The control and management of a company's affairs, for the purposes of determining its residence for income tax purposes, is situated where the company's head and brain is, and not where its business is done.

Headnote:
INCOME TAX - RESIDENCE - COMPANY - CONTROL AND MANAGEMENT - WHERE SITUATED - HEAD AND BRAIN OF COMPANY - DOING OF BUSINESS - DISTINCTION - POWERS-OF-ATTORNEY TO MANAGERS IN CEYLON - CENTRAL MANAGEMENT AND CONTROL IN BOMBAY - COMPANY RESIDENT IN BOMBAY.
Fact of the Case:

The assessee company, a subsidiary of the Scindia Steam Navigation Co. Ltd., was registered in Bombay and had its registered office there. The company's business was stevedoring in Ceylon, and the bulk of its income was earned there. The company's Board of Directors and shareholders' meetings were held in Bombay. The issue was whether the company was a resident company for the purposes of income tax.
Finding of the Court:

The court held that the company was a resident company. It held that the control and management of the company's affairs was situated wholly in Bombay, and that the company's head and brain was in Bombay. The court distinguished between the doing of business and the control and management of business, and held that the mere fact that the company's business was done in Ceylon did not mean that the company was resident there.
Issues: Whether the assessee company was a resident company for the purposes of income tax.
Ratio Decidendi: The court held that the control and management of the company's affairs was situated wholly in Bombay, and that the company's head and brain was in Bombay. The court distinguished between the doing of business and the control and management of business, and held that the mere fact that the company's business was done in Ceylon did not mean that the company was resident there.
Final Decision: The court answered the question submitted to it in the affirmative, holding that the assessee company was a resident company.

Judgment - Chagla, C.J.

1. The question that arises in this reference is whether the assessee company is a resident company. The assessment years are 1944-45 and 1945-46. The company is a subsidiary company of the Scindia Steam Navigation Co. Ltd., and its business is stevedoring in Ceylon, it is registered in Bombay and its registered office is also in Bombay. The meetings of the Board of Directors are held in Bombay and also the meetings of the shareholders.

2. In order that a company should be resident it is necessary that the control and management of its affairs should be situated wholly in the taxable territories or its income earned in the taxable territories should exceed its income without the taxable territories in that year. In this case we are not concerned with the second part of the definition, because the income of this company in India was Rs. 3,791 whereas its total world income was Rs. 3,28,108, the bulk of which was earned in Ceylon by the business which it did. In order to construe Section 4A(c) of the Income-tax Act, it is important to bear in mind that this section deals with residence and it deals with residence of individuals, Hindu undivided family, firms and other association of persons and of a company, and therefore the central idea underlying this section is the idea of residence, and what has got to be determined is where a particular company is resident.

Sub-clause (c) tells us what in the eye of the law is residence with regard to a company, and as far as the first part is concerned, in order that a companys income should be subjected to tax as a resident, it has got to be established that the control and management of its affairs is situated wholly in the taxable territories. As we shall presently point out, "control and management" is a compendious expression which has acquired a definite significance and connotation. It is also necessary that the control and management of the affairs of the company should be situated wholly in the taxable territories. Therefore, if any part of the control and management is outside the taxable territories, then the company would not be resident. In this connection it is perhaps necessary to look at the converse definition of an Hindu undivided family, firm or other association of persons.

In their case they are resident unless the control and management of its affairs is situated wholly without the taxable territories. Therefore, whereas in the case of an Hindu undivided family or firm or association of persons any measure of control and management within the taxable territories would make them resident, in the case of a company any measure of control and management of its affairs outside the taxable territories would make it non-resident. In construing the expression "control and management" It is necessary to bear in mind the distinction between doing of business and the control and management of business. Business and the whole of it may be done outside India and yet the control and management of that business may be wholly within India.

In this particular case considerable emphasis is placed upon the fact that the whole of the business of the company is done in Ceylon and the whole of the income which is liable to tax has been earned in Ceylon. But that is not a factor which the Legislature has emphasised. It is entirely irrelevant where the business is done and where the income has been earned. What is relevant and material is from which place has that business been controlled and managed. "Control and management" referred to in Section 4A(c) is, as we shall presently point out on the authorities, central control and management. The control and management contemplated by this Sub-section is not the carrying on of day to day business by servants, employees or agents.

The real test to be applied is, where is the controlling and directing power, or rather, where does the controlling and directing power function, or to put it in a different language, there is

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