ORDER
Anand Prakash, Accountant Member
1. IT Appeal No. 741 (Delhi) of 1982 :
The first ground of appeal in the assessee’s appeal in respect of this year is regarding its status. According to the assessee, it is non-resident in India, whereas, according to the revenue, the assessee is a resident.
2. The assessee’s case for this year is the same as canvassed by him for the assessment year 1977-78. In its letter dated 2-3-1981, the assessee submitted, inter alia, as follows :
The assessee-firm submits once again that on the facts and for the reasons given in assessment year 1977-78 and for which the appeal has already been heard by the Commissioner (Appeals), the assessee-firm is a non-resident firm not liable to assessment in India. Assessee-firm’s case is that the control and management of the affairs of the firm are being exercised from Kabul, books of account are being maintained in Kabul. No business is being transacted from any place in India. There is not even any office in India from which it could have transacted any business. There is no income earned in India. Similarly, there is no expenditure incurred in India. The assessee-firm does not have any assets or liabilities in India. These and other facts placed on your record in assessment year 1977-78 are equally applicable to the facts of this year also.
3. The affidavits of the partners and the certificates from some of the Indian parties with whom the assessee-firm had dealt with were relied upon this year also. With regard to the observation of the ITO that the certificates were all couched in the same language, the assessee had the following to say :
. . . you have raised a further point that the certificates filed by the assessee-firm are similar in language. We accept this position. It was at our request that these persons gave these certificates to be filed with you. The nature of the certificates to be given to you and its language etc. was written by our counsel so as to meet your requirements to the best of the understanding of our counsel.
4. The following was the information regarding the various partners’ stay in Kabul and India during this year :
Stay in Kabul Stay in India
1. S. Surinder Singh 30-6-1974 to 338 days
27-7-1974, i.e., (365-27)
27 days
2. S. Inder Mohan Singh Nil 365 days
3. S. Narinder Singh 21-9-191A to
4-12-1974, i.e.,
69 days, 217 days
20-1-1975 to
31-3-1975, i.e.,
79 days
4. S. Surbir Singh 1-4-1974 to 69 days
21-1-1975, i.e.,
296 days.
(S. Surbir Singh retired on 31-3-1975 and in his place S. Rajender Singh was admitted as partner with effect from 1-4-1975.)
5. The departmental case regarding the assessee’s status is also the same as for the assessment year 1977-78. Reference is again made to the seized material referred to in respect of the assessment year 1977-78 (pages 61 to 91 of lease papers seized from the residence of S. Surinder Singh. Reference may be made in this regard to the letters of the ITO dated 21-2-1981 to 16-3-1981). The assessee’s replies dated 2-3-1981, 18-3-1981 and 24-3-1981 are also on the same lines as indicated in the course of assessment proceedings for the assessment year 1977-78.
6. The submissions raised as above and reiterated through the assessee’s letters referred to above, have been considered by us in detail while disposing of the assessee’s appeal for the assessment year 1977-78. For the reasons given there, we reject the assessee’s plea regarding its status for this year also. The partners of the assessee-firm, including S. Narender Singh, who has been, according to the assessee, looking after the control and management of the affairs of the firm, have been in India for major part of the year. S. Surbir Singh alone was in Kabul for the major part of the year. It has, however, never been the assessee’s case that he alone held the control and management of the affairs of the firm. Such plea has been taken by the assessee for S. Narinder Singh only. But he was in India as noted earlier, for 217 days out of 365 days during the previous year in question. It cannot, therefore, be said that the assessee-firm’s control and management was wholly outside India during the accounting period under consideration. Other reasons for not accepting the assessee’s version that India based partners took no share in the control and management of the affairs of the firm, given in respect of the assessment year 1977-78, hold good for this year also. It is true that the seized material does not pertain to the present assessment year, but, to the assessment years 1976-77 and 1977-78, but that indicates the pattern of management, which has its own continuity. There is nothing to show that this year the pattern of management was different. Besides, the assessee withheld the relevant correspondence for the year under consideration. An adverse view of this action has, therefore, to be taken.
7. The learned Commissioner (Appeals) has stressed in his order and in our opinion rightly the fact that the assessee-firm is constituted under the Indian Partnership Act, 1932, at Delhi and is subject to the provisions of Indian Arbitration Act. It has been, in fact, the position right from the assessment year 1957-58 onwards, when, after the partition of the family business of S. Hukam Singh, partnership was formed regarding Kabul business in the name and style of the assessee-firm. All the partners of the firm are resident in India and have their residences in Delhi. Even when the firm was dissolved on 31-3-1975, it was again formed under the Indian Partnership Aft, as earlier. All this conduct does corroborate and add a great deal of weight to the probability of the control and management of the affairs of the firm being in India, if not wholly, then partly.
8. For these reasons, we uphold the finding of the authorities below. The onus was on the assessee to show that the control and management of the affairs of the firm was situated wholly outside India. It has failed to discharge this onus. The normal presumption of Section 6(2) of the Income-tax Act, 1961 (‘the Act’) will, therefore, prevail and the assessee-firm will be assessable as ‘resident’.
9. The next controversy is with regard to the addition of Rs. 75,000 on account of unexplained cash credit in the name of Shri Dwarka Nath. Rs. 2,50,000 (Afghanies) were found credited in the account of the aforesaid person on 3-9-1974. He was an employee of the assessee, but has since died. The assessee claimed that Rs. 1,75,000 were lying invested by Shri Dwarka Nath in another firm in Kabul wherefrom he withdrew the said sum on 1-9-1974 and deposited it with the assessee. The remaining amount of Rs. 75,000 was said to be out of the savings of late Shri Dwarka Nath. An affidavit of his brother Shri R.P. Bagga to support the above version was filed by the assessee. The learned Commissioner (Appeals) has accepted the explanation of the assessee with regard to the sum of Rs. 1,75,000. With regard to the remaining sum, however, he said that there was no supporting evidence. The affidavit of Shri R.P. Bagga was ignored by him as he had not been produced by the assessee for examination by the ITO.
10. The assessee challenges the above finding of the Commissioner (Appeals). It is pointed out to us that the creditor has been identified and his credit-worthiness has been proved. So the onus on the assessee to prove the nature and source of the cash credit stood discharged. According to the assessee, Shri Dwarka Nath was living in a rent-free accommodation provided by the firm and was unmarried. He had very little household expenses and was in receipt of salary of Rs. 36,000 (Afghanies) from the firm. He could, therefore, save Rs. 75,000 from his past three years’ salary alone.
11. On behalf of the revenue, the order of the learned Commissioner (Appeals) is supported.
12. In our opinion, the explanation of the assessee deserves to be accepted. Late Shri Dwarka Nath was a person of means and loan of Rs. 1,75,000 out of that of Rs. 2,50,000 has been accepted by the learned Commissioner (Appeals) as genuine. The explanation given by the assessee appears to be plausible. There was, therefore, in our opinion, no justification to add the aforesaid sum of Rs. 75,000 to the assessee’s total income. The addition is accordingly deleted.
13. The ground regarding langar expenses was not pressed by the assessee.
14. In the result, the assessee’s appeal stands partly allowed.
IT Appeal No. 1383 Delhi of 1982 :
15. In the departmental appeal, the first issue is regarding the scope of the order of the Commissioner (Appeals) dated 3-2-1979 by which he sent back the matter to the ITO. The assessee has preferred original appeal on several grounds including, inter alia, the question of status. The learned Commissioner (Appeals) restored the matter back to the ITO for redeter-mining the question of status. With regard to other grounds of appeal, he expresed no opinion. The relevant directions of the Commissioner (Appeals) were couched in the following language :
Hence it is necessary for the ITO to examine…the extent and nature of control, if any, that was being exercised by the partners residing in India. The assessment is set aside to enable the ITO to examine if the control and management of the firm was exercised in India or from Kabul….
As the assessment has been set aside the other grounds taken in para 2 by the assessee are not considered, because the decision on the first ground may affect the very taxability of the income of this firm in India.
16. The departmental contention is that the set-aside of the assessment as above is total and unfettered and so the entire assessment became open before the ITO and he could re-examine all aspects touching the assessment of the firm and make additions in respect of even those items which were originally not touched upon by the ITO or touched upon only partially.
17. On behalf of the assessee, however, it is urged that the set-aside was on a limited issue and on the remaining grounds of appeal the Commissioner (Appeals) had expressed no opinion and that, therefore, the ITO could not go in reassessment proceedings beyond the question of status of the firm.
Both the sides have relied on a catena of case law in support of their respective viewpoints.
18. In our opinion, it is not necessary to refer to any case law, as it is possible to solve the issue in the present case with reference to the bare language of Section 251(1 )(a) of the Act, which, so far as it is relevant for our purpose, reads as below :
(1) In disposing of an appeal, the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) shall have the following powers –
(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment ; or he may set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions given by the Appellate Assistant Commissioner or, as the case may be, the Commissioner (Appeals) and after making such further inquiry as may be necessary and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment ;
It will be seen from the above that the Commissioner (Appeals), in the case of an assessment order, has the following powers :
(1) to confirm the order, or
(2) to reduce it, or
(3) to enhance it, or
(4) to annul it, or
(5) to set aside the assessment and ‘refer the case back to the ITO for making a fresh assessment ‘in accordance with the directions given by him and ‘after making such further enquiry as may be necessary. [Emphasis supplied]
In the present case, the Commissioner (Appeals) adopted the course indicated in item (5) above. His order of ‘set aside’ could, therefore, be only ‘for making a fresh assessment’. He could not withhold the power of adjudicating on other grounds and yet set aside the assessment under Section 251. He could, of course, retain the appeal with him, remand the matter of status to the ITO for enquiry and report and then determine the appeal in its totality on all grounds. Such an order would be an interim order, in terms of Section 250(4) of the Act and would not be deciding the appeal finally. But, in the present case, the Commissioner (Appeals) has not passed such an order. He passed the final order under Section 251(1)(a) and, thereafter, became functus officio with regard to the said appeal. He chose to express no opinion on other grounds of appeal, as in his opinion, it might not be necessary to adjudicate upon them, if the assessee succeeded on the first ground. By this procedure, however, he did not retain the part of the assessment order, pertaining to the said grounds with him, while sending back the other part for fresh adjudication by the ITO. In law, he could not have passed such an order in terms of Section 251(1)(a). Once he set aside the assessment under the said section, without deciding any of the grounds of appeal before him, the assessment was thrown open as a whole and the ITO could, in that case, go over all the aspects of the assessment, as if the earlier order had not been passed. The Commissioner (Appeals) could, of course, decide some grounds of appeal on merits and restore the matter back with regard to other points for enquiry and decision by the ITO. In such a case, the scope of reassessment would stand limited to only those points on which the order had been set aside, on the remaining points, it would get merged in the order of the Commissioner (Appeals), and, hence, no more available for scrutiny by the ITO. But when the Commissioner (Appeals) chose to decide no ground of appeal and set aside the assessment to the ITO for further enquiry and decision on one ground, without expressing any opinion on other grounds, the whole of the order of the ITO gets set aside, no part of it having merged in the order of the Commissioner (Appeals). The ITO, in such a case, was entitled to pass a fresh assessment, after looking into all the aspects of the assessment, as if the earlier assessment order had not been passed. Of course, in passing such an order, the ITO would be bound by the directions given by the Commissioner (Appeals), i.e., in the present case on the question of status. On the remaining issues, however, there were no directions of the Commissioner (Appeals) and so the ITO was free to decide the other aspects of assessment without any fetter on his discretion, as if the earlier order had not been passed. The learned Commissioner (Appeals) had, in our opinion, erred in not properly appreciating the nature and scope of the order of his predecessor and in believing that he had, so to say, frozen the appeal on other grounds, while restoring the matter to the ITO regarding status. If that was the intention of his predecessor, he would have passed an interlocutory order under Section 250(4), as noted above. He did not do so. Instead, he passed the order under Section 251, thereby finally disposing of the appeal. He seemed thereafter to be in seizin of the appeal. The question of other grounds of appeal remaining in suspended animation, so to say, in the meanwhile, did not arise. The appeal of the department on the first ground is, therefore, hereby allowed.
