Tax residency of a firm depends on actual control and management, not just where trading operations occur.

A firm was treated as resident in British India under Section 4A(b) of the Income-tax Act, 1922 because its control and management were not situated wholly outside British India. The assessee had the burden of proving that the head and brain of the business operated entirely outside British India, and the decisive inquiry was where the affairs were actually controlled and managed, not where trading work was carried on. The evidence showed that partners in Trichinopoly issued directions on purchases, sales, expenditure, improvements, labour matters, budgets and reserve funds, while the Ceylon superintendent acted under their instructions and reported to them regularly. The residency condition was therefore satisfied.

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Issues: Whether the assessee firm was resident in British India within the meaning of Section 4A(b) of the Income-tax Act, 1922.

Analysis: Section 4A(b) deems a firm resident in British India unless the control and management of its affairs is situated wholly outside British India. The burden lies on the assessee to prove that the controlling and directive power, the head and brain of the business, was wholly outside British India. The relevant enquiry is where the affairs of the business are in fact controlled and managed, not where the trading operations physically take place, and a mere power to control is insufficient without proof of actual exercise of that control. On the evidence, the partners residing in Trichinopoly gave directions on purchases, sales, expenditure, improvements, labour matters, budgets and reserve funds, while the local superintendent in Ceylon acted under their instructions and reported to them regularly.

Conclusion: The control and management of the assessee firm's affairs were not situated wholly outside British India, and the firm was resident in British India.

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