NAROTTAM AND PAREKH LTD. V. C.I.T., BOMBAY CITY AIR 1954 BOM. 67
FACTS
• The case concerns whether the assessee company qualifies as a resident company for the assessment years 1944-45 and 1945-46.
• Narottam and Parekh Ltd. is a subsidiary company of the Scindia Steam Navigation Co. Ltd., engaged in stevedoring business in Ceylon.
• The company is registered in Bombay, with its registered office and meetings of the Board of Directors and shareholders held in Bombay.
• To be considered a resident company, the control and management of its affairs must be situated wholly in the taxable territories.
ISSUE
• Whether the control and management of Narottam and Parekh Ltd. are wholly situated in the taxable territories, thus qualifying it as a resident company?
RULE
• Section 4A(c) of the Income-tax Act defines the residence of a company based on the location of control and management.
• Control and management must be wholly situated within the taxable territories for a company to be considered a resident.
• The control and management referred to in the Act signify the controlling and directive power of the company, where it's head and brain function.
HELD
• The mere doing of business in a particular place does not constitute control and management in that place.
• The actual control and management of affairs determine residence, not merely the legal right to control.
• In Bhimji Naik v. Commissioner of Income-tax, Bombay [AIR 1945 Bom. 271] The court emphasized the importance of determining the actual control and management of affairs, rather than merely the legal right to control. The residence of the company was contingent upon where the central control and management actually abided.
• Talipatigala Estate v. Commr. of Income Tax [AIR 1950 Mad.781]- Despite the estate being managed by an agent in Ceylon, the court found that some control and management were exercised from British India. Therefore, the firm was deemed resident in British India under Section 4-A.
• The central management and control were retained in Bombay, despite business operations being conducted in Ceylon.
• The company's directors exercised control over the affairs in Ceylon, and the managers there were subject to their directions.
• The central authority that controls and manages the company determines its residence, irrespective of where business operations occur.
• Thus, Narottam and Parekh Ltd. were held to have their central control and management situated in Bombay, making them a resident company.
COMMENTARIES NOTES
• WHAT IS "CONTROL AND MANAGEMENT-
Different courts have defined the term "control and management as follows-
• De facto control - Control and management means de facto control and management and not merely the right to control or manage- CIT v. Nandlal Gandalal [1960] 40 ITR 1 (SC).
• Place of control and management- Control and management is situated at a place where the head, the seat and the directing power are situated. The head and brain is situated where vital decisions concerning the policies of the business, such as, raising finance and its appropriation for specific purposes, appointment and removal of staff, expansion, extension, or diversification of business. Etc., are taken-San Paulo (Brazilian) Railway Co. v. Carter [1886] AC 31 (HL)
• Residence of HUF in India - The mere fact that the family has a house in India, where some of its. members reside or the Karta is in India in the previous year, does not constitute that place as the seat of control and management of the affairs of the family, unless the decisions concerning the affairs of the family are taken at that place. The mere fact of the absence of karta from India does not make the family non-resident-Annamalai Chettiar v. ITO [1958] 34 ITR 88 (Mad.).
• Broad propositions - The following propositions can be stated on the basis of the rulings given Subbayya Chettiar v. CIT [1951] 19 ITR 163 (SC) and Narasimha Rao Bahadur v. CIT[1950] 18ITR 181 (Mad.)
• Generally, HUF shall be taken to be resident in India unless control and management of its affairs situated wholly outside India.
• HUF may be residing in one place and doing a great deal of business in other place.
• Occasional visit of a non-resident karta to the place of HUF's business in India would be Insufficient to make HUF ordinarily resident in India.