19. The next grievance of the revenue is against the deletion of the addition on account of trading results. The assessee disclosed a gross profit rate of 6.7 per cent this year as against the gross profit rate of 10 per cent in respect of the assessment year 1976-77. The ITO pointed out that the purchases of dry fruits, etc., from Kabul and the assessee’s sales there were not vouched and there was no satisfactory explanation regarding such decline. He, therefore, rejected the trading results. At the time of original assessment, an addition of Rs. 1,50,000 was made to the trading results, which was increased to Rs. 6,50,000 in the course of reassessment after set aside. The Commissioner (Appeals) did not approve of : (7) the enhancement of the addition from Rs. 1,50,000 in the original assessment to Rs. 6,50,000 in the course of reassessment, as, according to him, the ITO could not in law do so and (2) the initial addition of Rs. 1,50,000 as the decline in the gross profit rate was a normal incident of business and that by itself would not justify an addition unless it could be established that either the purchases were inflated or sales price was deflated or the expenses had been inflated. It was, according to the Commissioner (Appeals), not the finding of the ITO and so ‘the rejection of the book result cannot be approved by me’.
20. The department assails the above finding of the Commissioner (Appeals). According to it, the purchases and sales in Kabul were admittedly not vouched, maybe, because cash memos were not issued in Kabul. But for that reason, the purchases and sales will not cease to be unverified. For this defect, the accounts were properly rejected by the ITO and the addition in question was well-supported by the assessee’s own past history, when 10 per cent gross profit had been shown by the assessee.
21. On behalf of the assessee, the order of the learned Commissioner (Appeals) is stoutly supported.
22. In our opinion, the finding of the learned Commissioner (Appeals) that the trading accounts of the assessee do not deserve to be interfered with is correct. All purchases and sales of the assessee from and to Indian parties are vouched and channelled through banks. Purchases and sales in Kabul are, of course, not vouched. But no instance of inflation of purchase price or under-statement of sales price has been indicated. Nor has the ITO pointed out that other traders in similar line have shown better results this year. Fluctuation of profit from one year to the other is possible and merely because gross profit is lower this year than in the preceding year it may not be enough ground, on the facts of the present case, to reject the trading results. The order of the Commissioner (Appeals) on this point is correct and so we confirm it. His finding that in law the ITO could not have again gone into the question of adequacy of trading results, during reassessment proceedings, as the set aside of the original assessment order was on a limited issue, has been held by us to be wrong. But, on facts, his order is correct and no addition to trading results is justified. Accordingly, we confirm the order of the Commissioner (Appeals).
23. The last two grounds pertain to the cash credits in the name of S. Sarin Singh amounting to Rs. 5 lakhs and the interest allegedly paid to him amounting to Rs. 5,750. Copy of account of S. Sarin Singh appears at page 17 of the assessee’s paper book. From a perusal thereof it appears that the peak credit in the above account is of Rs. 3 lakhs only, as below :
Rs.
9-6-1974 1,00,000
25-6-1974 2,00,000
---------
3,00,000
---------
The said amounts were returned (or withdrawn from the cash book) as below :
Rs.
On 10-7-1974 1,00,000
3-10-1974 2,00,000
Thereafter, on 26-1-1975 Rs. 2 lakhs were again shown as having been borrowed from him on 26-1-1975, which was returned on 25-2-1975. The sum allegedly borrowed on 26-1-1975, thus stands covered by the earlier withdrawals of Rs. 3 lakhs on 10-7-1974 and 3-10-1974. So, the effective cash credit to be explained in the present case is Rs. 3 lakhs and not Rs. 5 lakhs.
24. The ITO added the said amount on the ground that no satisfactory explanation as to the nature and source of the aforesaid cash credit has been given by the assessee. The Commissioner (Appeals) did not go into the merits of the addition. He deleted it on the short ground that the above addition had not been made in the original assessment and the ITO could not go into this question, while making reassessment, as his mandate was limited. We have held the above order of the Commissioner (Appeals) to be erroneous. The learned Commissioner (Appeals)’s order cannot, therefore, be sustained on this account. It is accordingly set aside and the matter is restored to him for examining the issue and determining it on merits.
25. For statistical purposes, the department’s appeal will be treated as partly allowed.
IT Appeal No. 1332 (Delhi) of 1982 :
Anand Prakash, Accountant Member
1. The first ground in the assessee’s appeal pertains to the status of the assessee. The assessee has claimed the status to be non-resident, whereas the authorities below have held it to be ‘resident’. No additional evidence has been placed on record by the assessee for this year. In its letter dated 10-3-1981, the assessee stated, inter alia, that ‘. . . on the facts and for the reasons given in assessment year 1977-78. . .the assessee-firm is a non-resident firm’. During this year, Shri Surinder Singh and Shri Rajender Singh, two of the partners, were in India throughout the accounting period; Shri Narinder Singh was in India from 1-4-1977 to 27-6-1977; from 6-12-1977 to 30-12-1977 and from 8-3-1978 to 31-3-1978, i.e., in all for 137, days. Shri Inder Mohan Singh was for the most of the period in India, though he visited Kabul for sometimes. The duration of his visit to Kabul has, however, not been indicated by the assessee. A letter from Shri Narinder Singh dated 19-3-1981 is also placed on record, wherein he stated, inter alia, as follows :BLOCKQUOTE>
I have to inform you that 1 had maintained no record, correspondence file or order book regarding imports and exports made. The orders regarding imports and exports were booked by telephone or telegrams and no record in respect of these bookings were maintained by me.
I, therefore, regret my inability to send you the required documents. Whatever records were maintained in the loose forms were destroyed at the time of last disturbances in Kabul.
During the course of arguments before us, both the sides relied on the same reasoning and facts as advanced by either sides for the assessment year 1977-78.
For the reasons given by us for the assessment year 1977-78, which apply, mutatis mutandis, for this year also, we hold that the assessee-firm was a resident during the accounting period under consideration. All the partners have been in India simultaneously for 137 days; two partners were here all along during the previous year. Shri Narinder Singh was in fact in India from 1-1-1977 to 26-6-1977, i.e., almost six months continuously. It cannot, therefore, be said that control and management of the assessee’s affairs was wholly outside India during the previous year.
From the letter of Shri Narinder Singh dated 10-3-1984, it is clear that it was not that the records regarding bookings, correspondence, etc., were not at all maintained. According to him ‘whatever records were maintained’ were in the loose form and that the same had been destroyed in the last disburbances in Kabul. It may be so. But, as was pointed out by the learned Commissioner (Appeals) in his order for the assessment year 1977-78, the correspondence had the Indian end also. If Kabul part was destroyed, the same could not be said about the Indian end. The India based partners could have produced the relevant correspondence. That was not done. It required, in fact, the drastic step of search under Section 132 of the Act to discover part of such correspondence, to which reference has been made in the course of our order for the assessment year 1977-78. Drawing of adverse inference against the assessee for non-production of the relevant correspondence was, therefore, justified.
For these reasons and the ones given earlier for the assessment year 1978-79, we reject the assessee’s claim regarding status. The assessee was a resident firm during the previous year under consideration.
The next ground is regarding the disallowance of Rs. 20,000 being interest allegedly paid to Shri Sarin Singh, on the ground that the loan taken by him was not genuine. The matter has been restored by us to the ITO for re-examining the question of genuineness of the loan in respect of the assessment year 1977-78. Accordingly the addition of Rs. 20,000 on account of interest paid to him is set aside and the matter is restored to the Commissioner (Appeals) for redetermination of the 13 ITR 124 (Bom.), a partner, who under the terms of the partnership deed, had full powers of control over the firm’s business, resided in India, while firm’s business was carried on in South Africa. It was held that in the absence of any evidence that he in fact controlled and managed the firm’s business from India, his residence was held to be insufficient to establish the residence of the firm in India.
8. In support of the above contention, the assessee filed the following pieces of evidence :
1. Affidavit of Sardar Swinder Singh dated 12-10-1979.
2. Affidavit of Sardar Inder Mohan Singh dated 12-10-1979.
3. Affidavit of Sardar Rajender Singh dated 12-10-1979.
In addition to the above, the assessee also filed certificates from the following parties :
Name of the party Date of the certificate Rawal Industries (P.) Ltd. 12-10-1979 Narinder Singh & Co. 12-10-1979 Surbir Singh & Co. 12-10-1979 Hukam Singh Swinder Singh 12-10-1979 S. Inder Mohan Singh, Amritsar 12-10-1979 Harcharan Singh 11-10-1979 Joginder Singh Rajpal 12-10-1979 9. The affidavits of the three partners referred to above are more or less identical in language and state, inter alia, as follows :
2. The above-named firm of Hukam Singh Inder Mohan Singh (Kabul) was carrying on its business in the above accounting year wholly in Afghanistan and was not carrying on any business whatsoever in India in the above-mentioned years. Purchases were made by that firm from parties in India and sales were made by that firm to parties in India on principal to principal basis in accordance with the provisions of the Indo-Afghanistan Barter Trade Agreements as in force in those years. There was no purchase by the above firm in India. Similarly there was no sales by the above firm in India. It is further stated that control and the management of the affairs of the above firm of Hukam Singh Inder Mohan Singh (Kabul) was situated in the above accounting years wholly outside India and that I did not take part in the control and management of the affairs of that firm while in India.
10. The certificates from the various parties are also couched in identical language and state, inter alia, as follows :
We further confirm that we had dealings with the above firm in Kabul on principal to principal basis in accordance with the provisions of Indo-Afghanistan Barter Trade Agreements as in force from time to time. We also confirm that we did not deal at any time with any of the partners of the above firm in India in connection with the affairs of the above Kabul firm relating to imports made by us in India.
11. The affidavits in question were submitted by the assessee along with its letter dated 23-10-1979, an extract of which has already been given above. After scrutinising them, the ITO wrote a letter to the assessee on 26-2-1980, seeking corroborative evidence in support of the aforesaid affidavits. It was also, inter alia, pointed out to the assessee in the said letter that the partnership deed of the firm had been executed in India and that the partners of the firm had their residence in India and their status for the purposes of assessment of income-tax was that of ‘resident and ordinarily resident’. About Sardar Narinder Singh, it was stated that ‘from April 1974 to April 1977 Sardar Narinder Singh was in India supervising the construction of his house at K-22, Hauz Khas, New Delhi’ and that the status of the firm Narinder Singh & Co. in which Shri Narinder Singh has 50 per cent share has also been shown as a resident firm. He also drew the attention of the assessee-firm to the correspondence exchanged in respect of business between the various parties outside India and India-based partners and pointed out that he was in possession of a bunch of papers seized from the personal possession and residence of partners Shri Swinder Singh and Shri Inder Mohan Singh, which threw light on the business activities of the firm in India or from India.
The ITO also wanted the assessee to produce before him, inter alia, the order book for the assessment year under consideration for his perusal.
12. The assessee-firm replied to the aforesaid letter of the ITO, vide his letter dated 4-3-1980. Along with this letter, the assessee-firm enclosed the certificates from various parties, referred to above as corroborative evidence. It also contended in it that merely because the partners of the firm were resident in India and the firm Narinder Singh & Co. was resident in India, it would not mean that the assessee-firm was also controlled and managed from India. The firm also required the ITO to give inspection to it of the seized material to which reference had been made by him.
13. Another letter was written by the assessee-firm to the ITO on 17-3-1980, wherein it stated that no order book was being maintained by the assessee-firm.
14. Partners Shri Swinder Singh and Shri Rajinder Singh were examined by the ITO on oath on 18-3-1980 and 22-3-1980, respectively. During the course of examination of Sardar Swinder Singh, seized papers, to which reference was made by the ITO in his letter dated 26-2-1980, were shown to him and his replies thereto were solicited. There were two invoices issued by the Kabul firm in the names of R. D. Motors, Delhi and Janak Engg., Amritsar. After examining the said invoices, Shri Swinder Singh stated that the said invoices represented goods sent by Kabul firm to the said Indian parties. With regard to the entries at pages 41 to 45 of the seized material, the assessee gave no reply except stating that the query had already been raised by the ITO’s predecessor and had beer, replied. A letter dated 21-9-1976 written to one Shri B.S. Chug also was brought to the attention of Shri Swinder Singh and he was asked as to what he had to say about it. The partner’s reply again was ‘this query had already been raised by your predecessor and replied. At present I do not remember’. In reply to a further question on this point Shri Swinder Singh said that Shri B.S. Chug was his friend, that he did not remember his address and that about the nature of payment ‘I have already replied’.
