.C.R, 961.
-
""
!'""
(
•
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\
'J
3 S.C.R.
SUPREME COURT REPORTS
629
Hindu undivided family of Gandalal.
Both
under
Hindu law and Partnership law the Hindu undivided
family as such could exercise no control and management over the two businesses at Bombay and Banaras.
These businesses belonged to the partners and on the
facts found in this case, it cannot be said that the
businesses were the affairs of the
Hindu
undivided
family of Gandalal within the meaning of s. 4A(b) of
the Act.
We agree with the High
Court that the
position would be different if the Hindu undivided
family itself carried on the business as its own business.
In that case the business would be an affair of the
family, because the family wciuld be in control and
management of the business.
At first sight it may
appe~r paradoxical that the income from the two
businesses at Bombay and Banaras in the hands
of
Nandlal and Girdharlal should be treated as income of
the Hindu undivided family and at the same time it
should be held that the two businesses were not the affairs
of the Hindu undivided family within the meaning of
s. 4A(b) of the Act.
There is really no paradox because
the place the accrual of income of such family and the
place of its residence need not necessarily be the same
under the Act.
Residence under s. 4A(b) of a Hindu
undivided family is determined by the seat of control
and management of its affairs, and in the matter of
partnership business in British India the Hindu undivided family as such had no connexion whatsoever
with its 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 resi·
dent in such territories for the purposes of the Act. But
whereas 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 determfoe residence of the
family within the meaning of s. 41\(b).
Therefore, we are of the opinion that the High Court
correctly answered the question. The appeal fails and
is dismissed with costs.
18-6 SCI/ND/82
1960
Commissioner of
Income· tax,
Bombay City
v.
Nondlal Gandalal
S. K. DasJ.
1960
CommissiMer of
Income~tax,
Bombay City
v.
Nandlal Gandalal
Hidayatullah].
630
SUPREME COURT REPORTS
[1960]
HrnAYATULLAH, J.-The Commissioner of Incometax, Bombay City, has filed this appeal, after obtaining special leave from this Court, against the judgment
and order of the High Court of Bombay dated February l 6, 1955, in a Reference under s. 66( I) of the
Indian Income-tax Act.
By the judgment under
appeal, the High Court (in agreement with the decision
of the Income-tax Appellate Tribunal, Bombay, given
earlier) answered in the negative the following question :
'
"Whether the Hindu undivided family of Gandalal represented by Nandlal in the firm of Amulakh
Amichand & Co. of Bombay was resident in the
taxable territories in the year of account relevant
for the assessment year 1945-46."
The facts briefly stated are as follows:
ThPre was
in Wadhwan State in Kathiawar a Hindu undivided
family consisting of Gandalal and his four sons,
Girdharlal, Hansraj, Nandlal and Ramniklal. This
family was doing business in cloth.
Jn 1944 Nandlal
went to Bombay and started on April 25, 1944, a cloth
business in partnership with three
strangers, known
as Amulakh Amichand & Co.
Nandlal's share was
ten annas, and that of his three partners, six ai,mas.
All the capital of the new firm was supplied by Nandlal,
and for this purpose he received two remittances of
Rs. 50,000 each on April 13 and 27 in the year 1944
and two other remittances aggregating to Rs. 50,000
on June 8 and 29 in the same year. Thus, a total sum
of Rs. J ,!J0,000 was sent from Wadhwan to Bombay.
Subsequently, Girdharlal also went to Bombay and
joined Amulakh Amichand & Co. and he was given
five annas' share out of Nandlal's share of ten annas.
In 1946 Amulakh Amichand & Co. started
another
firm at Banaras under the same name.
The partners
of the Banaras firm were the partners of the firm at
Bombay, an outsider from Banaras and a third brother
of Nandlal. He did not bring any capital, and presumably received a share along with his other two brothers.
For the assessment year 1945-46 the Income-tax
Officer treated the Hindu imdivided family as resident
in British India under s. 4A(b) of the Indian Incometax Act and assessed the family after adding the sum
of Rs.
