Our family business is run entirely outside India, but two coparceners are partners in Indian firms with family money. Does that make the family resident in India?
No, on these facts. The Supreme Court held by a majority that a family is resident unless the control and management of its affairs is situated wholly outside the taxable territories, and that affairs there means affairs capable of being controlled and managed by the family as such. A partnership entered into by a coparcener with strangers is a contract between him and them, not between the family and them; neither partnership law nor Hindu law gives the family any controlling power over it. So the firms could not be affairs of the family and did not make it resident, even though the income from them belonged to the family. Hidayatullah J dissented.
Decided by the Supreme Court (Supreme Court of India; S.K. Das, J.L. Kapur and M. Hidayatullah JJ. Majority judgment of Das and Kapur JJ delivered by S.K. Das J; Hidayatullah J dissenting) on 1960-04-21, reported as (1960) 40 ITR 1; AIR 1960 SC 1147; (1960) 3 SCR 620. It bears on section 6(2), section 5, section 2(31) of the Income Tax Act 1961, in Residence & Treaty Benefit and Assessment & Scrutiny matters.
The case draws the line that still governs residence disputes for families and other non-corporate entities. Three propositions come out of it. Control and management means de facto control, the head and brain, not a mere right or power to control. The affairs whose control matters are the entity's own affairs, which it is capable of controlling as such, so a firm in which a member happens to be a partner is not automatically one of them. And the place where income accrues need not be the place of residence, so the apparent paradox that the firm's income is taxed as the family's while the firm is not the family's affair is no paradox at all. The Court also confined Subbayya Chettiar, pointing out that it turned on onus and was expressly limited to the year before it. Hidayatullah J's dissent, that coparceners who start, run and expand a business with family funds are managing an affair of the family and cannot shelter behind partnership law, is the argument the Department still runs.
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The Hindu undivided family of Gandalal carried on a cloth business at Wadhwan in Kathiawar, then outside British India. The family consisted of Gandalal and his four sons. In 1944 one son, Nandlal, came to Bombay and entered into a cloth partnership, Amulakh Amichand and Co, taking a ten annas share against six annas for three partners of the Amulakh Amichand family, who were said to have brought in no capital. Nandlal received Rs 50,000 from the family on 13 April 1944 and another Rs 50,000 on 27 April 1944, and two further sums totalling Rs 50,000 on 8 and 29 June 1944. The assessee's case was that Rs 1,00,000 had been given to each son by the father and the June sums were a loan, so that Nandlal was a partner in his individual capacity; the Department's case was that the whole Rs 1,50,000 went in as capital of the partnership. Another brother, Girdharlal, later joined and was given five of Nandlal's ten annas. The firm then started a cloth business at Banaras with the same partners and an outsider, and a third brother joined that firm without bringing capital. For assessment year 1945-46 the Income-tax Officer held the family resident in the taxable territories and taxed the Rs 1,50,000 under section 4(1)(b)(iii) as brought into British India. The Appellate Assistant Commissioner agreed. The Tribunal held that the coparceners had joined the firms for the family, so the status was Hindu undivided family, but that the firms were not the family's affairs and the family was non-resident, and deleted the Rs 1,50,000. The Bombay High Court answered the reference in the assessee's favour.
The appeal was dismissed with costs in accordance with the majority judgment. The finding that Nandlal and Girdharlal joined the firms as representing the family, and that the money came from the family, was not in issue and did not by itself determine residence. Control and management in section 4A(b) means de facto control and management, the controlling and directive power, and not merely the right or power to control. Affairs means affairs of the family capable of being controlled and managed by the family as such. A partnership between a coparcener and strangers is contractual and governed by the Partnership Act; it is not a partnership between the family and the strangers, the surviving members cannot continue in it or sue for dissolution, and the stranger partners cannot sue them for the coparcener's share of a loss. Neither under partnership law nor under Hindu law could the family, or its karta, exercise any controlling management over the Bombay and Banaras firms, so those businesses were not affairs of the family. That the income from them belonged to the family is no paradox, because the place of accrual of income and the place of residence need not be the same. Hidayatullah J dissented and would have answered in the affirmative with costs to the Department.