15. So far as Sardar Rajinder Singh was concerned, it was pointed out to him by the ITO that, as per his affidavit dated 17-3-1979, he was only a working partner of the assessee-firm and that he had contributed no capital to the firm and he was asked as to what duties he performed as a working partner. To this the partner stated that he had gone to Kabul in 1975 where he had looked after the interest of the firm and in that connection he used to visit godowns to look into the quality of the dry fruits purchased and of the goods coming from India. He, however, stated that he had not visited Kabul since 1975. When it was pointed out to him that there were long periods, when none of the partners were at Kabul and even Shri Narinder Singh was in India, then who looked after the interest of the firm in Kabul, the partner’s reply was that ‘the employees used to look after, whose names I do not know’. On being asked as to how it was that even though he was educationally well qualified, he did not remember the names of any of the employees, the partner stated : ‘I do not remember and I am telling you straightaway’. Vide question No. 10 the ITO wanted the partner to produce the correspondence file of the Kabul firm and the order book of the firm. The partner replied to this as below :
Give me some time. I may be able to produce.” Q. No. 30 put by the ITO again reverted to the topic of correspondence from India by the various partners with the Kabul firm and specifically posed to him, inter alia, the following query :
Was there any correspondence by the partners in India to the Kabul firm ?
The reply of the partner was as below :
I have not written any letter to Hukam Singh Inder Mohan Singh, Kabul regarding Hukam Singh and Inder Mohan Singh and as such I need not reply to the rest of the question. [Emphasis supplied]
The assessee-firm’s counsel cross-examined the aforesaid partner and asked him, inter alia, the following question :
Are you entitled to operate upon the firm’s bank account in Kabul with Bank Milly ?
The partner’s reply was :
I cannot say, I do not remember.
On being asked as to where the records of Kabul firm were maintained, the partner said that they were maintained in Kabul and not in India. He further stated that he had never signed any document on behalf of Kabul firm, while in India.
16. On the basis of the above evidence, the ITO rejected the assessee’s claim with regard to its status. As some additions were also proposed by him to the income of the asscssee-firm, exceeding Rs. 1 lakh, the draft order proposed by the ITO was referred by him to the IAC on being objected to by the asssssee under Section 144B of the Act. From the order of IAC passed under Section 144B, it appears that the IAC had asked the assessee by his letter dated 21-5-1980 to produce its correspondence with the Indian parties so that he could verify the assessee’s contention that sales and purchases were made on principal to principal basis. The correspondence file was not produced by the assessee before him, as it was not earlier produced before the ITO. The IAC, in his order pointed out that the onus to prove that the assessee was a nonresident during this year was on the assessee and that the assessee had not discharged its onus and, in fact, according to him, ‘the assessee has consistently seen to it that no record is made available which can help the ITO to support his view’.
Reference to the assessee’s failure to produce the correspondence file, even before him, was made by the IAC in this connection.
17. The IAC further pointed out in his order that the seized material from the partners of the firm, namely, Sardar Swinder Singh and Shri Inder Mohan Singh clearly went to show that the said partners were concerning themselves with the control and management of the affairs of the assessee-firm’s business in India. In this connection, he referred, in particular, to the letters dated 3-8-1976, 5-8-1976, 6-8-1976 and 9-8-1976 addressed by Shri Inder Mohan Singh to Hukam Singh Inder Mohan Singh, Kabul. In the letter dated 5-8-1976 the following was the message conveyed by Sardar Inder Mohan Singh to Hukam Singh Inder Mohan Singh, Kabul :
Deepak Trading Co., Bombay : the colour scheme of each bale has been conveyed to him today on telephone regarding Tafte. This is same colour scheme which was given to the party when S. Swinder Singhji and S. Surbir Singhji went to Bombay. Now Mr. Ram says that the goods are ready and shall be packed and despatched by him within 3/4 days. We have informed Amritsar office to purchase 60/70 bags of Dola. As soon as these are purchased, we will inform you. Green patta is not available and it is also not advisable to purchase it during these rainy days.’ [Emphasis supplied]. In his letter dated 3-8-1976, the message was to the following effect :
…about caustic soda, we have taken up with DCM and the rate etc. will be sent to you by telegram in the evening….
Please let us know the quotation of 800 tonnes of steel bars which we gave you some time back.
** ** ** ...we are in need of payment very badly. So, please send us dollars immediately. If you think that this is loss of 12-15 per cent, then send 10,000 dollars each in our personal names. You can chitra (sic) us for this.... ...the caustic soda in DCM is ready and can be despatched as and when required.... ...the Amritsar suggests that green patta should not be purchased for 10/20 days because due to rains it gets heavy and on reaching at Kabul, the weight will be very less. Letters dated 6-8-1976 and 9-8-1976 may also be noted at this stage as below : Letter dated 6-8-1976 Just now spoke to B.R. Malhotra at Calcutta. Purchased 300 sitara at the rate of 12.80. We are informing you about the same by telegram also." "Letter dated 9-8-1976 Please note that 14 bags of Almonds have been damaged very badly due to rain water. Pista Dadi has also been affected which we have sent at home. Please take up the matter with the clearing agent at Lahore as to how the goods have been damaged.... According to the IAC the above extracts clearly show the participation of Shri Inder Mohan Singh in the affairs of the assessee and Shri Inder Mohan Singh is a partner who is also resident in India. He further pointed out as below :
For an effective management and control, it is very necessary that detailed information is called and examined and instructions issued. The seized material has file marked S-4, which gives a monthly position of various stocks at. Kabul. Obviously it was being called for, so that the pratners in India could exercise effective control. Moreover, there are other files which give meticulous account of sales, purchases, rates and other related matters and these papers are being constantly passed between Delhi and Kabul.
As observed above, these are a few illustrations which show beyond doubt about control and management vested in India with partners stationed permanently in India. It is a pity that the assessee has mainly kept back Kabul correspondence files which if produced would have shown many more letters sent from India containing directions from the partners in India about the affairs of the assessee.
The above instances also show that the partners in India were definitely incurring expenses on telegrams, telephone, travelling, etc., in discharge of their functions as partners of the assessee. It is also unthinkable that an assessee who has purchases of 2.66 crores (Afgani) and sales of Rs. 2.88 crores (Afgani) and when the bulk of the transactions were with Indian parties, the partners stationed in India would not be called upon to discharge any functions of heads of the organisation. And the above instances put it beyond doubt, that these partners were taking a very active part in the affairs of the assessee.
From the foregoing, it is proved that the management and control of the activities of the assessee rested in India to a very large extent and as such, the assessee has rightly been treated as a resident. The ITO’s finding to this effect and to tax the income of the firm in India is therefore approved.
Accordingly, he approved the draft order of the ITO, treating the assessee as non-resident.
18. The ITO thereupon passed the assessment order in the case of the firm in conformity with the directions of the lAC. In addition to the reasons given by the IAC, the ITO made out the following further points in his order :
1. That this year, for the first time, Shri Swinder Singh and Shri Inder Mohan Singh have been paid salaries amounting to Rs. 24,000 by their HUFs for looking after their interests in all the concerns, including the appellant-firm.
2. That inasmuch as the Kabul firm has, according to it, no agents in India to arrange for the purchase of goods from India to export them to Kabul in exchange of the import of dry fruits therefrom, it was all the more necessary for the resident partners of the firm to exert to look after the interest of the firm in this regard in India. According to him in a trading concern purchase operations are as important as sales and, unless these purchases were properly supervised in Delhi for being exported to Kabul, the assessee-firm could incur loss. Therefore, the resident partners of the firm cannot but look after the interest of the firm.
3. That Shri Narinder Singh was in India between 31-3-1976 to 31-3-1977 and Shri Rajinder Singh, the other working partner also remained in India throughout the previous year and that, therefore, the control and management of the firm could not but be from India during the previous years in question.
19. The assessee appealed to the Commissioner (Appeals) against the aforesaid finding of the ITO. The Commissioner (Appeals), after prolonged hearing and perusal of the papers filed by the assessee and the case records, confirmed the order of the ITO, more or less for the reasons as given by him. While doing so, he made certain observations, which may be noted in the passing. In paragraphs 3 and 4 of his order, the Commissioner took note of the payments of salary by the respective HUFs of Sardar Inder Mohan Singh and Sardar Swinder Singh to them for looking after the interests of the said HUFs in the firms, including the assessee-firm, in which the said HUFs were partners. His observations on this point were, inter alia, as below :
The ‘interests of the family’ would be advanced only if the profits of the firm are maximised by making proper day-to-day decisions in the purchase and sale of goods and recovery of the sale proceeds besides other affairs of the firm.
In paragraph 3.5, the Commissioner referred to the nature of the barter trade between Afghanistan and India and the impact thereof on the management of the assessee’s business, inter alia, in the following words :
To my mind business of the assessee is not only of exporting dry fruits from Kabul to its principals in India. Together with these exports of dry fruits, there is a statutory liability for importing other goods like tea, ghee, dalda, etc., from India. Dealing with the customs authorities and Wagah border near Amritsar, dealing with the Reserve Bank of India at Delhi, Directorate of Investigation, Foreign Exchange Regulations in Delhi besides the transporters, clearing agents and the customers in India could not possibly be done without the day-to-day intervention and assistance of the partners who were admittedly residing in India. From the details filed at page 42 I find that there were goods in transit and in stock which amount to Rs. 51,37,064. All these items purchased from the Indian market had to be exported to Kabul in exchange for the dry fruits which were sent by the Kabul branch….
The fact that the appellant-firm had paid commission amounting to Rs. 18,457 in connection with the export or import of items from Kabul does not in any way establish that the control and management of the affairs of the firm were situated wholly outside India. On the contrary it shows that the partners of Hukum Singh Inder Mohan Singh spared no efforts to facilitate the import and export of goods to and from Kabul. The assessee’s claim is based only on the assumption of a fiction. The learned counsel wants the ITO to believe that when Shri Swinder Singh and Inder Mohan Singh were earning the commission which has been received by Hukum Singh Swinder Singh then they were acting in their incarnation of the partners of that firm. It is impossible to accept that they were not acting in their second incarnation as partners of the Kabul firm when they were arranging for the import of dry fruits from Kabul and arranging for export of kiryana, malmal, etc., from Delhi.
20. Referring to the failure of the assessee to produce correspondence file before the authorities below the Commissioner (Appeals) had the following observations to make :
The IAC has given many other examples of such letters written by partners in India to various parties in India in connection with the export of goods to match import of dry fruits. The appellant on the other hand has wilfully withheld all the evidences which would have thrown some light on the participation of the partners in India in the affairs of the firm. They have thus admitted that orders for various items which were required in Kabul were placed by the Kabul firm. Even if there was no regular order booked in Kabul, the appellant has itself admitted that the requirements were communicated either by ‘telephone, telegram, letterheads or slips’. The appellant has not produced one telegram or slip or a letter received from Kabul firm which would indicate that at a particular time malmal or green tea was required in Kabul. The letters that were received from Shri Narinder Singh communicating the requirement of the Kabul branch or intimating the despatch of dry fruits from there may enroute from Kabul but they will find their way into correspondence file in Delhi. The ITO required the appellant to produce the correspondence file on 5-11-1979 and 25-2-1980 but the assessee had not produced this file. This information was within the possession of the assessees and it was for them to produce evidence before the ITO as has beenLald down by the Supreme Court. The rebuttable presumption in this case which is created by the continued residence of the 3 partners holding 60 per cent of the shares and 6 months residence of one of the partners can be displaced by the appellant by producing some evidence. As stated above no such evidence was produced.
21. Referring to the affidavits and certificates filed by the assessee-firm in support of its case the Commissioner’s observations were as below :
Self-serving statements from sister concerns like Ramsons Industries (India), Surbir Singh & Co., Hukum Singh, Swinder Singh, Hukum Singh Inder Mohan Singh have been filed at pages 57 to 63 of the appeal file. These letters have no evidentiary value because most of the persons are either themselves partners or are intimately related to the partners of the appellant-firm. In any case they may also be not clear about the incarnation of Shri Swinder Singh and Inder Mohan Singh in which they dealt with.
22. The Commissioner (Appeals) also referred to the statement of Shri Rajinder Singh, one of the partners of the assessee-firm and pointed out that his statement was entirely evasive and unworthy of credit.
23. In paragraph 4 of his order the Commissioner summarised his conclusions and held that ‘the ITO was justified in treating the firm as resident’.