1,50,000
to
the
income from the firm of
-
>
-
-
. i ~
3 S.C.R.
SUPREME COURT REPORTS
631
Amulakh Arriichand & Co., Bombay.
The appeal to
the Appellate Assistant Commissioner failed.
On
further appeal, the Appellate Tribunal, Bombay, held
that Nandlal was still a coparcener and not a separated member, because the partition which was set up by
him was not meant to be acted upon. The Tribunal,
however, held that the decision
of the Income-tax
Officer and the Appellate Assistant Commissioner that
the Hindu undivided family was resident in British
India in the relevant account year was not sound. The
Appellate Tribunal, therefore, ordered that the sum
of Rs. 1,50,000 i.ncluded under s. 4(l)(b)(iii) of the
Income-tax Act could not be included and must be
deleted.
According to the Tribunal, the business at
Bombay and later the business at Banaras could not
be considered to be 'the affairs of the Hindu undivided
family of Gandalal', so as to bring the matter within
s. 4A(b) of the Act. The Appellate Tribunal held that
these two businesses belonged to 'different entities',
namely, the Bombay and Banaras firms, and that these
firms could not be said to be "the affairs of the Hindu
undivided family" but the affairs of Nandlal and his
brothers under the law of Partnership. At the instance
of the assessee, the Tribunal referred the above question for the opinion of the High Court.
The Bombay High Court referred to the decision of
this Court in V. V. R. N. M. Subbayya Chettiar v. Commissioner of Income-tax, Madras (1), and pointed out
that by the expression "the affairs of the Hindu undivided family" was meant not the private or domestic
affairs of the family but some affairs which had some
reference to the Income-tax Act. The word "affairs"
must, it was held, be construed in relation to taxation. ·
The learned Judges then referred to the position of a
coparcener entering into partnership with strangers, and
observed that when a coparcener carried on such
business in pa,rtnership on behalf of the Hindu family,
"the affair" was of the coparcener and not of the
family, but when the business was carried on by the
family itself, then it was "the affair" of. the family and
not of the coparcener or coparceners. They pointed
out that in the cited case Faz! Ali, .J., seemed to have
(!) [1950] S.C.R. 961.
1960
Commissioner of
Income-tax,
Bombay City
v.
Nandlal Gandalal
Hidayatullah ].
1960
Commissioner of
Income~tax,
Bombay City
v.
Nandlal Gandalal
Hidayatullah J.
632
SUPREME COURT REPORTS
[1960]
held that even though a partnership business might be
an 'activity' of the Hindu family, it would not be "the
affair" of the Hindu family in the sense in which the
expression was used in the Indian Income-tax
Act.
They, however, held that it did not follow that every
activity of a coparcener or of a Karta, even if the activity resulted in profit, became "the affair" of the Hindu
undivided family.
Thus, treating
the
business
of
Amulakh Amichand & Co. as "the affair" of the coparceners concerned and not of the Hindu
undivided
family, the High Court in agreement with the opinion
of the Appellate Tribunal, answered the question in
the negative.
Before dealing with the arguments addressed in the
case and the interpretation of the relevant provision,
it will be useful to summarise the findings. It is found
that the Hindu undivided family did not disrupt and
partition the assets. N andlal and Girdharlal continued to be coparceners, and the sum of Rs. 1,50,000
represented the ·funds of the Hindu undivided family.
There is no finding that besides the entering into
partnership by some of the coparceners with outsiders,
there was, in the taxable territories, any other business.
There is also no finding by the Tribunal that no part
of the control and management was exercised in British
India, though the High Court did find this to be so.
We are concerned in this case with the application
of s. 4A(b), which deals with 'residence' in the taxable
territories, of Hindu undivided family, firm or other
association of persons. Before the present amendment,
the section read as follows:
"4A. For the purposes of this Act-
(b) 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."
The words "British India" have now been replaced
by the words "taxable territories"; but the reasoning
applicable to tl}em is the same. The section was plain
in so far as its intent and purpose was concerned.
It
made a Hindu undivided family resident in British
India, unless the control and management of its affairs
....
