JUDGMENT
Chagla, C.J.
1. A rather interesting and important question arises on this reference, and the question is whether under the circumstances of the case a Hindu undivided family was resident in the taxable territories within the meaning of the Income-tax Act.
2. Now, one or two facts only need be stated in order to decide the question that has been submitted to us. A Hindu undivided family was carrying on business in cloth at Wadhwan in Kathiawar which was at the relevant date outside the taxable territories. Two coparceners of this family, Gandalal and Nandlal, became partners in the business of Amulakh Amichand & Co. which was carried on in the taxable territories. The question that falls to be considered and decided is whether the fact that the two coparceners of a Hindu undivided family carried on business in partnership within the taxable territories renders the Hindu undivided family a resident within the meaning of the Income-tax Act.
3. Turning to the definition of a resident, when it applies to a Hindu undivided family, we find the definition in section 4A (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.” Therefore, the presumption that arises is that a Hindu undivided family is resident in the taxable territories, but it is open to the Hindu undivided family to rebut that presumption by establishing that the control and management of its affairs are situated wholly without the taxable territories; and the interesting question that we have to decide in this reference is what is the exact significance to be attached to the expression “the affairs of the Hindu undivided family.” It is clear that the affairs contemplated by this definition are not the private or domestic affairs of the family. They must be affairs which have some reference to the Income-tax Act itself. The Income-tax Act is concerned with taxation and it is in relation to taxation that we must construe the expression “affairs”. What is suggested by the Advocate-General is that inasmuch as two coparceners of the family looked after this business the Hindu undivided family must be held to have control and management of this particular affair within the taxable territories.
4. Now, we must first clarify the position in Hindu law with regard to a coparceners entering into partnership with others in carrying on a business. The partnership that is created is a contractual partnership and the partnership is between the coparcener individually and his other partners. The partnership is not between the family and other partners. If the coparcener represents the Hindu family in the partnership, then undoubtedly he has an obligation to account to the family for profits made by him in the partnership. But it is equally clear that the family has no control whatsoever with regard to the affairs of the partnership. The other partners could refuse to recognise the fact that one of their partners is accountable for the profits made by him to the family. Therefore, as far as the partnership is concerned, the control and management is in the hands of the individual coparcener who is the partner and not the family. Now, can it be said that the mere fact that the Hindu has to pay tax in respect of profits which would be attributable to the share of the coparcener renders the business itself the affair of the partnership ? Let us look at the different position that would arise when a Hindu family carries on a business itself when the business is its own and not a partnership business. In that case the business is the affair of the family; the family is in control and management of that business; it can give directions as to how the business can be carried on; it can deal with all the questions that arise in the course of the business. But when the business is a partnership business in which one coparcener is a partner, undoubtedly on behalf of the family, the position is entirely different. We might put the matter in this way that when a coparcener carries on business in partnership on behalf of the Hindu 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 coparcener or coparceners.
5. Now, this question came to be considered by the Supreme Court in V. VR. N. M. Subbayya Chettiar v. Commissioner of Income-tax. In that case the karta of the Hindu undivided family was living in Ceylon. He had property in British India and also he had a business in Burma and in Saigon, and in the accounting year he came to British India and lived here for about 101 days. While he was in British India he started two partnership business, and the question arose, which the Supreme Court had to consider, whether the karta controlled and managed the affairs of the Hindu undivided family within the taxable territories, and the Supreme Court dealt with different pieces of evidence which had been considered by the Income-tax authorities and the High Court, and with regard to the formation of two partnerships by the karta the Supreme Court dismissed that evidence with the remark that the starting of two partnership business were mere activities on the part of the karta which would be no test of residence as far as the Hindu family was concerned. Therefore, the view of the Supreme Court seems to be that even though a partnership business may be a profit making activity of the Hindu family, it would not be the affair of the Hindu family in the sense in which that expression is used in the Income-tax Act, and Mr. Justice Fazl Ali in his judgment also points out that the word “affairs” must mean affairs which are relevant for the purposes of the Income-tax Act and which have some relation to income. But from this it does not follow that every activity by a coparcener or even by a karta, which activity may result in profit, becomes that affair of the Hindu undivided family.
6. The Advocate-General relied on a decision of the Madras High Court reported in Commissioner of Income-tax v. Erin Estate and the only relevant passage is at page 420 where the learned Judge of the High Court points out that the affairs referred to in section 4A (b) are 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. With respect, we agree with that view, but as we have pointed out in this particular case the affair is the affair of the coparcener and not of the joint family.
7. 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. Commissioner to pay the costs.
8. Reference answered in the negative.