24.1 The assessee is dissatisfied with the above finding of the learned Commissioner (Appeals). The submissions of the assessee before us have been in effect the same as were put forward by him before the authorities below. According to the learned counsel, the firm was carrying on business from Kabul and that no business was carried on within India. The above submission of the assessee was supported, according to him, by the three affidavits of the partners and the certificates filed by it before the authorities below of parties with whom the assessee-firm had been dealing in India. According to the learned counsel for the assessee, the aforesaid statements and affidavits had been allowed by the authorities below to remain unchallenged and as such it was not correct for the authorities below to have rejected them as self-serving statements. If the authorities below had any doubt with regard to the correctness of the statements made in the aforesaid affidavits and certificates, it was open to them to have questioned the affidavits or certificates in question by way of cross-examination. Once the authorities below did not choose to do so, the statements in question should be believed and if this be so, the assessee had discharged the onus, which lay on it of proving that the assessee-firm had no business in India and that its management and control was situated wholly outside India. In support of the above proposition, the assessee relied upon the decision of the Hon’ble Allahabad High Court in the case of L. SohanLal Gupta v. CIT [1958] 33 ITR 786, wherein their Lordships have held that the,Tribunal was not entitled to reject the affidavit filed by the assessee on the mere ground that he had produced no documentary evidence; and that if it was not accepted as sufficient proof the assessee should have been called upon to produce documentary evidence in support of it or he should have been cross-examined to find out how far his assertions in the affidavit were correct.
24.2 According to the learned counsel for the assessee, the nature of the trading between India and Afghanistan had undergone complete change after the signing of the barter agreement between the Government of India and the Government of Afghanistan on 29-3-1972 and that, under this agreement goods could be exported from India to Afghanistan only against matching exports from Afghanistan to India and all suchtransactions had to be done through banks. All the purchases and sales, after this date, were in the circumstances on principal to principal basis and neither the purchases nor the sales of the assessee took place in India through any agent. According to the assessee, the Indian partners did not have any role to play with regard to the purchases made by the assessee-firm from India or with regard to the sales made by it from Kabul to various Indian parties. The firm was of long standing and it knew all the parties in India, who would export goods from India and Indian partners did not have to make the purchases in India, as presumed by the authorities below. Hukum Singh Swinder Singh was an independent firm. They did enter into transactions with the assessee-firm on principal to principal basis. They were never the agents of the assessee-firm. Some of the partners of the assessee-firm, namely, Sardar Swinder Singh and Inder Mohan Singh, were partners in Hukum Singh Swinder Singh also and while in India they looked after the business of Hukum Singh Swinder Singh only and not of the assessee-firm. In that capacity, they might have exported goods to the assessee-firm but while doing so, they were not acting as the partners of the assessee-firm. It would, therefore, be wrong to presume that the Indian partners of the assessee-firm worked for the assessee-firm merely because there have been certain transactions between the assessee-firm and Hukum Singh Swinder Singh.
24.3 Shri Swinder Singh and Inder Mohan Singh were, according to the assessee, playing no part in the managerial control of the assessee-firm while in India. It was Narinder Singh who controlled the affairs of the firm. The present firm was dissolved on 31-3-1978 and the aforesaid partners went out of the said firm and the firm’s entire business was ultimately taken over by Sardar Narinder Singh. This showed that Sardar Narinder Singh was the main partner having control and management of the firm. The presumption of the authorities below that part of the management and control of the assessee-firm vested in the partners residing in India because they controlled 60 per cent share of the profit of the firm was totally imaginary and without any factual basis and ignored to take into account the realities of the situation, viz., that Sardar Narinder Singh was controlling the affairs of the firm and ultimately he took over the firm’s business on 31-3-1978.
24.4 No evidence whatsoever has been placed, according to the learned counsel, on record by the revenue to show that there was some control and management of the firm within India. It was true that the address of the firm was given as 517, Katra Iswara Bhawan, Delhi but that was only for the sake of convenience. The firm paid no rent for it and had no room to itself in it. There was no liability or asset of the firm situated in India. The assessee did not maintain any car in India nor any expenses were incurred by it on any other account in India. There was no independent correspondence file maintained by the assessee-firm in India nor any order book was maintained and so no adverse inference could be drawn against the assessee on the basis of the erroneous presumption that such file and order book were maintained.
24.5 Referring to the criticism of the ITO that all the certificates placed on record by the assessee were identical in language and so they were not reliable, the learned counsel of the assessee stated that the language might be the same and they were also drafted by the assessee’s counsel but the facts stated therein were true. The authorities below were, therefore, wrong in having discarded the evidence of such certificates.
24.6 According to the assessee, even though the onus was on the assessee to begin with, but it discharged such onus by filing the affidavits and the certificates in question. The onus thereafter shifted to the department and it was for it to show that the firm was not non-resident and that some of the partners did undertake the management and control of the affairs of the firm in India. It was true that the partnership deed mentioned vide Clause 7 that all the partners would look after the business of the firm honestly and diligently, but that did not necessarily mean that all the partners did work so. One of the partners, Shri Surbir Singh, it was pointed out, was in Kabul in the previous year under consideration and, as and when it was necessary that other partners should be consulted with regard to the management and control of the affairs of the firm, the respective partner or partners went to Kabul for consultation and participation in the control and management of the company. They did not do so while in India. In this connection, our attention was invited to the decision of the Hor’ble Supreme Court in the case of CIT v. Nandlal Gandalal [1960] 40 ITR 1, wherein their Lordships have pointed out that ‘control and management’ meant de facto management and not merely the theoretical right or power to control and manage the affairs of the firm. Such de facto management of the affairs of the company in the present case was with Shri Narinder Singh who was invariably in Kabul. Reliance is also placed on the decision of the Hon’ble Supreme Court in the case of V. VR.N.M. Subbayya Chettiar v. CIT [1951] 19 ITR 168 wherein their Lordships have explained as to in what circumstances it could be said that the control and management of the affairs was wholly situated outside India. All the evidence, according to the learned counsel, in the present case, went to show that the control and management of the affairs of the firm was situated in Kabul and, therefore, it would be wrong to hold that the management and control of the affairs of the firm was not wholly situated outside India and the firm was not non-resident.
25.1 On behalf of the revenue the aforementioned submissions of the assessee are resisted and reliance is placed on the orders of the authorities below. It is in particular pointed out that the onus to prove that the assessee-firm’s management and control was situated wholly outside India was on the assessee-firm, as per the decision of the Hon’ble Supreme Court in the case of V. VR.N.M. Subbayya Chettiar (supra) wherein their Lordships have explained the provisions of Clause (b) of Section 4A of the Indian Income-tax Act, 1922 (analogous to the provisions of Section 6(2) of the 1961 Act) and have pointed out that normally an HUF (firm is in the same category as an HUF for the purpose of this section) will be taken to be a ‘resident’ but such a presumption will not apply if the assessee could bring itself within the exemption Clause contained in the second part of the said Clause (b). According to their Lordships, ‘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’. Their Lordships also pointed out that the word, ‘wholly’ suggests that a undivided family may have more than one ‘residence’ in the same way as the corporation may have. According to the learned departmental representative, if the onus in question is not discharged by the assessee-firm, the assessee will have to be taken as resident, as was held by their Lordships in the Hon’ble Supreme Court in the aforementioned case in the case of the HUF in question.
25.2 In the present case, as pointed out by the learned departmental representative there were positive indications and evidence to show that the control and management of the assessee’s affairs was situated in India and that India-based partners took legitimate part in the management and control of the firm’s affairs. It was not that the business of the assessee-firm had begun this year for the first time. It has been in existence for more than 20 years. The management and control of the business right from the very beginning was situated in India in the city of Delhi, where all the partners of the firm mainly resided and where the partnership was formed. It was not fortuitous that all the successive partnership deeds have been executed in India. It has been done because all the partners resided here and so it was natural for them to execute the deed in Delhi. Up to the assessment year 1972-73, the management and control of the assessee-firm was admittedly situated in India and that is why the assessee-firm’s status was taken as resident and the assessee had itself declared that position. Therefore, when the assessee took the plea in subsequent years, particularly in the assessment year 1977-78, that its status had changed and that it was non-resident during the previous year in question, it was for it to show that the pre-existing pattern of control and management had undergone a change and that its location had been shifted from India to Kabul and that there was a tacit or explicit agreement between the partners and that the partners, who were based in India would take no part in the running of the business of the firm. No such evidence was, however, placed by the assessee on the record. On the contrary, one of the partners, who resides in India namely, Shri Rajinder Singh has been admitted avowedly as a working partner. He never went out of India during the previous year under consideration. How can it be then said that he worked for the firm outside India only ? It is not the firm’s case that he is not a working partner of the firm and that he had ceased to be the working partner during the year under consideration.
25.3 The argument of the assessee that the partners in India might have taken interest in the business, which touched the business of the assessee-firm also, but they did so as partner of Hukum Singh Swinder Singh, who were exporting goods to the assessee-firm in Kabul, was according to the learned departmental representative, a mere play of words. Such partners have as much interest in the profit earning capacity of the assessee-firm as of the firm Hukum Singh Swinder Singh and to allege that they worked only for the Indian firm and did not work for the assessee-firm would not be in accordance with human probabilities.
25.4 Turning to the evidence, tendered by the assessee in the form of affidavits and certificates, the learned departmental representative stated that it was tailor-made and had no credibility about it. He wholly endorsed the observations made by the learned Commissioner (Appeals) with regard to the credibility of the above evidence.
25.5 He referred to the decision of the Hon’ble Supreme Court in the case of Erin Estate v. CIT [1958] 34 ITR 1 and stated, on its basis, that, if it could be shown that there was exercise of control and management of the affairs of the firm in India even though partly, the status of the assessee-firm would be that of resident. He conceded that the control and management of the affairs of the firm meant de facto control and mangement and not merely the right to manage the affairs of the firm, but, according to him, the evidence placed on record went clearly to show that the partners in India did exercise de facto control and management of the affairs of the firm. Apart from it, the natural course of events and the human probabilities also indicated the above position. It was, therefore, urged on behalf of the learned departmental representative that we should uphold the order of the Commissioner (Appeals) in this regard.
25.6 The learned departmental representative also referred to the decision of the Hon’ble Allahabad High Court in the case of NihoriLal Prabhudayal v. CIT [1951] 19 ITR 240, wherein it has been held by their Lordships that if a party on whom the burden of proof lies produces evidence which is considered to be unsatisfactory and is, therefore, disbelieved, the mere fact that there is no evidence to the contrary does not compel the Tribunal to record a finding in favour of the party on whom the burden lies. According to the learned departmental representative, in the present case the assessee had failed to lead satisfactory evidence in support of its case and, therefore, it was not necessary for the department to have placed positive evidence on record in support of the case that the control and management of the assesse-firm was wholly situated outside India.
25.7 The learned departmental representative countered the contention of the assessee that the affidavits unless tested through cross-examination, could not be rejected, by relying on the decision of the Assam High Court in the case of Chowkchand Balabux v. CIT [1961] 41 ITR 465 wherein their Lordships have held, inter alia, that, if proper reasons were given for rejecting the affidavits, which were not illegal or perverse, the affidavits in question could be rejected. According to the learned departmental representative, therefore, the learned Commissioner (Appeals) had rightly rejected the affidavits of the partners, which were no more than self-serving statements and were, in any case, contradicted by the evidence discovered in the search and as recorded by the ITO in his assessment order.
26. In the rejoinder the learned counsel for the assessee reiterated his earlier submissions and submitted that the onus, which lay on the assessee, had duly been discharged and thereafter it is for the department to prove its case that the management and control of the affairs of the firm was not wholly situated outside India. It having failed to to so, the assessee must succeed.
27. We have given careful consideration to the facts of the case and the rival submissions. The question of residential status of a firm has to be determined with reference to Clause (2) of Section 6 which reads as below :
(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.
It will be clear from a bare reading of the above Clause that it consists of two parts. The first part lays down the general rule that ‘a firm . . .is said to be resident in India in any previous year in every case…. The second limb provides the exception to the above general principle and stipulates that ‘where during that year the control and management of its affairs is situated wholly outside India’ the firm would not be resident. The control and management has to be de facto control and management and not merely the right to manage the affairs of a firm. Even if a partner or partners has/have a right to control and manage the affairs of a firm he/they might not have, in fact, managed the affairs of the firm. Management and control of a firm’s affairs will be done by the partners, even though the day-to-day running of the business might be done by the employees. Running the business apparatus smoothly by the employees does not mean ‘control of the affairs of a firm’. ‘Control’ implies the decision-making and policy-making power, which partners alone can exercise. For controlling and managing the affairs of a firm a partner or partners need not necessarily be present at the situs of business activity. He/They can control the business from a distance also. What has, therefore, to be seen is as to where the partners, who control and manage the affairs of the firm, are situated. They may not necessarily be all at one place or country. The situs of control and management can, therefore, be at more than one place or country. It is also possible that at one point of time the situs is at one place and at another, at another place, depending on the placement of the concerned partner at the relevant time.
