Residence in India [Test for HUF/Firm/AOP etc.]

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Resident

A Hindu undivided family, firm, or association of persons etc. is resident in India if the control and management of its affairs is situated wholly or partly in India. But if the control and management is situated wholly outside India, then, a HUF, Firm, AOP etc. is to be regarded as non-resident. Since partial control is sufficient for the purpose of being resident, these forms of person may have in law two places of residence.

The residence of partners or of individual members of a Hindu undivided family or association of persons is immaterial for the purpose of determining the residence of the firm or the family or AOP except in so far as such residence affects the control and management of the affairs of the firm or the family.

The residence of partners in India normally raises the presumption that the firm is resident in India, but the presumption may be rebutted by showing that the control and management of the affairs of the firm is situated wholly outside India.

Not Ordinarily Resident

It may be noted that in order to determine whether a Hindu Undivided family is ‘not ordinary resident’, the residential status of the Karta of the family has to be considered on the basis of criteria laid down for individual under Clause (6)(b) to section 6.

Important Judicial Precedents & Board Circulars:

The leading case on the construction of section 6(2) is Subbayya Chettiar v. CIT, [1951] 19 ITR 168 (SC), which was concerned with the residence of a Hindu undivided family. In this case, the Supreme Court laid down the following proposition:

(i) Normally a Hindu undivided family is presumed to be resident in India unless assessee proves that the control and management of affairs is situated wholly outside India.

(ii) The word “affairs” in sub section (2) means affairs which are relevant for the purpose of this Act and which have some relation to the income sought to be assessed.

(iii) The seat of the management and control of the affairs of the family may be divided and if so, the family may have more than one residence.

(iv) If the seat of management and control is abroad, it would need much more than have ‘activities’ in India to support a finding that the seat of management and control has been started in India. Occasional or sporadic visit of a non-resident karta to the place where the family business is carried on in India, or causal directions given in respect of the business while on such visits would be insufficient to make the family resident in India.

So, the mere receipt in India, by the Karta or a partner of copies of the business books would not by itself amount to exercise of control. Nor is the business necessarily controlled and managed at the place where the accounts are submitted, and the division of profits decided on.

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