The control and management contemplated by the section evidently refers to the controlling and directing power. Often enough, this power has been described in judicial decisions as the 'head and brain' ; the affairs of the firm which are subject to the said control and management refer to the affairs which are relevant for the purpose of taxation and so they must have some relation to the income of the firm.

SETHURAMAN J.

This reference relates to the assessment years 1958-59 and 1959-60. There are two sets of questions for the two years. We would reproduce the questions relating to the assessment year 1958-59 as the questions for 1959-60 are identical. The relevant questions for 1958-59 are

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee should be assessed as a non-resident for the assessment year 1958-59 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding and had valid materials to hold that the management and control of the firm was wholly outside India during the accounting year relevant for the assessment year 1958-59 ?

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty levied under section 271(1)(c) for the assessment year 1958-59 ?" *

It is not in dispute that the question of penalty is completely dependent upon the answer to the reference on the assessment. If the answer is favourable to the assessee, then the penalty would have to be deleted

One Subbaraya Mudaliar was carrying on the business of purchase and sale of textile goods at Penang and Ipoh in the Federal Malay States under the name and style of Chitra Palayakat Co. as a sole proprietor till April 12, 1950. He converted this individual business into a partnership business by taking Kumaresa Mudaliar and Thayumanaswamy Mudaliar as partners under a deed dated October 20, 1950. Kumaresa was to be the general manager of the business at Penang, Ipoh and other places. On July 14, 1953, there was another partnership deed which provided that Subbaraya should attend to the management of the business as the managing partner. Clause 8 of the said deed authorised Subbaraya to appoint any person as his duly constituted attorney for exercising all or any of his rights and powers and discharging and carrying out the duties and obligations of the managing partner. Most of the purchases were effected from a firm in Madras called the City Palayakat Co. of which Subbaraya was one of the partnersThe Malaya firm claimed that it was a non-resident, that the income of the firm accrued outside India and that the income was, therefore, not taxable in India. The Income-tax Officer completed the assessment for the two years accepting the assessee's claim. Subsequently, he reopened the assessment because Subbaraya, one of the partners of the assessee-firm, was in India during the relevant previous years and he was of the view that Subbaraya had exercised de facto control over the business of the assessee-firm in India. Accordingly, he initiated proceedings under section 147(1) of the Income-tax Act, 1961 ("the Act"). The assessee did not dispute that Subbaraya was in India during the period from May 21, 1957, to July 29, 1958. It was, however, contended that he had come to India for the purpose of celebrating the marriage of his daughter, that he had executed a general power of attorney in favour of Palaniswamy for carrying on the business in Penang and that he did not attend to the business of the assessee-firm while in India. The assessee was required to produce the tapal register maintained by it. The reply of the assessee was that it had not maintained tapal registers. But it produced the press copy book. The Income-tax Officer noticed that almost the entire sales of the Madras firm for the years under consideration had been made only to the assessee-firm and that Subbaraya was in control and management of the Madras firm. He, therefore, concluded that Subbaraya was in de facto control of the assessee-firm during the period of his stay in India. He further noticed that Thayumanaswamy, another partner, had been assessed for the two years under consideration as a resident and ordinarily resident and his share income from the assessee-firm was also taken to be earned income and asses