28. The general presumption in the case of a firm, as per first part of Section 6(2), as noted above, is that it is resident in India. This is, however, a rebuttable presumption, but the onus to rebut it is on the person, who alleges that the ‘control and management of its affairs is situated wholly outside India’. It is the person, who alleges it, who has to lead evidence in support of its case. If he does not lead such evidence, the presumption will not be dislodged. It will also be the position, when the evidence led by him is not sufficient to discharge the onus. The above position in law is well settled by now by a series of decisions and it will be enough if we refer to the following decisions of the Hon’ble Supreme Court in this connection-V. VR. N. M. Subbayya Chettiar’s case (supra), Erin Estate’s case (supra) and Nandlal Gandalal’s case (supra).
29. (a) In the present case the assessee has claimed the status of nonresident and so onus was on it to show that the control and management of its affairs was situated wholly outside India. The firm has led the following evidence to discharge the above onus. It has (1) filed affidavits from three of its partners, namely, Swinder Singh (25 per cent), Inder Mohan Singh (25 per cent) and Rajinder Singh (10 per cent), who have been in India for almost the entire year (barring 10 days in the case of Swinder Singh, when he was in Kabul), deposing that they did not take part in the control and management of the affairs of that firm while in India. Secondly, it has filed certificates from several persons, with whom it has had business dealings in India stating that they dealt with the assessee-firm on principal to principal basis and that they did not deal at any time ‘with any of the partners of the above firm in India in connection with the affairs of the above Kabul firm relating to imports made by them in India’.
(b) Apart from the above evidence, it is pointed out by the assessee in support of its case that :
(1) no part of the assessee-firm’s business is done in India-neither purchases are made here, nor sales;
(2) no assets or liabilities exist in India;
(3) there is no office in India nor any agent, who might look after its business in India;
(4) books of account are all written in Kabul;
(5) no loans were raised in India; and
(6) all physical activities pertaining to the business were carried out outside India.
(c) It is also urged that “only active partner of the firm was ‘Sardar Narinder Singh, ‘who was staying in Kabul’ and that the partners residing in India were not ‘exercising any control over the firm from India’ though ‘partners in India were . . . making temporary journeys to Kabul for consultation etc.’, and, as per the assessee ‘that only shows that the control was exercised from Kabul.
30. It has to be seen whether the above evidence and pleadings are factually true.
31. So far as the affidavits are concerned, we find that they stand directly controverted by the evidence placed by the ITO on record. The letters of Shri Inder Mohan Singh to the assessee-firm dated 3-8-1976, 5-8-1976, 6-8-1976 and 9-8-1976, which have been quoted by the ITO in his order and have been reproduced by us above, clearly go to show that Shri Inder Mohan Singh has been taking keen interest in the purchases of the assessee-firm in India. No attempt whatsoever has been made by the assessee at any stage to contradict the above evidence. The existence of these letters clearly goes to show that there is regular and voluminous correspondence beween the assessec-firm and the partners residing in India, which has, however, not been produced by the assessee on the ground that no such correspondence took place. This denial of the assessee is against facts on record and has, therefore, been rightly rejected by the authorities below. Some letters written by Sardar Swinder Singh have also been referred to by the authorities below in this connection. When Sardar Swinder Singh was confronted with them, he evaded to give straightforward answer. The existence of these letters, discovered in the course of a search belies the contents of the affidavits of the partners. Apart from these letters many bills and invoices pertaining to the Indian customers issued by the assessee-firm from Kabul were found in the custody of the India-based partners at the time of the search. If the partners in India took no part in the affairs of the firm, as alleged, why should these bills be with the partners in India ? The existence of the bills, coupled with the correspondence referred to above, clearly establishes the active nature of the interest that the partners in India have been taking in the firm’s business and why not ? Purchases running into millions of rupees were being done from India. To supervise the quality of the goods and the competing price thereof, to decide from whom to purchase and what to purchase, to keep an eye on the fluctuating prices of various commodities in India and to decide the timing to purchase the goods, to keep liasion with the Reserve Bank of India, customs authorities, customs check-posts, etc., are numerous functions, which have to be attended to in India on behalf of the firm in the normal course. Who will do this, when the assessee-firm has no agent in India to look after its interests but its partners who are well qualified and well situated for the purpose. One of them is admittedly a working partner, was in India throughout this year and who could, therefore, work for the firm only in India. Two of the partners (particularly Sardar Swinder Singh and Shri Inder Mohan Singh) have claimed salaries of Rs. 2,000 per month each from their respective HUFs for looking after their interests in the firms, including the assessee-firm in which the said families are partners. We entirely agree with the inference of the learned Commissioner (Appeals) that looking after the interest of the family in the firm means to ensure that the affairs of the firms are conducted in a manner to ensure that the firm’s profits are maximised. It is significant to remember in this connection that all the partners stand bound by the specific term of the partnership deed to take part in the affairs of the firm diligently. It is, therefore, natural to presume that they managed the affairs of the firm, particularly when there is stupendous amount of work to be done in India and there is none to work for the firm in India except the partners. To say in the face of the above evidence, placed by the ITO on record, which in fact, he was not obliged to do, that the partners in India had nothing to do with the control and management of the affairs of the firm will be, to say the least, a travesty of facts and has to be rejected as untrue.
32. Thus, there is the averment re: Narender Singh, the fourth partner, that he was staying in Kabul and managing and controlling the affairs of the firm from there. This averment does not correspond with the facts and evidence on record. Firstly, there is no agreement between the partners to show that he was the only partner, authorized to manage and control the affairs of the firm. If at all, the evidence on record goes to show the contrary position. The partnership deed enjoins it on all partners to work for the firm and does not give the right of management and control of the affairs of the firm exclusively to only one partner, namely, S. Narender Singh. In fact, one of the partners, S. Rajendra Singh, is taken as a working partner and there is no reason to believe that he did not work as a working partner. The other two partners, viz., Sardar Swinder Singh and Shri Inder Mohan Singh have been found to be working and controlling and guiding the purchase operations in India and even imports into India as per evidence referred to above. The withholding of the correspondence by the assessee-firm emanating from the partners residing in India and the office in Kabul also compels the drawing of an adverse inference against the assessce on this point. Then S. Narender Singh has also been in India for about 180 days during the previous year under consideration from 1-4-1976 to 26-6-1976 and 1-1-1977 to 31-3-1977. His visit to India was not a casual or personal one, say, to marry a son or daughter. It is not the assessee’s case that, while coming to India he had granted general power of attorney in favour of someone in Kabul to control and manage the affairs of the firm. True, there were employees in Kabul, who run day-to-day business of the firm. But it does not tantamount to control and management of the affairs of the firm. That control could be exercised by partners alone and, during the previous year under consideration, all the four partners had been in India-two for the whole year, one for 354 days and S. Narender Singh for 178 days. During this period of 178 days, when all the partners were in India, the control and management of the affairs of the firm could be nowhere else but in India. It will, therefore, not be correct to say that the control and management of the affairs of the firm during the previous year has been wholly outside India.
33. The nature of the business, after the introduction of barter trade in between India and Afghanistan, could not, per se, have any impact on the management and control pattern of the assessee, or, for that matter, of any other person. It merely required that anybody, who exports goods to India, will have to undertake countervailing imports of goods from India and one could not export only or import only or import more and export less or export more and import less. Imports and exports had to tally now. But the assessee-firm had nevertheless to decide as to who will be the parties to whom goods will be exported from Afghanistan, what is their credit-worthiness, whether they held necessary licences for import, what goods will be acceptable to them and in what quantities, etc. Similarly, in the case of imports into Afghanistan it was the firm (i.e., its partners) who had to decide which goods will be imported, from whom the same will be imported, what will be the quality of the goods, whether the promised quality was being sent, what will be the price, what will be the pattern of the cloth, etc., to be imported. Then, there was liasion work to be done with Import and Export Controller’s Office, R.B.I., customs check-posts, etc. All these activities required extensive supervision and attention. The firm has not indicated in its reply as to who did it on its behalf in India. It has been at pains to stress that no agents were appointed by the assessee in India to look after its business. It has also said that its partners did not work in India. Then, who did it ? It was the assessee’s onus to explain this position. It has not done so. It has merely contended itself by suggesting that the barter system somehow brought about some alchemical changes in the business pattern which rendered the India-based partners totally irrelevant and otiose. Admittedly they had been taking very active interest in the management and control of the affairs of the business of the firm from 1957-58 to 1972-73, when barter system of trade was not there. And then came the barter system, which, according to the assessee, changed everything and rendered the India-based partners otiose and incapable of taking any interest in the affairs of the firm. We fail to see any alchemy of the type suggested. There is nothing inherent in the system to exclude the partners from participating in the management of the affairs of the firm. The partners could, of course, consciously decide not to participate in the affairs of the firm. But there is no evidence to show that such deliberate decision was taken by them. Whatever little evidence has been allowed to be trickled into (despite the assessee’s attempt at total withholding of the necessary evidence in the form of correspondence) as a result of the seizure of some letters in the search of the India-based partners goes to show that no such decision was ever taken and all the partners were not only entitled to participate, but did participate in the affairs of the firm. In fact the firm has also been impliedly admitting that the other three partners also participate in the management of the affairs of the firm, when it is averred that, ‘as and when their participation was required, the other partners also go and participate in the management in Kabul’. No reason or justification has, however, been shown as to why these partners should become dormant when they come to India when 50 per cent of its business, if not more, emanates from or is done in India. Neither it is the requirement of law, nor of contract or of exigencies and requirement of business. And if it was, in fact, the agreement amongst the partners that they should be active only in Kabul and should wash their hands off the management and control of the firm’s business as they come to India, why did they repeat Clause 7 in the partnership deed on 1-4-1975 ordaining that ‘all the partners shall look after the business honestly and diligently. . . ‘. Is it not in direct conflict with the assessee’s allegation that India-based partners were not supposed to work in India and if they had to work for the firm, they were to go to Kabul ? If this was the reality and intention of the partners, the Clause could have reflected their agreement. It did not because there was no such agreement, the entire plea is prima facie based on make-believe and is an after-thought. The assessee’s plea on this account, therefore, is hereby rejected.
34. The certificates filed by the assessee from various Indian firms who exported goods to the assessee or imported goods from the assessee have no evidentiary value. They have all been signed on dotted lines. The assessee admittedly prepared the draft and got it signed from the various parties. It has been a mechanical signing of the draft. The India-based partners, even S. Narinder Singh, were partners in Indian firms also. These Indian firms were dealing in imports of dry fruits, etc. and export of goods from India. Which firm was represented by which partner at a particular point of time could hardly be of any significance to them, so long as their deal was done. Nothing, therefore, turns on these certificates, more particularly when direct evidence showing India-based partner’s participation in the firm’s business in India is available on record.
35. Thus the evidence and pleas of the assessee based thereon, have no merit and are opposed not only to the normal course of events and human probabilities, but to the positive evidence placed on record and we, therefore, reject the same. The evidence on record goes to show that for 178 days (178 days-10 days) in the year the control and management of the affairs of the firm was wholly in India, as all the four partners were in India (for 10 days in April 1976, Sardar Swinder Singh was in Kabul, while S. Narender Singh was in India. These ten days are, therefore, excluded from 178 days that S. Narender Singh was in India). During the remaining days, he was partly in India and partly in Kabul. It is, therefore, not possible to hold that the management and control of the affairs of the firm was wholly outside India during the previous year.
36. The assessee’s plea that the assessee’s business is entirely in Kabul, that in India there has been neither purchase nor sale, that there are no liabilities in India nor any assets, has been disputed by the ITO, who points out that most of the assets of the assessee are in the form of trade debts and they are in India. Then, the purchases are from India and they could not be made without the active participation and help of India-based partners. These factual aspects apart, the assessee’s contention that the firm is non-resident because the entire business is in Kabul, because all the transactions are done there and the books are also written there, does not bear a moment’s scrutiny. It is well to remember that what we have to ascertain is the status of the assessee-firm and not that of its business. A resident may have its business outside India. So the mere fact that the business is outside India does not resolve the issue of the status of the firm. The firm may still be resident, if the control and management of its affairs is not wholly outside India. What we have, therefore, to see is not where the business is situated, but where the control and management of its affairs is situated. It is, according to us, not wholly outside India. The firm is, therefore, resident in India.