The majority started from the structure of section 4A(b), which makes a family resident unless the control and management of its affairs is situated wholly outside the taxable territories. Following Subbayya Chettiar, it noted that the test is drawn largely from the English rule for corporations, that affairs means affairs relevant for the purposes of the Act and having some relation to income, and that the word wholly implies a family may have more than one residence just as a corporation may. It then took the settled position in Hindu law and partnership law about a coparcener who joins a firm with strangers: the contract is his, the family is not a partner, and the incidents of the partnership run between the contracting individuals, even though the coparcener is accountable to the family for what he receives. Since the family cannot direct the firm, the firm cannot be an affair of the family within the meaning of the section. Two further points were made. Subbayya Chettiar was explained as having proceeded on onus and as expressly limited to its own assessment year, so it did not conclude the matter. And the appearance of inconsistency, in taxing the firm's income as the family's while holding the firm not to be the family's affair, was answered by separating accrual from residence: residence turns on the seat of control of the family's affairs, and in respect of this partnership the family as such had no connection with control and management at all. The Court accepted that the position would be different if the family itself carried on the business, when it would be in control of it. Hidayatullah J reasoned the other way, from Hindu law rather than partnership law: a coparcener can claim no separate share, so the business was funded and carried on for the family; the coparceners started it, stayed and managed it, opened a further business at Banaras and supplied its capital, and those acts, permanent rather than casual in character, were acts of control and management of an affair of the family carried out in British India, which under a test designed to catch families with multiple seats of control made the family resident.
the place of accrual of income of such family and the place of its residence need not necessarily be the same under the Act
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Handle my notice → Ask a CA on WhatsAppNo, on these facts. The Supreme Court held by a majority that a family is resident unless the control and management of its affairs is situated wholly outside the taxable territories, and that affairs there means affairs capable of being controlled and managed by the family as such. A partnership entered into by a coparcener with strangers is a contract between him and them, not between the family and them; neither partnership law nor Hindu law gives the family any controlling power over it. So the firms could not be affairs of the family and did not make it resident, even though the income from them belonged to the family. Hidayatullah J dissented. This was decided by the Supreme Court (Supreme Court of India; S.K. Das, J.L. Kapur and M. Hidayatullah JJ. Majority judgment of Das and Kapur JJ delivered by S.K. Das J; Hidayatullah J dissenting) and bears on section 6(2), section 5, section 2(31) of the Income Tax Act 1961. It is reported as (1960) 40 ITR 1; AIR 1960 SC 1147; (1960) 3 SCR 620. The case draws the line that still governs residence disputes for families and other non-corporate entities. Three propositions come out of it. Control and management means de facto control, the head and brain, not a mere right or power to control. The affairs whose control matters are the entity's own affairs, which it is capable of controlling as such, so a firm in which a member happens to be a partner is not automatically one of them. And the place where income accrues need not be the place of residence, so the apparent paradox that the firm's income is taxed as the family's while the firm is not the family's affair is no paradox at all. The Court also confined Subbayya Chettiar, pointing out that it turned on onus and was expressly limited to the year before it. Hidayatullah J's dissent, that coparceners who start, run and expand a business with family funds are managing an affair of the family and cannot shelter behind partnership law, is the argument the Department still runs. If it applies to you, the first step is this: Identify the specific affair the Department says is controlled from India and ask whether the entity itself is capable of controlling it; membership of a firm through an individual is not enough by itself.
