Meaning of “Business connection”

Case Name : Cit vs. Currimbhoy ebrahim & sons ltd. 

Citation : [1935] 3 ITR 395 (pc)

Court : Pondicherry high court

Section : 9

Meaning : The phrase ‘business connection’ is different from, though doubtless not unrelated to, the word ‘business’ of which there is a definition in the act.

Case Name : Anglo-french textile co. Ltd. Vs. Cit 

Citation : [1953] 23 ITR 101 (sc)

Court : Supreme court

Section : 9

Meaning : An isolated transaction between a non-resident and a resident in british india without any course of dealings which might be described as a business connection, does not attract the application of section 42 of the 1922 act [corresponding to section 9(1)(i) of the 1961 act], but when there is continuity of business relationship between the person in british india who helps to make the profits and the person outside british india who receives or realizes the profits, such relationship does constitute a business connection.

Case Name : CIT vs. R.D. Aggarwal & co. 

Citation : [1965] 56 ITR 20 (sc)

Court : Supreme court

Section : 9

Meaning : The expression ‘business connection’ occurring under section 42 of the 1922 act undoubtedly means something more than ‘business’. The expression ‘business connection’ postulates a real and intimate relation between the trading activity carried on outside the taxable territories and the trading activity within the territories, the relation between the two contributing to the earning of income by the non-resident in the trading activity.

Case Name : Barendra prasad ray vs. ITO

Citation : [1981] 129 ITR 295 (sc)

Court : Supreme court

Section : 9

Meaning :  In the context in which the expression ‘business connection’ is used in section 9(1), there is no warrant for giving a restricted meaning to it by excluding ‘professional connection’ from its scope.

Case Name : CIT vs. Metro goldwyn mayer (india) ltd. 

Citation : [1939] 7 ITR  176 (bom.)

Court : Bombay high court

Section : 9

Meaning : The words ‘business connection’ denote some element of continuity in the relationship between the person in india who makes the profits and the non-resident who receives them. A single transaction would not fall within the purview of section.

Case Name : Bikaner textile merchants syndicate ltd. V. Cit

Citation : [1965] 58 ITR 169 (raj.)

Court : Rajasthan high court

Section :

Meaning : The expression ‘business connection’ in section 42(1) of the 1922 act is an expression of ‘wide and indefinite import’ and that expression is different from, though undoubtedly related to, the expression ‘business’ as defined in the act. A business connection of the nature contemplated in sub-section (1) of section 42 is a relationship which connotes some element of continuity between the person in british india who helps to make the profits and the person outside british india who receives or realises the profits. An isolated transaction between a non-resident and a resident in british india, without any course of dealings which could be described as a business connection, does not attract the operation of section 42.

Case Name : Blue star engg. Co. (Bombay) (p.) Ltd. V. Cit 

Citation : [1969] 73 ITR  283 (bom.)

Court : Bombay high court

Section : 9

Meaning : In order to constitute a ‘business connection’ as contemplated by section 42 of the 1922 act, there must be an activity of the non-resident in the taxable territories having an intimate and real relation of a continuous character with the business of the non-resident and contributing to the earning of profits by the non-resident in his business. The business connection must undoubtedly be a commercial connection but all commercial connections will not necessarily constitute business connection within the meaning of the concept unless the commercial connection is really and intimately connected with the business activity of non-resident in the taxable territories and is contributory to the earning of profits in the said trading activity.

Case Name : Advance ruling p. No. 8 Of 1995, in re 

Citation : [1997] 90 taxman 47/223 ITR 416 (aar – new delhi)

Court :  AAR

Section : 9

Meaning : The term ‘business connection’ used in the section has not been defined in the act. However, the term has been the subject-matter of interpretation by various courts. The scope of the expression ‘business connection’ has been explained by the supreme court in cit v. R.D. Aggarwal & co. [1965] 56 Itr 20. The expression ‘business connection’ means something more than a business. It presupposes an element of continuity between the business of the non-resident and the activity in the taxable territory. A stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms; it may include carrying on part of the main business or activity incidental to the non-resident through an agent or it may merely be a relation between the business of the non-resident and the activity in the taxable territory which facilitates or assists the carrying on of that business. A relation to be a ‘business connection’ must be real and intimate and through or from which income must accrue or arise whether directly or indirectly to the non-resident.

Case Name : CIT (international taxation) vs. Nike inc. 

Citation : [2013] 34 Taxmann.Com 170/217 taxman 1 (kar.)

Court : Karnataka high court

Section : 9

Meaning : Now by explanation 2 to section 9(1)(i) business connection has been explained, which includes any business activities carried out by a person who, acting on behalf of the non-resident, has and habitually exercises in india, an authority to conclude contracts on behalf of non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident. If the said definition is read with explanation 1(b) to section 9(1)(i), in the case of a non-resident, no income shall be deemed to accrue or arise in india to him whether directly or indirectly through or from any business connection, which is confined for the purpose of export.

Case Name : Addl. Dit (it) vs. Jet airways (india)(p.) Ltd. 

Citation : [2012] 19 Taxmann.Com 37/50 sot 543/148 ttj 298 (mum.)

Court : Mumbai high court

Section : 159 to 179

Meaning : Explanation to section 163(1) lays down that the expression ‘business connection’ shall have the meaning assigned to it in explanation 2 to clause (i) of sub-section (1) of section 9. This explanation was inserted by the finance act, 2003 with effect from 1-4-2004. Explanation 2 to clause (i) of sub-section (1) of section 9 was also simultaneously inserted by the finance act, 2003, with effect from 1-4-2004. The explanation to section 163(1) and explanation 2 to section 9(1)(i), which are applicable only from 1-4-2004, would not be relevant for the case, which relates to assessment year 1998-99. Even as per the explanation 2 to section 9(1)(i), the expression ‘business connection’ has only been defined to include certain business activity. The expression ‘business connection’ cannot, therefore, be confined to only business activity as mentioned in explanation 2 to section 9(1)(i). Therefore, the expression ‘business connection’ as used in section 163(1)(b) and section 9(1)(i) has also to be understand as it was explained in various decided cases, prior to the insertion of the aforesaid explanation.

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