Bank of China (in liquidation) deemed Indian resident for tax purposes under Income-tax Act

The High Court held that the Bank of China (in liquidation) should be treated as a resident in India for income-tax purposes under Section 6(3)(ii) of the Income-tax Act, 1961. The court determined that the control and management of the bank's affairs were situated wholly in India during the relevant year. The official liquidator, acting under the court's control, managed the company's income-generating activities in India, leading to the conclusion that the bank met the criteria for residency. The court ruled in favor of the assessee, Bank of China in liquidation.

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Issues Involved:
1. Determination of the residential status of Bank of China (in liquidation) for income-tax purposes.
2. Interpretation of "control and management" under Section 6(3) of the Income-tax Act, 1961.
3. Role and powers of the official liquidator under the Companies Act, 1956, in relation to the management of the company's affairs.

Issue-wise Detailed Analysis:

1. Determination of the residential status of Bank of China (in liquidation) for income-tax purposes:
The primary question was whether the Bank of China, which went into liquidation, should be assessed to income-tax as a company resident in India. The High Court of Calcutta had previously placed the bank into liquidation, appointing an official liquidator who managed the bank's assets and liabilities. The Income Tax Officer (ITO) initially treated the bank as a non-resident company for the assessment year 1975-76, which was contested by the official liquidator. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision based on the status of the bank in the previous year. However, the Tribunal later directed that the bank should be treated as a resident company under Section 6(3)(ii) of the Income-tax Act, 1961, and the High Court confirmed this view.

2. Interpretation of "control and management" under Section 6(3) of the Income-tax Act, 1961:
Section 6(3) of the Income-tax Act, 1961, states that a company is considered resident in India if its control and management are situated wholly in India during the relevant year. The court emphasized that "control and management" signifies the controlling and directive power, often referred to as "the head and brain" of the company. The term "wholly" implies that the control and management should not be divided between two places. The court cited Lord Loreburn's principle from De Beers Consolidated Mines Ltd. v. Howe, which states that a company resides where its real business is carried on, i.e., where the central management and control actually abide.

3. Role and powers of the official liquidator under the Companies Act, 1956, in relation to the management of the company's affairs:
Under Section 449 of the Companies Act, 1956, the official liquidator becomes the custodian of the company's property upon a winding-up order. The liquidator's role is essentially that of an agent managing the company's affairs for winding up. Sections 456 and 457 outline the liquidator's powers, which include managing the company's assets and liabilities, subject to the court's control. The court noted that the liquidator exercises control and management over the company's affairs in India, especially concerning income sources like interest and rent. Therefore, the court concluded that the company in liquidation should be deemed resident in India for tax purposes.

Conclusion:
The High Court held that the control and management of the Bank of China's affairs during the relevant previous year were situated wholly in India. Consequently, the bank should be treated as a resident in India under Section 6(3)(ii) of the Income-tax Act, 1961. The official liquidator, acting under the court's control, managed the company's income-generating activities in India, thereby fulfilling the criteria for residency. The court answered the reference question in the affirmative, favoring the assessee (Bank of China in liquidation).

Separate Judgments:
DIPAK KUMAR SEN J. concurred with the judgment delivered by AJIT KUMAR SENGUPTA J.

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