,
3 S.C.R.
SUPREME COURT REPORTS
633
was situated wholly without British India. If the
control and management was wholly or partly situated
in British India, then the family was treated as a resident.
The words "wholly without British
India"
showed that even if a part of the control and management, be it ever so small a part, was exercised in
British India, the provision was satisfied.
So far,
there is no dispute, and it is further clear that the
"affairs" of the Hindu
undivided
family refer
to
something connected with the law of Income-tax. The
section does not refer to the domestic or private affairs
of the Hindu undivided family. It refers to an activity
resulting in the making of income.
Parties are agreed
-and I think rightly-that this aspect of the law is
clear and unambiguous.
It is also settled after the
decision of this Court in Subbayya C hettiar' s case (').
Parties are, however, at variance, when one comes to
the interpretation .of the words "its affairs" in the
section, anu tries to find the situs of the control and '
management. In cases where the Hindu undivided
family itself or through its Karta controls and manages
business in the taxable territories, no difficulty arises;
but where, as here, the Hindu undivided family is
represented by one of its coparceners as a partner in a
firm, one faces some difficulties.
Two questions then
arise, which are:
(a) ·Is there any "affair" of the Hindu undivided
family in the taxable territories
m
such nrcumstances; and
(b) Is the fact that the coparcener controls and
manages the partnership, wholly or partly, sufficient
to enable one to say that the control and management
of the family is located in the taxable territories?
Now, it is settled law that a Hindu undivided family
,cannot be a partner
under
the law of partnership.
Such of the coparceners who join the partnership are
regarded quoad the other partners, as individuals in
their own names and rights.
Yet, the benefits that
arise to them from the partnership belong to the
family, and their rights are the asset of the family.
We have recently held in Charandas Harida.S v. Commissioner Df Income-tax,
Bombay
(2) that in such a
situation the matter has to be looked at in the light of
(1) [1950] S.C.R. 961.
(2) [1960] 3 s.c.R. ,296.
1%0
Commissioner of
Income-tax,
Bombay Ciry
v.
Nandlal Gandalal
Hida.YJlullah J.
1960
Commissioner of
Income-tax,
Bomba)' Cit;'
v.
Nandlal Gcndalal
Hidayatullah J.
634
. SUPREME COURT REPORTS
[1960]
three separate and independent branches of law. They
are the law of Partnership, the Hindu law and the law
relating to Income-tax.
The implications of a coparcener joining as partner with strangers are different
when one views the matter from the angle of the law
of Partnership or from the angle of the Hindu law
or the law of Income-tax.
In so tar as the law of
Partnership is concerned, the coparcenary has no place
in the partnership, and the coparcener-partner is everything.
But, viewed from the angle of Hindu law, the
position is entirely different.
ln this connection, we
have to bear in mind two principles of the law relating to a coparccnary, which are well-settled. The first
is contained in a well-known passage in the judgment
of Lord Westbury in Appovier v. Rama Subba Aiyan('),
which reads:
"According to
the true notion of an undivided
family in Hindu law, no individual member of that
family, whilst it remains undivided, can predicate of
the joint and undivided property, that he, that particular member, has a certain definiLe share......
The
proceeds of undivided property must be brought,
according to the theory of an undivided family, to
the common chest or purse, and then dealt with
according to the modes of enjoyment by the members
of an undivided family."
The second is equally well-known, and is found
stated in the judgment of Turner, L. J. in Katama
Natchiar v. Rajah of Shivaganga (') in the following
words:
"There is community of interest and unity of
-<
possession between all the members of the family, and
upon the death of any one of them the others may well
~
take by survivorship that in which they had during
the deceased's life-time a common interest and a common possess10n.
No doubt, there are other principles also which
qualify those quoted, as, for example, the right of a
coparcener to claim a partition, or, where such usage
obtains, to alienate his interest, which give rise to the
.>-
expression that the coparcener has a share. In point
of Hindu law, however, a coparcener cannot claim
~
(l) [1866] 11 M.I.A. 75, 89.
(2) [1864] 9 M.I.A. 539, 61 l.
-.
