V.V.R.N.M. Subbayya Chettiar v. C.I.T. (1951)

For an individual, residence is arithmetic: count the days. For a family, a firm or an association it is not, because the statute asks where the control and management of its affairs is situated, and adds the word wholly. That phrase has to be construed, and the burden of proof has to be allocated, before any problem on the residence of a joint family can be answered.

Subbayya Chettiar does both, and the structure it construed has survived into the present Act: the family is resident unless control and management are situated wholly outside India during the tax year. Because the rule is still cast as a charge with an exception, the case's holding on onus is still live.

The karta of a Hindu undivided family lived in Ceylon. During the relevant year he came to British India and stayed for 101 days, attending to litigation and to tax proceedings.

The family contended that the control and management of its affairs was situated wholly outside British India, so that it fell within the exception and was non-resident. It did not produce its correspondence.

The family was held to be resident. The exception was not made out.

Three points, and all three are examinable.

One — control and management means central direction, not activity. The Court held that "mere ―activity‖ cannot be the test of residence". What the statute looks for is the seat from which the affairs are directed, not the place where things happen to be done.

Two — the word wholly allows more than one seat. The Court observed that it "suggests that a Hindu undivided family may have more than one ―residence‖ in the same way as a corporation may have." That is the whole force of the word: a family with a seat of direction in India as well as one abroad fails the exception, because control is then not situated wholly outside India.

Three — the onus is on the assessee. "There can be no doubt that the onus of proving facts which would bring his case within the exception, which is provided by the latter part of Section 4-A(b), was on the assessee." Having withheld the correspondence, the family had not discharged it.

The Court added a fourth point of method: the decision "must be confined to the year of assessment to which this case relates". Residence is determined year by year.

The section makes residence the rule and non-residence the exception. Everything follows from that drafting.

Because non-residence is the exception, the assessee must prove it. He must prove a negative — that no part of the control and management was in India — and the material that would prove it is in his own hands. Correspondence, minutes and instructions are the natural evidence, and a family that keeps them back invites the inference that they would not help.

Because the statute says wholly, partial control in India is fatal to the exception. The comparison with a corporation is the key: a company may have more than one place from which it is directed, and so may a joint family. The question is therefore not where is the principal seat of control but was any part of the control in India.

Because control means direction, presence is not the test. The karta's 101 days in India, spent on litigation and tax proceedings, would count for nothing on their own; what mattered was whether the affairs of the family were directed from India. Conversely, a karta who never sets foot in India may still direct its affairs from there through others.

It opens any problem on the residential status of a Hindu undivided family, a firm or an association of persons, and it is the case to cite for the meaning of control and management.

The steps to write: state s. 6(9) — resident unless control and management of its affairs is situated wholly outside India during the tax year; say that this makes non-residence an exception; put the onus on the assessee under Subbayya Chettiar; construe control as central direction, not activity; apply wholly, so that any part of the direction exercised in India defeats the exception; and confine the finding to the year in question.

It disposes of the argument that a karta's stay in India makes the family resident by itself, and equally the argument that keeping the business abroad settles the matter. Both confuse activity with direction.

It does not decide the residence of a company. For a company the present Act asks whether it is an Indian company or whether its place of effective management is in India — the place where key management and commercial decisions necessary for the conduct of the business as a whole are, in substance, made. The idea is a cousin of Subbayya Chettiar's central direction, but it is a statutory test in its own words, and it should be applied as such. Note also the linked rule that residence in respect of one source of income is residence for every source.