37. The assessee’s learned counsel had placed great reliance on the decision of the Hon’ble Madras High Court in the case of CIT v. Chitra Palayakat Co. [1983] 15 Taxman 197. Let us, therefore, note the facts of the said case. The assesses was a partnership firm constituted of three partners. Most of the purchases of the assessee were effected from an Indian firm. The original assessments of the assessee were completed in the residential status of a non-resident. Subsequently, the ITO reopened the assessments under Section 147(b) of the Act on the ground that Subharay Mudaliar ‘S’ the managing partner of the assessee, was in India during the relevant accounting period and had exercised de facto control over the assessee’s business from India. The assessee explained that S had come to India to celebrate his daughter’s marriage and that he had executed a general power of attorney in favour of a person P for carrying on the business in Malaya and had not attended the business in India. The ITO rejected the explanation and completed the reassessments on the basis that it was resident in India.
38. The Tribunal found in the said case that S had come over to India for the purpose of getting his daughter married here and that, even though he had stayed here nearly for an year or a little more than that, but before coming over to India he had executed a general power of attorney in favour of one P. The partnership envisaged or enabled S to delegate his powers to some other person who could manage the firm on his behalf. Apart from the agent being there, partner T of the assessee also went from India to Malaya and attended to the business of the assessee for which he was paid remuneration. Thus, between T and the agent, the entire management and control was being exercised and that too in Malaya.
39. On the basis of the aforesaid facts it was held by their Lordships of the Madras High Court that there was nothing to show that any part of the control over the firm was exercised from India and that, therefore, the Tribunal had rightly concluded that the assessee should be assessed as a non-resident, because the management and control of the assessee was wholly outside India during the relevant accounting period.
40. When we compare the facts of the above case with the facts of the present case, we find no similarity between them. In the present case S. Narender Singh is not designated as managing partner of the firm. On the contrary, the relevant Clause of the partnership deed envisages every partner to take interest in the business of the firm and one of the partners was in fact taking interest only as a working partner and he had contributed no capital. Apart from it, Shri Narender Singh was not in India, as noted earlier, for a personal reason of, say marrying a daughter as was in the case of S. While coming to India, he had not delegated the power of attorney in favour of anybody to manage and control the affairs of the firm in Kabul. No other partner went to Kabul during his absence there to manage the affairs of the firm as happened in the case relied on by the assessee, when another partner T went to Malaya to supervise the functioning of the firm. The ratio of the aforesaid decision cannot, therefore, be made applicable to the facts of the present case. In view of this, we are unable to accept the assessee’s contention based on the above decision.
41. Before we close discussion on this ground of appeal, we may refer to the affidavit of Sardar Swinder Singh dated 9-12-1983 placed in the paper book of the assessee filed on 20-12-1983 along with the forwarding letter dated 19-12-1983. It is an additional piece of evidence filed by the assessee before us for the first time. There is no application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1983, seeking our permission to lead additional evidence. Nor was our attention invited by the assessee’s learned counsel to it during the course of the arguments. We, therefore, ignore this affidavit, as it is not part of the record and no permission has been sought from us to lead additional evidence.
42. The next ground of appeal pertains to the additions on account of the following cash credits :
Rs:
1. Shri Biharilal 10,50,000 2. Shri Sarin Singh 23,00,000
Both the aforesaid creditors are from Afghanistan. The ITO required the assessee to prove the nature and source of the aforesaid cash credits. According to him, no such evidence was led by the assessee. He, therefore, treated the aforesaid cash credits as unexplained and added the same to the assessee’s total income. On appeal the learned Commissioner (Appeals) has confirmed the additions in question. It appears that the assessee had filed two confirmatory letters from the said creditors before the learned Commissioner (Appeals) with the signatures of the creditors attested by the officers of the Indian Chamber of Commerce at Kabul. The learned Commissioner (Appeals) did not accept the claim of the assessee, as, according to him, the mere fact that the Indian Chamber of Commerce had attested the signatures of the creditors did not establish their credit-worthiness. The learned Commissioner (Appeals) also found some discrepancies in the account of Sardar Sarin Singh. Two copies of account of the aforesaid party were filed with the ITO, one appearing at page 1 of the paper book and the other appearing at page 66 of the paper book. In one case the account stood squared up and in the other case the amounts had been carried over to the next year. The learned Commissioner (Appeals) in the circumstances felt that the assessee had not discharged the onus, which lay upon him of proving the cash credits.
43. The assessee assails the above concurrent finding of the authorities below, and, so far as the question of presenting the said creditor before the ITO was concerned, it is stated that the same was not possible as the creditors were in Kabul. The genuineness of the said creditors, had been proved by getting the signatures attested by the Indian Chamber of Commerce. The amounts in questions should, therefore, be accepted. On behalf of the revenue the order of the learned Commissioner (Appeals) is supported.
44. In our opinion, there is merit in the observations of the learned Commissioner (Appeals) that, even though the genuineness of the existence of the creditors might be established by the attestation of the signatures by the Indian Chamber of Commerce that did not prove the credit-worthiness of the creditors and that for accepting the cash credits in question it was necessary not only to establish the identity of the creditors but also to prove their credit-worthiness. The onus to prove the credit-worthiness was also on the assessee. The assessee, however, was under the impression that by producing the letters of confirmation from the creditors and by getting them attested by the officers of the Indian Chamber of Commerce and by pointing out that the aforesaid persons had given credits to the assessee in the earlier years also, he had established the credit-worthiness of the creditors. The learned Commissioner (Appeals) has not examined this aspect of the matter. In fact with regard to the the credits in his name in respect of the assessment year 1976-77, the matter was sent back by the Commissioner (Appeals) for verification of the genuineness of the loan. In respect of the assessment year 1975-76 also some loan appears in the name of Sarin Singh. For that year also the matter has been restored by us to the ITO for verification of the taking of the loan. It, therefore, appears that the arguments of the assessee that loan in the name of Sarin Singh had appeared in earlier years also is correct, but it not correct to say that, therefore, his credit-worthiness had been proved. The credit-worthiness of the creditor has to be established to the satisfaction of the ITO in terms of Section 68 of the Act. Inasmuch as this has not been done, it is not possible to accept the assessee’s contention that the nature and source of the credits in question stands fully explained. At the same time we are of the opinion that the matter requires further investigation and an opportunity ought to be given to the assessee to prove the credit-worthiness of the creditors in question. As noted earlier the assessee had laboured under the impression, though erroneously, that it had proved the credit-worthiness of the creditors by pointing out that the credits had appeared in the assessee’s name in the earlier years also. We have seen above that though the credits appeared in the earlier years but they have been directed to be looked into once again. It would, therefore, be just and fair to grant one opportunity to the assessec to prove the credit-worthiness of Shri Biharilal and Shri Sarin Singh this year also. It will be for the assessee to lead such evidence in support of their credit-worthiness as it may deem fit. The ITO may, thereafter, redetermine the issue on merits and in accordance with law. In respect of cash credits, therefore, we set aside the orders of the authorities below and restore the matter back to the ITO for doing the needful.
45. Ground Nos. C, D and E were not pressed by the assessee. In the result the asscssee’s appeal stands partly allowed.
IT Appeal No. 2747 (Delhi) of 1981 :
The first ground in the departmental appeal is with regard to deletion of addition of Rs. 5 lakhs made by the ITO to the trading results of the assessee. The addition in question was made because, according to the ITO, the rate of gross profit this year had declined to 7.4 per cent from 9.2 per cent shown in respect of the assessment year 1976-77. It was also pointed out by the ITO that the books of account of the Kabul branch had not been produced by the assessee before him and that the sales and purchases made in Kabul were not supported by vouchers. The aforesaid addition made by the ITO was challenged before the Commissioner (Appeals). It was pointed out to him that, so far as the purchases and sales in Kabul were concerned, they were all in cash and that there was no system in Kabul of issuing vouchers and that this practice had been proved by necessary certificate from the Indian Chamber of Commerce. The rejection of the trading results for this year on this ground was, therefore, not justified. It was further pointed out by the assessee to the Commissioner (Appeals) that ‘the entire purchases made from India have been obtained through banking channels and had been duly accounted for in the books. There is quantitative tally of all items, which had been obtained from India’. As regards the exports to India, they were also fully accounted for and the transactions were through the banking channels and copies of bills, etc., were all there. There was, therefore, no justification to reject the assessee’s trading results more particularly because the ITO had not pointed out any specific suppression of sales or inflation of purchases. It was also pointed out to the Commissioner (Appeals) by the assessee that the sales of the assessee had also gone up this year compared to the earlier years and so the overall results of trading were better and the accounts of the assessee did not deserve to be rejected. The aforesaid arguments were accepted by the learned Commissioner (Appeals) as correct and accordingly he deleted the addition made. The department is in appeal against the above order of the learned Commissioner (Appeals). On behalf of the assessee the order of the learned Commissioner (Appeals) is supported.
46. After taking into account the facts of the case and the nature of the business of the assessee and the past history of the assessee’s case, we are of the opinion that the addition in question was not justified. All the exports of the assessee to India and all the imports from India are through banking channels and are, therefore, verifiable. Purchases and sales in Kabul are of course, not vouched, but for that reason alone it is not possible to raise the presumption that the purchases are either inflated or sales had been understated. It was open to the ITO to subject any particular purchase or any particular sale to his scrutiny and to point out if there was manipulation of purchases or sales, if any. This has not been done by the ITO. The variation in the gross profit rate is the normal incident of trade and merely because the gross profit has gone down slightly it may not be possible to infer that the assessee had manipulated its trading results. From a chart of the sales and gross profit rates disclosed by the assessee, placed at page 310 of the assessee’s paper book, it is seen that the gross profit rate has varied from year to year as will be clear from the following chart :
Hukam Singh Inder Mohan Singh (Kabul)
Details of gross profit rates
Assessment year Sales Gross profit Gross profit rate
1973-74 1,32,84,689 11,13,972 8.3 per cent
1974-75 1,08,96,807 10,96,866 10 per cent
1975-76 1,99,38,926 13,21,776 6.7 per cent
1976-77 2,41,65,518 22,37,770 9.24 per cent
1977-78 2,88,19,060 21,28,419 7.38 per cent
1978-79 2,28,86,296 11,10,909 5 per cent
Therefore, to disturb the trading results of the assessee only because the gross profit margin has gone down may not be correct. The addition made was, therefore, in our opinion, rightly deleted by the Commissioner (Appeals) and we sustain his order on this account.
47. Rs. 6,88,635 were added by the ITO to the assessee’s total income representing value of remittance of 5,000 dollars each in favour of Sardar Swinder Singh, Shri Inder Mohan Singh and Shri Surbir Singh. The said addition has been deleted by the learned Commissioner (Appeals) by pointing out that the remittances in question were personal remittances of the aforesaid persons and that the said remittances had nothing to do with the firm and that the nature and source of the said remittances had been explained by the aforementioned persons in their individual assessments and that the learned Commissioner (Appeals) had accepted the explanations in their individual cases vide his orders in their respective cases and that, therefore, the addition on this count in the firm’s case was not justified.
48. On the face of it, the aforesaid finding of the learned Commissioner (Appeals), appears to us to be in accordance with the material on record. As such we see no scope for interference with the order of the learned Commissioner (Appeals). The remittances in question were personal remittances of the persons named above and there is nothing on record to connect the said remittances with the firm. In fact one of the persons named above, namely, Sardar Surbir Singh was not a partner of the firm during the year under consideration and, therefore, remittances of 5,000 dollars to him could be in no way be linked with the firm. The learned Commissioner (Appeals) is, therefore, in our opinion, justified in having made the deletions in question. The reasons given by the learned Commissioner (Appeals) in paragraph 7 of his order are correct and we endorse them.
49. The ITO had made an addition of Rs. 53,770 to the assessee’s total income under the head ‘Langar expenses’, as, according to him, the said expenses were in the nature of entertainment.
50. On appeal the learned Commissioner (Appeals) held that even if such expenses were held as langar expenses, the assessee was eligible for allowance of Rs. 5,000 in terms of Section 37(2B) of the Act and, therefore, the said amount ought to have been allowed to the assessee. Accordingly the learned Commissioner (Appeals) directed the aforesaid relief to the assessee.
51. The department feels aggrieved of the aforesaid finding of the learned Commissioner (Appeals), but the learned departmental representative has not been able to point out any infirmity in the order of the learned Commissioner (Appeals). We, therefore, decline to interfere with the order of the learned Commissioner (Appeals) on this account which is in accordance with law.