3 S.C.R.
SUPREME COURT REPORTS
635
any item of property or even a share of it as his own,
and his dealings with the assets are, in so far as he is
concerned, for the benefit of the family.
The law of
Income-tax makes the sole test for purpose of residence
of a Hindu undivided family,
the
existence of an
'affairs' and its control and management even partly
in the taxable territories.
For this purpose, one may
look at the actual facts, and an inference from facts in
the light of Hindu law is equally open.
It is thus plain that whilst in the eye of the law of
Partnership the coparcener who is a co-partner is
everything, in the eye of Hindu law he is no more
than a member of a bo,dy of owners.
In attempting
to find out if there is any 'affair' of the Hindu undivided family,. we can consider the matter from the
point of view of Hindu law. If this is the true position of a coparcener in Hindu law,
it is difficult to
accept the view of the High Court and of the Tribunal
that there was no 'a'ffair' of the family in British
India. The High Court, with respect, posed the wrong
question when it asked itself, "was Amulakh Amichand & Co., an affair of the family?". That question
is self-evident, and the answer is 'no'. from the point
of view of the law of Partnership. The proper question to ask was. as I have framed it, viz., ·"was there
an affair of the Hindu undivided family in British
India?". To search and find this 'affair', it is not necessary to look for it within the partnership any more than
to look for it in the affairs of a bank where the family
keeps its money with which it does business. That this
was not a mere 'activity' but an activity involving expenditure of familv funds in British India and resulting in
the earning of money is admitted on all hands.
The
income received from the partnership belonged to the
family, as is well-settled. See Mangaichand Mohanlal,
In re (
1), Murugappa Chetty &Sons v. Commissioner of
Income-tax (') and Kaniram Hazarimull v.
Commissioner of Income-tax (3) and the numerous cases cited
there.
The affair. if any, which we have to find, is not
to be found within the four corners of the partnership
(I) [19.52] 21I.T.R.164.
(2) [1952] 21I.T.R.311.
(3) [1955] 27 I.T.R. 294.
1960
Commissioner of
Income-tax,
Bombay City
v.
N cndlal Gandalal
.HitlayalullohJ.
1960
Commissioner of
Income· tax,
Bombay Citp
y.
Nandlal Gandalal
HidayatuJlah J.
636
SUPREME COURT REPORTS
[1960]
but outsi<le it.
The partnership was only the result of
the business activity of the family and evidence of it.
The affair we have to find must be regulated by Hindu
bw and not by the law of Partnership, because a partnership is regulated by the two laws considered the other
way round.
·
The section we have to interpret speaks of the
affairs of the Hindu undivided family whatever shape
it may take. and the enquiry is thus limited to what
is the dictate of Hindu law.
It is an error to think
that one can ignore a palpable conclusion of that law.
and go to find the answer from the law of Partnership.
Nor .do I think that the decision of this Court in Subbayya C hettiar' s case (') laid down any contrary
proposition. There, the karta who visited India for a short
period dealt with some matters including the starting
of certain businesses. The Hindu undivided family was
all the time in Ceylon, and it was held that his actions
could be described as 'activities'. Indeed, the matter was
not decided as to whether the 'affair'. if there was one,
was of the family or of the coparceners, and the case
went against the assessee on the burden of proof which
he had failed to discharge, to bring his case within the
e1'ception. If the karta had lived in
India, or some
other coparcener or coparceners had stayed on permanently to manage the 'affairs', then the question would
have been considered, perhaps, differently.
In this case, we are not concerned with the 'affairs',
of the firm of Amulakh Amichand & Co., but with the
'affairs' of the Hindu undivided family.
The coparceners who became partners could not say that they were
not concerned with the Hindu undivided
family to
which they belonged and an undivided asset of which
thev owned in common with others.
Their investing
moneys, becoming partners and running the partnership,
starting other partnerships were, from the view point of
the coparcenary 'lccording to Hindu law, as much the
affair of the rest of the family as their own.
In view
of what I have said, the first of the two questions posed
earlier must be answered in the affirmative, that is to
(1) [1950] S.C.R.