The Hindu undivided family of Gandalal carried on a cloth business at Wadhwan in Kathiawar, then outside British India. The family consisted of Gandalal and his four sons. In 1944 one son, Nandlal, came to Bombay and entered into a cloth partnership, Amulakh Amichand and Co, taking a ten annas share against six annas for three partners of the Amulakh Amichand family, who were said to have brought in no capital. Nandlal received Rs 50,000 from the family on 13 April 1944 and another Rs 50,000 on 27 April 1944, and two further sums totalling Rs 50,000 on 8 and 29 June 1944. The assessee's case was that Rs 1,00,000 had been given to each son by the father and the June sums were a loan, so that Nandlal was a partner in his individual capacity; the Department's case was that the whole Rs 1,50,000 went in as capital of the partnership. Another brother, Girdharlal, later joined and was given five of Nandlal's ten annas. The firm then started a cloth business at Banaras with the same partners and an outsider, and a third brother joined that firm without bringing capital. For assessment year 1945-46 the Income-tax Officer held the family resident in the taxable territories and taxed the Rs 1,50,000 under section 4(1)(b)(iii) as brought into British India. The Appellate Assistant Commissioner agreed. The Tribunal held that the coparceners had joined the firms for the family, so the status was Hindu undivided family, but that the firms were not the family's affairs and the family was non-resident, and deleted the Rs 1,50,000. The Bombay High Court answered the reference in the assessee's favour. The matter was decided on 1960-04-21 by the Supreme Court (Supreme Court of India; S.K. Das, J.L. Kapur and M. Hidayatullah JJ. Majority judgment of Das and Kapur JJ delivered by S.K. Das J; Hidayatullah J dissenting). On those facts the Supreme Court held as follows. The appeal was dismissed with costs in accordance with the majority judgment. The finding that Nandlal and Girdharlal joined the firms as representing the family, and that the money came from the family, was not in issue and did not by itself determine residence. Control and management in section 4A(b) means de facto control and management, the controlling and directive power, and not merely the right or power to control. Affairs means affairs of the family capable of being controlled and managed by the family as such. A partnership between a coparcener and strangers is contractual and governed by the Partnership Act; it is not a partnership between the family and the strangers, the surviving members cannot continue in it or sue for dissolution, and the stranger partners cannot sue them for the coparcener's share of a loss. Neither under partnership law nor under Hindu law could the family, or its karta, exercise any controlling management over the Bombay and Banaras firms, so those businesses were not affairs of the family. That the income from them belonged to the family is no paradox, because the place of accrual of income and the place of residence need not be the same. Hidayatullah J dissented and would have answered in the affirmative with costs to the Department.
The majority started from the structure of section 4A(b), which makes a family resident unless the control and management of its affairs is situated wholly outside the taxable territories. Following Subbayya Chettiar, it noted that the test is drawn largely from the English rule for corporations, that affairs means affairs relevant for the purposes of the Act and having some relation to income, and that the word wholly implies a family may have more than one residence just as a corporation may. It then took the settled position in Hindu law and partnership law about a coparcener who joins a firm with strangers: the contract is his, the family is not a partner, and the incidents of the partnership run between the contracting individuals, even though the coparcener is accountable to the family for what he receives. Since the family cannot direct the firm, the firm cannot be an affair of the family within the meaning of the section. Two further points were made. Subbayya Chettiar was explained as having proceeded on onus and as expressly limited to its own assessment year, so it did not conclude the matter. And the appearance of inconsistency, in taxing the firm's income as the family's while holding the firm not to be the family's affair, was answered by separating accrual from residence: residence turns on the seat of control of the family's affairs, and in respect of this partnership the family as such had no connection with control and management at all. The Court accepted that the position would be different if the family itself carried on the business, when it would be in control of it. Hidayatullah J reasoned the other way, from Hindu law rather than partnership law: a coparcener can claim no separate share, so the business was funded and carried on for the family; the coparceners started it, stayed and managed it, opened a further business at Banaras and supplied its capital, and those acts, permanent rather than casual in character, were acts of control and management of an affair of the family carried out in British India, which under a test designed to catch families with multiple seats of control made the family resident. In the words reproduced by the source cited on this page: "the place of accrual of income of such family and the place of its residence need not necessarily be the same under the Act"
It was decided by the Supreme Court on 1960-04-21 and is reported as (1960) 40 ITR 1; AIR 1960 SC 1147; (1960) 3 SCR 620. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 6(2), section 5, section 2(31), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed with costs in accordance with the majority judgment. The finding that Nandlal and Girdharlal joined the firms as representing the family, and that the money came from the family, was not in issue and did not by itself determine residence. Control and management in section 4A(b) means de facto control and management, the controlling and directive power, and not merely the right or power to control. Affairs means affairs of the family capable of being controlled and managed by the family as such. A partnership between a coparcener and strangers is contractual and governed by the Partnership Act; it is not a partnership between the family and the strangers, the surviving members cannot continue in it or sue for dissolution, and the stranger partners cannot sue them for the coparcener's share of a loss. Neither under partnership law nor under Hindu law could the family, or its karta, exercise any controlling management over the Bombay and Banaras firms, so those businesses were not affairs of the family. That the income from them belonged to the family is no paradox, because the place of accrual of income and the place of residence need not be the same. Hidayatullah J dissented and would have answered in the affirmative with costs to the Department. It arises in Residence & Treaty Benefit and Assessment & Scrutiny matters, on section 6(2), section 5, section 2(31) of the Income Tax Act 1961, and was decided by Supreme Court of India; S.K. Das, J.L. Kapur and M. Hidayatullah JJ. Majority judgment of Das and Kapur JJ delivered by S.K. Das J; Hidayatullah J dissenting. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show where the head and brain sits in fact, with board or family records, correspondence and evidence of who actually decides, since de facto control is the test and a mere power to control is not. Keep the question of residence separate from the question of whose income it is; the Court held the two need not coincide. Remember the exception requires control to be wholly outside India, so even part of the direction being exercised here defeats the claim; a divided seat of control means residence.