52. The assessee claimed double taxation relief under Section 91 of the Act in respect of Rs. 5,17,923 paid as income-tax in Kabul on the basis of receipts filed. The ITO has not dealt with the claim of the assessee for double taxation relief in his order. The learned Commissioner (Appeals) has, however, held that the relief in question is due and that the same should be granted to the assessee. The learned departmental representative had questioned the correctness of the aforesaid judgment of the Commissioner (Appeals) and had pointed out that, so far as Afghanistan was concerned, it did not recognize the entity of the firm for the purpose of its income-tax and, therefore, the firm had paid no tax in Afghanistan and inasmuch as the unit of assessment in India, was firm which had paid no tax in Afghanistan the firm could not be entitled to claim double taxation relief. If at all, anybody was eligible for double taxation, it would be the new partners and they should make the claims in their individual assessments.
53. On behalf of the assessee the order of the learned Commissioner (Appeals) is supported.
54. In our opinion, there is merit in the departmental contention. It is accepted by the assessee’s learned counsel that, so far as Afghanistan was concerned, its law did not recognize the entity of the firm and did not subject the firm to any income-tax. The individuals were subject to income-tax there and that the haisiyat tax paid in Afghanistan was with reference to each individual. What was claimed by the assesste-firm was that the individual partner’s assets had undertaken no transactions on their own but had entered into such transactions for and on behalf of the firm and, therefore, it was the firm which was eligible for double taxation relief and not the individual partners. This contention does not appeal to us. Section 91 grants relief from double taxation to a ‘person’ and not to the ‘business’. Section 91, which is relevant for our purpose, reads as below :
(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India … he has paid in any country with which there is no agreement under Section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. [Emphasis supplied]
It is clear from the language of the aforesaid Sub-section (1) of Section 91 that, in order to claim relief under the aforesaid Sub-section, the person, namely, the firm in the present case, has to prove that it had paid tax in Afghanistan in respect of his income which had accrued during the previous year outside India. On rendering of such evidence, he would be entitled to deduction provided for under Sub-section (1) of Section 91. But, if the person concerned, namely, the firm in the present case, had paid no tax, it would not be eligible for relief under Sub-section (1) of Section 91. The firm, in the present case, had admittedly paid no tax in Afghanistan. This being so, the assessee-firm would not be eligible to relief under Sub-section (1) of Section 91. It will be the partners who would be able to claim the double taxation relief in respect of their shares from the firm after satisfying the terms of Sub-section (1) of Section 91. The directions of the learned Commissioner (Appeals), therefore, stands modified to the above extent.
In the result, the departmental appeal stands partly allowed.
Anand Prakash, Accountant Member
1. These appeals were originally disposed of by the Tribunal vide their combined order dated 17-9-1983. The same was later recalled. The appeals were, therefore, reheard by us and are being disposed of by the present combined order.
2. The only question involved in the present appeals is as to what is the correct status of the assessee-whether resident or non-resident. The law bearing on this issue is contained in Section 6(2). According to it a firm will be resident in, the previous year in every case except where it can show that in the given previous year the control and management of its affairs was situated wholly outside India. The onus to show that the assessee fell in the aforementioned exception Clause was on the assessee, who claimed the protection of the exception Clause in the present case.
3. The assessee-firm has led the following evidence and made the following submissions in support of its case. It has placed on record the affidavits from two of its partners S. Surinder Singh and S. Inder Mohan Singh, dated 12-10-1979, stating that they did not take part in the affairs of the firm while in India. These affidavits were originally filed by the assessee in the course of assessment proceedings for 1977-78. The relevant part of these affidavits (which is common in both the affidavits) has been extracted by us in extenso in the order for the assessment year 1977-78 of even date, and, therefore, we are not reproducing it here. The assessee also placed on record certificates from the following parties stating, inter alia, that, while exporting goods to the assessee-firm, they ‘did not have any dealings with any of the partners of the above firm in India’. All the certificates are couched in similar language and the assessee admitted that the draft of all these letters was prepared by the assessee’s counsel and was then got signed from the parties in question. The submissions made on the basis of the above evidence, vide the assessee’s note filed on 4-6-1980, were, inter alia, that ‘the control and management of the affairs of the firm was situated wholly in Kabul. There was not even partial control from India. Books of account were being maintained in Kabul…. Admittedly, some of the partners were residing in India, but they were not exercising any control over the farm from India. Partners in India were no doubt making temporary journeys to Kabul for consultation, etc. That only shows that the control was exercised from Kabul. Only active partner of the firm was S. Narinder Singh, who was invariably staying in Kabul. Trading activities and physical operations of the firm were carried on in Afghanistan which was seat of management and control. There was no asset or liability of the firm in India. There was not even a rented premises of the firm in India from where it could have functioned…the non-resident partners in this firm were Shri Narinder Singh and Shri Surinder Singh who used to stay in Kabul and controlled the business from there. Booking of business was also done from Kabul. The assessee-firm did not carry on any business from India. No correspondence was exchanged from India.’ [Emphasis supplied] (See the assessee’s note filed along with the paper book before the ITO on 4-6-1980.) In paragraph 11 of the aforesaid note the assessee again stated that ‘there is nothing on record to show that the partners residing in India exercised any control or management over the affairs of the firm. Sardar Narinder Singh, a partner, was invariably in Kabul, in his absence, the business was carried on through the staff employed over there …’. According to the assessee, the above inference was inescapable ‘on perusal of (i) the above documents, (ii) books of account …, (iii) various details already filed with the ITO during the course of assessment proceedings and (iv) on perusal of the records seized at the time of search under Section 132 of the Income-tax Act… ” (See paragraph 16 of the aforesaid note.)
4. Referring to the barter system introduced through Indo-Afghan Trade Agreement dated 20-3-1972, the assessee submitted that the transactions of exports to and imports from Indian parties have been on principal to principal business (see paragraph 8 of the above note) and that ‘the assessee-firm never exported goods to any agent in India so as to be sold on their behalf in India’. (See paragraph 14.)
5. In her letter dated 9-2-1982, the ITO pointed out to the assessee that the Commissioner (Appeals) had decided the issue of status against the assessee-firm vide his orders for the assessment years 1975-76 and 1977-78 and invited the assessee to furnish in detail ‘your arguments along with supporting evidence . . . ‘. The assessee replied to the aforesaid letter vide its letter dated 20-2-1982 stating, inter alia, that the ITO should not be guided by the orders of the Commissioner (Appeals) for the assessment years 1975-76 and 1977-78, as each year was a separate year and the decision for that year turned on the facts of that year. Reference was made to the note, filed along with the paper book, referred to above and reliance was placed on it. Letter of S. Narinder Singh dated 10-3-1981 was placed on record stating, inter alia, that ‘I had not maintained any record, correspondence, file or order book regarding imports and exports made…whatever records were maintained in loose forms were destroyed at the time of last disturbances in India’. Regarding the stay of various partners in Kabul, it was stated that ‘S. Narinder Singh was in Kabul for the period from 1-4-1972 to 17-8-1972 and from 5-5-1973 to 3-2-1974, during the previous years relevant to captioned assessment years S. Surjit Singh was in Kabul during the period from 13-5-1972 to 21-1-1975. The particulars of stay of S. Inder Mohan Singh and S. Surinder Singh shall be furnished on the next date of the hearing’. (This information was, however, never given till the date of the assessment order.)
6. The above evidence and submissions were considered by the ITO, but he was not impressed by the assessee’s reasoning. He rejected the assessee’s claim for the status of non-resident, inter alia, for the following reasons that the firm was constituted under the Indian Partnership Act, that the firm had, right from its inception (in the assessment year 1957-58), was claiming the status of resident, that it had given its address as 517, Katra Ishwar Bhawan, and, the mere fact that no rent was paid by it did not mean that the said premises were not its office, that all the correspondence and notices addressed to the above address were responded to by the assessee-firm, that the goods exported to India by the assessee-firm to sister concern in India are received by the sister concern having common partners. The control and management in regard to transactions of the Kabul firm is to be exercised in their own interest as Kabul firm has no agent in India to arrange for the goods to be exported to Kabul in return. It was the partners of the Kabul firm in India who used to arrange the return export business from India to fulfil the condition for export to India by the assessee-firm. In the circumstances it was clear that the control and management cannot be taken as ‘wholly outside India’, that the firm had huge assets in India in the form of dues from sister concerns, that the firm had failed to produce correspondence file and other ‘evidence to establish that the entire purchases of the firm in India had been handled from Kabul’, that the material seized from the residences of S. Surinder Singh and S. Inder Mohan Singh contained correspondence to show that they were taking continuous interest in the affairs of the firm, that on identical facts the status of the assessee had been taken by the ITO as resident for the assessment years 1975-76, 1977-78 and 1978-79 and had been upheld by the Commissioner (Appeals) for the assessment years 1975-76 and 1977-78. The ITO also relied on the reasons given by the Commissioner (Appeals) for the assessment years 1975-76 and 1977-78 for holding the assessee-firm as resident. The above reasons given by the ITO for the assessment year 1973-74 were imported by him in his order for the assessment year 1974-75 also. On appeal, the learned Commissioner (Appeals) had confirmed the orders of the ITO by relying on the reasons given by him for the assessment year 1975-76.
7. The present appeals have come up before us in the aforesaid background.
8. We notice that the evidence produced by the assessee and the submissions made by it in its letters dated 4-6-1980 and 20-2-1982, as above, are more or less the same as were placed on record by it in the course of assessment proceedings for the assessment years 1975-76 and 1977-78, particularly in its letter dated 23-10-1979, filed in the proceedings for 1977-78 and in the note filed by the assessee along with its letter dated 1-1-1981 in the proceedings for the assessment year 1975-76. The only additional information contained in the assessee’s letter dated 20-2-1982 is about the stay of S. Narender Singh and S. Surbir Singh. It appears from it that S. Narinder Singh was in India during the period 1-4-1972 to 31-3-1974, from 18-8-1972 to 4-5-1973 and again from 5-2-1974 to 31-3-1974. S. Surbir Singh was in India from 1-4-1972 to 12-5-1972 only During the rest of the period he was in Kabul.
9. We have discussed the above evidence (except that regarding stay of S. Narender Singh and S. Surbir Singh in India as extracted above) in great detail in the order for the assessment year 1977-78. For the reasons given there, we hold that the assessee has not discharged the onus to show that the control and management of the affairs of the assessee-firm during the years under consideration was wholly outside India. According to the assessee’s own averment, Shri Narender Singh was the main active partner, who looked after the control and management of the affairs of the firm, which, according to it, was in Kabul. The business of the assessee-firm, as its management, is a continuous affair, which cannot be held in abeyance for part of the year, while S. Narender Singh is away from Kabul. He was in India from 18-8-1972 to 4-5-1973, i.e., for a continuous period of slightly more than eight and a half months. During this long period, the business of the assessee-firm was not in limine. Orders were being booked and imports and exports were being made. The employees at Kabul could look after the day-to-day running of the business at Kabul but they could not take major decisions regarding booking of orders, etc. All this work was naturally done by S. Narinder Singh (even if the assessee’s version that other partners took no part is to be believed). He could and would do so from India, while he is in India for eight and a half months continuously from 18-8-1972 to 4-5-1973. This will be the normal course of events and the ITO had no onus to lead any positive evidence in support of it. It was for the assessee to lead evidence in support of its case, if it wanted to plead that the natural course of events did not follow. The assessee failed to place any such evidence on record. S. Surinder Singh and S. Inder Mohan Singh were the other partners, who were in India throughout the relevant previous years. We have given detailed reasons in our order for the assessment years 1977-78 to show as to how the averment of the assessee-firm that both the above partners took no part in the affairs of the firm while in India could not be believed and was against human probability. Those reasons apply in full force for the years under consideration also. In fact, the assessee has led no evidence whatsoever to show that the pattern of management did undergo a change during the previous years under consideration compared to what the pattern was from 1957-58 to the assessment year 1972-73 and what was found as a fact to be in respect of the previous year for the assessment year 1977-78 on the basis of the seized documents, referred to in our order for the assessment year 1977-78. The change in the pattern of trade between India and Afghanistan did not necessarily imply a change in the pattern of management of the assessee-firm on the lines suggested by the assessee-firm. May be, the purchases now were on principal to principal basis, and, may be, there will be no consignment sales in India. But the major work regarding purchases and the sales to be made in India remained. The assessee-firm had to decide what items to purchase in India, in what quantities, of what quality, at what rates and from whom to purchase and then to follow up the delivery schedules. Similar decisions had to be taken for the sales or exports to India. All this had to be done in India by India-based person. In fact, from the letters of Shri Inder Mohan Singh to the firm, referred to in the order for the assessment year 1977-78, all this became fairly clear. The assessee’s plea, therefore, that the India-based partners had no say in the management and control of the affairs of the firm is entirely opposed to the normal course of events and human probabilities. The contention that the ITO has placed no evidence on record in support of his case has merely to be stated to be rejected, for it was not for the ITO to bring any evidence on record on this subject. He had the legal presumption, raised by Clause (2) of Section 6, namely, that a firm is resident in India in every case, in his favour. The assessee wanted to get out of this presumption. The onus was, therefore, on it to prove by cogent evidence, that the control and management of the assessee-firm was situated, during the previous years in question, wholly outside India. It has failed to discharge this onus. Accordingly, the assessee’s plea must fail. In view of this, we reject the assessee’s appeals.
