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Issues: (i) Whether the Indian heirs of the deceased Mohammedan, who jointly permitted the Penang business to be carried on through the executors and power-of-attorney agents, constituted an association of persons assessable as a unit; (ii) Whether the association was resident and ordinarily resident in the taxable territories for the relevant years under section 4A(b) of the Income-tax Act, 1922.
Issue (i): Whether the Indian heirs constituted an association of persons assessable as a unit.
Analysis: Co-heirs do not become an association of persons merely because they inherit defined shares in a common estate. The decisive factor is whether they joined in a common venture with the object of earning income. On the facts, the Indian heirs concurred in the continuance of the Penang business, supported its revival, and permitted it to be carried on on their behalf through the executors and agents. That common consent and cooperation supplied the necessary unity of purpose for assessment as an association of persons.
Conclusion: The Indian heirs were rightly treated as an association of persons for the Penang business income.
Issue (ii): Whether the association was resident and ordinarily resident in the taxable territories for the relevant years under section 4A(b) of the Income-tax Act, 1922.
Analysis: Residence under section 4A(b) depends on the real seat of control and management, not merely on formal title or the right to control. For 1945 and 1946, the business was in the exclusive management of Amir Mohideen at Penang, and the control of the Indian heirs was not shown to be exercised in the taxable territories, so the association was non-resident for those years. For 1947 and 1948, Dawood Ghani managed the business while being present in India for substantial periods, and the assessee had conceded the absence of material to displace residence. The association was therefore resident and ordinarily resident for those later years.
Conclusion: The association was non-resident for the years 1945 and 1946, but resident and ordinarily resident for the years 1947 and 1948.
Final Conclusion: The reference was answered partly in favour of the assessee and partly against the assessee, sustaining the association-of-persons status while granting non-resident treatment only for the earlier two assessment years.
Ratio Decidendi: Co-heirs may be assessed as an association of persons when they voluntarily combine and cooperate in carrying on a business with a common income-earning purpose, and residence under the Act turns on de facto control and management of the business affairs.
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