1962 (3) TMI 114 - HC - Income Tax

Indian Heirs' Business Status & Tax Residency Determination

Estate of A. Mohamed Rowther (By Power Agent) A.M. Kadar Shaw Rowther Versus Commissioner of Income Tax, Madras

The court held that the Indian heirs of Mohamed Rowther formed an 'association of persons' (AOP) for tax assessment purposes in running the Penang ... - Issues Involved:1. Status of Indian heirs as an 'association of persons' for tax assessment.2. Residency status of the association for tax purposes.Issue-wise Detailed Analysis:1. Status of Indian heirs as an 'association of persons' for tax assessment:The primary question was whether the Indian heirs of Mohamed Rowther constituted an 'association of persons' (AOP) under the Indian Income Tax Act. Under Mohammedan law, the death of an individual vests his estate in his heirs in definite and ascertained shares. Co-heirs of a deceased Mohammedan are merely co-owners of a common estate, each with a specific, defined, and ascertained share. Mere co-ownership does not justify an assessment treating co-owners as an AOP. However, if co-owners unite with the objective of earning income, they constitute an AOP for assessment purposes. The Tribunal found that the Indian heirs formed an AOP in running the Penang business through the executors, particularly Amir Mohideen, who managed the business with their concurrence and cooperation. The Tribunal's view was supported by evidence such as the remittance of $15,000 by the Indian heirs to the executors to continue the business and the power of attorney executed by the Indian heirs. The court concluded that the Indian heirs formed an AOP and were liable to be treated as a unit of assessment. Therefore, the question referred in T.C. No. 60 of 1958 was answered against the assessee, who would pay the costs of the department.2. Residency status of the association for tax purposes:The relevant statutory provision for determining the residency status of an AOP is Section 4A(b) of the Indian Income Tax Act, which states that an AOP is resident in the taxable territories unless the control and management of its affairs is situated wholly outside the taxable territories. The court examined the control and management of the Penang business to determine the residency status. For the calendar years 1945 and 1946, Amir Mohideen managed the business solely and exclusively in Penang, with no direction from the Indian heirs. Therefore, the AOP was deemed to be a non-resident for these years. For the later years 1947 and 1948, Dawood Ghani managed the business and was not a non-resident. He was in India for significant periods during these years, and there was no evidence to show that he did not exercise control or management of the foreign business during this time. The court found that the AOP must be deemed to be a resident and ordinarily resident for the years 1947 and 1948. Consequently, the question referred in T.C. No. 6 of 1961 was answered in favor of the assessee for the calendar years 1945 and 1946 and against the assessee for the calendar years 1947 and 1948. There was no order as to costs in this reference.Order:The court concluded that the Indian heirs formed an AOP and were liable to be treated as a unit of assessment. The AOP was deemed to be a non-resident for the calendar years 1945 and 1946 and a resident and ordinarily resident for the calendar years 1947 and 1948.