S.P. Kapur, Judicial Member
1. Having gone through the proposed orders of my learned brother, the Accountant Member in the above cases where the assessee remains the same, viz., Hukam Singh Inder Mohan Singh (Kabul), Delhi and being not able to pursuade myself to his view point, on one common issue involved in all the income-tax appeals, viz., ‘residential status’ to be accorded to the assessee in relation to the assessment years under appeal for the purposes of assessment under the Act, I do with great respect, append to the proposed orders, the following common note of dissent :
It is clarified that the speaking order of my learned brother is in I.T. Appeal No. 1571 (Delhi) of 1982 (assessment year 1977-78) and virtually that reasoning has been adopted for the other years although for the assessment year 1975-76 (in I.T. Appeal No. 741 (Delhi) of 1982) there is also additional discussion on the issue, hence, my dissent is also a common one.
2. It is further clarified that the dissent in all the cases is limited to one common issue, viz., ‘residential status’ and on all other issues involved in these cases, I fully concur with the reasoning and conclusions of my learned brother.
3. The issue involved embraces the controversy about the ‘residential status’ in which the assessments are ought to be framed for the years under appeals. The assessee claims that the status should be accorded as ‘nonresident’ while according to the revenue, it is ‘resident’. Section 6 has been pressed into service by the learned lower authorities, the material part of which (for the purposes of the present appeal) reads as under :
For the purposes of this Act,-
(1) ** ** ** (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. 4. The question, as such, that arises is 'whether on the facts and in the circumstances of the case, control and management of the affairs of Hukam Singh Inder Mohan Singh (Kabul) is situate wholly outside India ?' If the answer to the above proposition is in the affirmative then the status to be accorded has to be 'non-resident' otherwise it has to be 'resident'. 5. Section 4 of the Indian Partnership Act reads as under : Definition of 'partnership', 'partner', 'firm' and 'firm name'.-'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name under which their business is carried on is called the 'firm name. 6. Section 6 of the same enactment reads as under : Mode of determining existence of partnership.-In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together. Explanation 1 : The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners. Explanation 2 : The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business ; and, in particular, the receipt of such share or payment- (a) by a lender of money to persons engaged or about to engage in any business, (b) by a servant or agent as remuneration, (c) by a widow or child of a deceased partner, as annuity, or (d) by a previous owner or part owner of the business, as consideration for the sale of the goodwill or share thereof, does not of itself make the receiver a partner with the persons carrying on the business. Under the topic 'Test of partnership' the learned author (Shri Om Prakash Aggarwala) on p. 85 of the commentary on the Indian Partnership Act has to say as under : 3. Test of partnership.
It is, thus, clear that whether the relation of partnership does or does not exist between the parties must depend on the real intention of the parties, which must be gathered from all the facts of the case and the surrounding circumstances. The question in each case is largely one of fact to be determined with reference to the special circumstances of each case. Thus, it has been held that a mere statement that the parties are to be partners will not necessarily constitute them partners in law. The use of the word ‘partner’ or ‘partnership’ in the agreement does not necessarily show that there was a partnership. The parties may call themselves partners, but if it appears that one party is to do nothing more than advance money to the other and is to be paid by a share of the profits, they must be treated as creditor and debtor. Even a misdescription of the parties in the pleading will not affect the merits of the case, the relationship between them being always determined upon the real character of the contract between them. But where certain persons refer to themselves as a firm, it must be presumed even in the absence of evidence, that they are persons who have entered into partnership with one another and are a partnership firm.
On the other hand, statement in a document that nothing therein contained is to constitute the relationship of partners will not necessarily prevent the parties from being partners in the eyes of law. If a partnership in fact, exists, a community of interest in the adventure being carried on in fact, … no verbal equivalent for the ordinary phrases of profit and loss, no indirect expedient for enforcing control over the adventure will prevent the substance and reality of the transaction from being adjudged to be a partnership. Further, although two persons may hold themselves out to be partners and be liable to third parties, accordingly, yet it does not necessarily follow that they would be partners inter se. The intention is the legal intention.
The cumulative effect of all the circumstances should be considered in arriving at the conclusion whether a partnership is legal or not. To take each circumstance by itself and then reject it on the ground that each by itself was not conclusive is not the proper method of approaching the question.
7. Now on the facts of the present cases it is an admitted position that at all times, i.e., during the accounting periods relevant to assessment years under appeal, three of the four partners were carrying on business at Kabul in Afghanistan under a trade permit commonly known as ‘Jawaz-Nama’. It is a permit to carry on business. It is also an admitted position that those three persons at the relevant times have been paying tax on incomes over there and the payment was made in their individual capacities. Vide paragraphs 52 and 53 of our order made on appeals by the assessee and the revenue in relation to the assessment year 1977-78, we have discussed this issue, since the assessee claimed relief under Section 91 for Rs. 5,17,923. We have held that individuals were subjected to income-tax at Kabul in Afghanistan and that,’…the haisyat tax paid in Afghanistan was with reference to each individual’.
8. In the face of the above factual position and in the absence of any ‘recital’, can it be said that there was in existence any firm by the name and style of Hukam Singh Inder Mohan Singh (Kabul) and if not, can the said entity be said to be carrying on any business at Kabul in Afghanistan under the above name and style. Admittedly, there was no entity in existence by the name and style of Hukam Singh Inder Mohan Singh (Kabul) since three out of the four partners were carrying on business at Kabul in Afghanistan in their individual capacities and in this view of the matter on the facts and in the circumstances of the cases, it cannot be said that there was a firm by the name and style referred to above, the control and management of whose affairs is situated wholly outside India. There being no such an entity, there could not be any control and management of the affairs of such an entity, hence, the very basic proposition about the business of the firm vis-a-vis its existence has got to be probed into. The facts are that there appears to be no genuine firm in existence during the accounting periods relevant to the assessment years under appeals and since we have held that taxes were paid in Afghanistan by the partners in their individual capacities, it has to be re-examined whether there was a partnership firm in existence and for the purposes, on my part, I will set aside the orders of the learned lower authorities on this limited issue only and restore the matter to the file of the ITO for re-examination of the matter in the light of guidelinesLald in Sections 4 and 6 of the Partnership Act and the extract reproduced above about ‘Test of partnership’. In view of the above, the appeals, as such, shall be deemed to have been allowed in part, but, for statistical purposes only.
REFERENCE TO THE PRESIDENT OF TRIBUNAL UNDER SECTION 255(4) OF THE INCOME-TAX ACT
As it has not been possible for us to come to an agreed conclusion in respect of the appeals captioned above, we are referring the following question to the Hon’ble President, the Tribunal, for doing the needful :
Whether the question of existence of the firm can be gone into while deciding the assessee’s grounds of appeal in respect of the assessment years 1973-74 and 1974-75, more particularly, when the existence of the firm has never been in question at any stage ?
2. In respect of the assessment years 1973-74 and 1974-75, there is only one ground of appeal and the aforesaid question, therefore, refers to the said ground. In respect of the assessment years 1977-78 and 1978-79, the aforesaid question arises from ground of appeal marked ‘A’ in the respective memos of appeal for the said two years. In respect of the assessment year 1975-76, the aforesaid question arises with reference to the ground of Appeal No. 1.
T.D. Sugla, President
1. There has been a difference of opinion between the learned Members, who heard the above appeals. The following point of difference has been stated for decision by the Third Member in terms of Section 255(4) of the Act :
Whether the question of existence of the firm can be gone into while deciding the assessee’s grounds of appeal in respect of the assessment years under consideration, more particularly, when the existence of the firm has never been in question at any stage ?
The President having assigned the case to himself, the matter has come up for hearing before me.
2. Shri Batra, the learned counsel for the assessee, has stated that there have been two broad issues involved in these appeals, namely : (0 what is the residential status of the assessee-firm and (u) whether the assessee’s claim for double taxation relief under Section 91 is allowable. On the face of it both the learned Members have held that the residential status of the assessee-firm should be ‘resident and ordinarily resident’. They have also held that the assessee-firm is not entitled to double taxation relief under Section 91. For this conclusion, inter alia, the reason given, inter alia, was that control and management of its affairs was not situated wholly outside India. However, the learned Judicial Member has appended his signature to the order, subject to a separate note.
2.1 While holding that the assessee is not entitled to double taxation relief under Section 91, the Bench has observed vide paragraphs 52 to 54 of its order, that so far as Afghanistan was concerned, its law does not recognise the entity of the firm and does not subject the firm to income-tax. The individuals are subjected to Hasiyat tax (i.e., income-tax) paid in Afghanistan by individual, who are carrying on the business. From the above observation the learned Judicial Member has inferred that the Bench’s finding is that there was no entity in existence by the name and style of Hukam Singh Inder Mohan Singh (Kabul) and if there was no firm in existence in Kabul, the question of control over its management from within India could not possibly arise. It is for this reason that he has considered it desirable to set aside the orders of the lower authorities on this limited issue and restored the matter to the file of the ITO for re-examination, etc.
3. In response to a query from the Bench, Shri Batra admitted that the learned Accountant Member has said nothing about this aspect in the common order or separately. Shri Rao, the departmental representative has, on the other hand, contended that the learned Judicial Member has agreed with the orders prepared by the learned Accountant Member and has given a separate note only. Unless the learned Accountant Member had said anything about it. there would not bo 3 differene of opinion between the IV between the Members. His submission is that the learned Judicial Member’s separate note only means an expression of his personal opinion. He has also taken us through the paragraphs 52 to 54 of the common order to point out that the Bench has not stated that there was no existence of the business entity by the name and style of Hukam Singh Inder Mohan Singh (Kabul). What has been stated is that so far as Afghanistan was concerned, its law did not recognise the entity of the firm and did not subject the firm to any income-tax. This, according to the departmental representative, could not mean that there was no existence of the business under the style of Hukam Singh Inder Mohan Singh (Kabul). However, in response to query from the Bench he admitted that the learned Accountant Member has not disputed this inference of the learned Judicial Member. In response to another query from the Bench he stated that if the existence of the firm in Kabul is questioned, a question may reasonably arise as to the citus of control and management of the affairs of a nonexistent entity in Kabul from within India.
4. Having heard the parties and after going through the relevant portions of the common order and the dissenting note of the learned Judicial Member, I am of the view that the common order does not doubt the existence of the business under the style Hukam Singh Inder Mohan Singh (Kabul) as such. What has been held is that so far as Afghanistan was concerned, its law did not recognise the entity of the firm, the firm as such was not subjected to income-tax and the individuals were subject to ‘hasiyat-tax’, i.e., income-tax. From this conclusion, it does not necessarily follow that the assessee-firm was not carrying on any business in Afghanistan irrespective of the fact that the identity of the business as firm was not recognised in Afghanistan. It is not possible to conclude from the finding to which both the learned Members are parties, that the question of control and management over such a business whether wholly from outside India or not will not arise for consideration. However, this is a matter which will have to be sorted out by the Bench itself and not by me, as a third Member I do not find any conflict of views on the issue.
5. For the purpose of the present proceedings, I, therefore, assume that the Bench has expressed a doubt about the existence of the entity under the style Hukam Singh Inder Mohan Singh in Kabul. If that is so, I am of the view that the point of difference, as stated by the learned Members, requires certainly to be gone into. As rightly pointed out by the learned Judicial Member, the question of control, which is very essential for deciding the residential status of the assessee, would not arise in the case of a non-existent entity in Kabul.
6. Having regard to the above discussion, I am inclined to hold that the Bench may have first to decide as to what they really mean by observing that so far as Afghanistan is concerned, its law does not recognise the entity of the firm nor does it subject the firm to any income-tax and only the individuals, who carry on the business, are liable to pay ‘hasiyat-tax’, i.e., income-tax. If their conclusion is that there is no entity of a business under the style Hukam Singh Inder Mohan Singh (Kabul) as such in Kabul, I have to hold that the point of difference as stated can be gone into as it will arise out of such a finding. The order will have to go to the Bench for deciding the appeals according to majority view.