What the courts have decided on section 6(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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CIT v Nandlal Gandalal
Supreme CourtHelps taxpayer
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.
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V.VR.N.M. Subbayya Chettiar v CIT
Supreme CourtHelps department
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?
It depends, and the onus is on the assessee. The Supreme Court held that an HUF is presumed resident in India unless it shows that the control and management of its affairs is situated wholly outside India. 'Control and management' means the controlling and directive power, the head and brain, functioning at a place with some degree of permanence; mere activity is not residence. Here the karta lived and was domiciled in Ceylon, but he produced no correspondence or other evidence that the Indian affairs were normally directed from Colombo, so the presumption stood and the family was held resident.
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Statutory position — s.6(2) and s.6(6)(b): an HUF is resident unless control and management is situated WHOLLY outside India, and the not-ordinarily-resident test looks to the manager
CBDT Circulars & InstructionsCuts both ways
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?
On the test in s.6(2): a Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case EXCEPT where during that year the control and management of its affairs is situated wholly outside India. The word that decides the case is "wholly". Any part of the control and management of the family's affairs being situated in India during the previous year makes the family resident. If the family is resident, s.6(6)(b) then asks whether it is "not ordinarily resident": it is, if its MANAGER has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for 729 days or less.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
