s.6(2) and (4) — Residence of HUFs, firms, AOPs and every other person
A Hindu undivided family, firm, association of persons and every other person is resident in India unless the control and management of its affairs is situated wholly outside India during the year.
Income-tax Act, 1961
s.6(2) and (4)
Income-tax Act, 2025
s.6(9), (11) and (12)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 6(9) of the Income-tax Act, 2025, which governs tax year 2026-27 onwards, makes a Hindu undivided family, firm or other association of persons resident in India in any tax year unless the control and management of its affairs is situated wholly outside India during that year; section 6(11) applies the same rule to every other person, and section 6(12) makes a person resident for one source resident for all. A firm includes a limited liability partnership (section 2(45)), so such an LLP is tested by control and management and not by place of effective management. For years up to 2025-26 the same rules are section 6(2), section 6(4) and section 6(5) of the Income-tax Act, 1961, with the LLP within firm under section 2(23)(i). The operative words come from section 4A of the 1922 Act, introduced by the amending Act of 1939, and the decisions under it still govern. Control and management means the controlling and directive power, the head and brain, actually exercised, and it is de facto control and not the mere right to control (Nandlal Gandalal, Supreme Court, 21 April 1960; Bhimji Naik, Bombay High Court, 12 March 1946). Affairs means affairs relevant to income (Subbayya Chettiar, Supreme Court, 21 December 1950) and, for a family, affairs the family as such can control (Nandlal Gandalal, by majority). The word wholly makes residence the rule: the onus of proving that control was wholly outside India is on the assessee (Subbayya Chettiar; Erin Estate, Supreme Court, 22 April 1958), and control exercised in India to a small extent is enough if it is real and not illusory (Erin Estate), though an isolated or casual act of management by a karta living abroad is not (Patanjali Sastri J in the Madras High Court in Subbiah Chettiar, 22 August 1947, whose definition of control and management the Supreme Court adopted in Subbayya Chettiar). Only a family, through its manager, can also be not ordinarily resident.
What the provision does
Presumes residence for families, firms, LLPs, associations, bodies of individuals, trusts and other non-corporate persons, and lets the assessee escape it only by proving that every part of the real control of its income-related affairs was exercised outside India in the year. It does not turn on where the business is carried on, where the members live as such, or who holds the legal power; and it does not apply place of effective management to these assessees.
Threshold questions
- Is the assessee a Hindu undivided family, firm, LLP or association of persons, or a body of individuals, trust or other person under the residual limb
- What are the assessee's income-related affairs, and which of them can it as such control
- Where were the decisions on those affairs actually taken in the year, and by whom
- Was any control exercised in India real, or an isolated or casual act during a visit
- Has the assessee placed the correspondence and minutes on record to discharge the onus
In practice
The recurring disputes.
Whether one act of control in India makes the whole family or firm resident
The Revenue relies on Erin Estate, where the approval of the annual budget and instructions sent from India made a Ceylon estate firm resident although the extent of control was immaterial, and on Subbayya Chettiar's presumption and onus. The assessee relies on the same judgments' insistence that control must be actual and not illusory, on Patanjali Sastri J's statement that an isolated or casual act does not suffice, and on Bhimji Naik, where keeping in touch and the mere power of control were held not to be control. Our view is that the two lines are reconcilable, because the question is the character of the control and not its quantity: a pattern of real decisions taken from India on an income-related affair of the assessee as such makes it resident however small the share, while a one-off act during a visit, unconnected with any continuing direction from India, does not. Where the line falls on a given record is open.
Whether the affairs of a coparcener's partnership are the family's affairs
The majority in Nandlal Gandalal held that a partnership entered into by a coparcener with strangers is not an affair of the family which the family as such can control, so the family, whose business was carried on outside British India, was not resident although two of its coparceners were partners in a firm in Bombay. Hidayatullah J, dissenting, held the coparcener-partners' management in Bombay to be control of the family's affairs. Our view is that the majority binds, but the line between the family's own affairs and its members' separate engagements is drawn on the facts of each file.
Whose control decides the residence of a trust or an association
A trust is not named in section 6 of either Act; it falls under section 6(9) of the 2025 Act (section 6(2) of the 1961 Act) where assessed as an association of persons and otherwise under section 6(11) (section 6(4)). Where a trustee under a written instrument is assessed as a representative assessee under sections 303(1)(d) and 304(1) of the 2025 Act (sections 160(1)(iv) and 161(1) of the 1961 Act), in like manner and to the same extent as the person represented, whose status governs the charge is itself in issue, and that income cannot be assessed on him under any other provision (section 304(2) of the 2025 Act; section 161(2) of the 1961 Act). That rule applies subject to the other provisions of the Chapter. Where the income is not specifically receivable on behalf of any one person, or the beneficiaries' shares are indeterminate or unknown, as they are deemed to be unless the instrument of trust expressly states the beneficiaries and their shares and they are identifiable or ascertainable on its date, section 307(1) of the 2025 Act (section 164(1) of the 1961 Act) charges it at the maximum marginal rate or, in the cases listed in section 307(2) and in the first proviso to section 164(1), as the total income of an association of persons. On business income the Acts differ: section 307(3) of the 2025 Act has no non obstante clause and charges that rate on such income or part thereof, with section 307(4) applying the association of persons rate to the only will trust for a dependent relative; section 161(1A) of the 1961 Act applies notwithstanding section 161(1) and charges the whole of the income for which the trustee is liable at the maximum marginal rate, save for the only trust a person declares by will exclusively for a dependent relative. The Revenue will say that a trust within section 164(1) or section 307(1) is taxed as a unit; that section 164 (section 307), being within the Chapter, itself sets the charge without reference to any beneficiary's residence, which answers section 161(2); that where no beneficiary is identified there is no person represented whose status could measure the charge; that section 161(1A) applies notwithstanding section 161(1), and section 304(1)(b) of the 2025 Act is subject to the other provisions of the Chapter, including section 307(3), so that business income displaces the beneficiary's measure; and that control is wherever any trustee, settlor or protector in India in fact influenced the trust's decisions. The trust will rely on sections 161(1) and 161(2) (sections 304(1)(b) and 304(2) of the 2025 Act) to make the beneficiary the measure; on the persons represented being identified where the instrument names the beneficiaries, even if it leaves their shares to the trustees; on section 164(1) and section 161(1A) charging only income for which the trustee is liable as representative, so that they fix the rate and not the measure, a reading that section 307(3) of the 2025 Act, which has no non obstante clause, supports more plainly for business income; on its deed; on the decisions being taken abroad by the trustees; and on a protector's power being a power and not an act of control. Our view is that a trust with any trustee in India who actually takes part in decisions from India should expect to be held resident, while a protector's veto never exercised should not by itself place control in India; that the beneficiary's residence measures the charge where the instrument fixes the beneficiaries and their shares and the income is not business income or, under the 1961 Act, is business income of the only will trust for a dependent relative; that where the instrument identifies no beneficiary the trust's own residence under the control test is likely to decide; and that where the beneficiaries are named but their shares are left to the trustees, or a trust with fixed beneficiaries has business income (under the 1961 Act, other than that will trust), the question is whether section 164 or section 161(1A) (section 307(1) or section 307(3) of the 2025 Act) sets only the rate or also the measure, which we think is only the rate, the more plainly for business income under the 2025 Act, whose section 307(3) has no non obstante clause, though the file should meet the control test as well. The point remains open under both Acts.