Hindu Undivided Family residence turns on where control and management of family affairs is exercised, including partnership undertakings

Residence of a Hindu undivided family under section 4A(b) of the Indian Income-tax Act, 1922 depends on whether the control and management of its affairs is situated within the taxable territories; the family is non-resident only if such control and management is wholly outside those territories. Partnership activity by coparceners may still constitute an affair of the family where it is carried on as a family undertaking, using family funds and managed from within the taxable territories. On the stated facts, the Bombay and Banaras businesses were treated as family affairs controlled and managed in British India, so the family was resident in the taxable territories.

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Issues: (i) Whether, for the assessment year 1945-46, the Hindu undivided family of Gandalal was resident in the taxable territories within the meaning of section 4A(b) of the Indian Income-tax Act, 1922, on the footing that the partnership business carried on by the coparceners in Bombay and Banaras constituted an affair of the family and its control and management was situated partly within those territories.

Issue (i): Whether, for the assessment year 1945-46, the Hindu undivided family of Gandalal was resident in the taxable territories within the meaning of section 4A(b) of the Indian Income-tax Act, 1922, on the footing that the partnership business carried on by the coparceners in Bombay and Banaras constituted an affair of the family and its control and management was situated partly within those territories.

Analysis: Residence of a Hindu undivided family under section 4A(b) depends on the seat of control and management of its affairs, and the family is non-resident only if such control and management is situated wholly outside the taxable territories. A coparcener who enters into partnership with strangers does so as an individual under partnership law, but the income and business activity may still relate to the family under Hindu law. On the facts found, the coparceners who became partners in the Bombay and Banaras firms were conducting a family undertaking from within British India, using family funds and managing the business there. That activity constituted an affair of the family, and the control and management of that affair was exercised in the taxable territories.

Conclusion: The family was resident in the taxable territories; the question was answered in the affirmative and the appeal failed.

Concurring Opinion: None. The majority held that the partnership activity amounted to an affair of the Hindu undivided family and that control and management was exercised within British India, so the family was resident and the appeal was dismissed. The separate opinion took the contrary view that the partnership was not an affair of the family, but it did not prevail.

Dissenting Opinion: Hidayatullah, J. held that the partnership business was an affair of the Hindu undivided family because the coparceners managed a family undertaking in British India, and therefore the family was resident in the taxable territories.

Final Conclusion: The controlling principle is that a Hindu undivided family is resident unless the control and management of its affairs is wholly outside the taxable territories, and partnership activity of coparceners may count as the family's affair when it is managed as a family undertaking within those territories.

Ratio Decidendi: For residence under section 4A(b) of the Indian Income-tax Act, 1922, the relevant inquiry is whether the Hindu undivided family has an affair capable of being controlled and managed as such within the taxable territories; where coparceners manage a family undertaking there, the family is resident unless control and management is wholly outside those territories.

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