Still good law. The source page records the decision as cited in some two dozen later cases, with the Supreme Court referring to it in 1966 and 1970. It construes section 4A(b) of the 1922 Act, whose successor is section 6(2) of the 1961 Act, framed in the same way: a Hindu undivided family, firm or other association of persons is resident in India except where during the year the control and management of its affairs is situated wholly outside India. The charge it was applied to, section 4(1)(b)(iii) of the 1922 Act, taxed income accruing outside and brought into the taxable territories, and the 1961 Act does not carry that remittance basis forward, so the consequence of residence on these facts would now be different. Its later history was not otherwise traced in this session. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line gave the sections as 6(2), 6(3) and 2(31). The judgment decides section 4A(b) of the Indian Income-tax Act, 1922, whose 1961 Act equivalent is section 6(2); section 6(3), which deals with companies, is not in issue. The charging provision applied, section 4(1)(b)(iii) of the 1922 Act, taxed income brought into or received in the taxable territories by a resident and has no counterpart in the 1961 Act. The first question decided by the Tribunal, whether Nandlal represented the family in the firms, was not before the Court and the assessee's case that the sums were partly a gift and partly a loan, and its claim of partition, were not examined; the Court proceeded on the Tribunal's findings. The judgment does not deal with the assessment years after 1945-46, and Hidayatullah J notes that the partition claim, if made good, would itself have answered the case. Only two of the three judges support the ratio. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed with costs in accordance with the majority judgment. The finding that Nandlal and Girdharlal joined the firms as representing the family, and that the money came from the family, was not in issue and did not by itself determine residence. Control and management in section 4A(b) means de facto control and management, the controlling and directive power, and not merely the right or power to control. Affairs means affairs of the family capable of being controlled and managed by the family as such. A partnership between a coparcener and strangers is contractual and governed by the Partnership Act; it is not a partnership between the family and the strangers, the surviving members cannot continue in it or sue for dissolution, and the stranger partners cannot sue them for the coparcener's share of a loss. Neither under partnership law nor under Hindu law could the family, or its karta, exercise any controlling management over the Bombay and Banaras firms, so those businesses were not affairs of the family. That the income from them belonged to the family is no paradox, because the place of accrual of income and the place of residence need not be the same. Hidayatullah J dissented and would have answered in the affirmative with costs to the Department.
TaxSphere, “CIT v Nandlal Gandalal”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-nandlal-gandalal-huf-residence-control-and-management/ (validity last checked 2026-08-29)
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The karta of my client's HUF has lived in Dubai for years and all the family's decisions are taken there, but one property is managed from India by his brother. The Assessing Officer says the HUF is resident in India. On what test?
The karta of our HUF lives abroad but comes to India a few times a year to attend to family litigation and tax matters — is the family resident in India?
My client took his share on a partition and is now the only member — unmarried, no wife, no children. He wants to file as an HUF because the property he received is ancestral. Can he?
The family's only income-producing right is the karta's share in a managing agency, which cannot be split among the members. They divided the commission between themselves. Is that a partition the department must accept?
