Meaning of “In connection with”

The meaning of in connection with under section 37(3) & 9 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of in connection with.

Meaning of in connection with

The phrase “in connection with” used in section 37(3) & 9 of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble Karnataka High Court explained the meaning of ” in connection with ” while delivering judgment in Stumpp, Schuele And Somappa Ltd. Vs. CIT [1991] 190 ITR 152 (KAR.) as under :

Meaning: The expression ‘in connection with’ in section 37(3) includes matters occurring prior to as well as subsequent to or consequent upon, so long as they are related to the principal thing. In other words, whatever has nexus to the travel undertaken in connection with the work outside the headquarters resulting in the stay, such stay,

whether actual work in connection with company affairs was carried out or not, would be relatable to the travel undertaken which was undisputably in connection with the work of the company and, therefore, the only logical inference to be drawn is that the stay also was in connection with the work as it is intimately connected with the travel undertaken.

2.Hon’ble Delhi High Court explained the meaning of ” in connection with ” while delivering judgment in CGG Veritas Services, Sa Vs. Addl. DIT (International Taxation) [2012] 18 TAXMANN.COM 13/50 SOT 335 (DELHI) as under :

Meaning : The legislature has used two different expressions in section 44bb(1) and second limb of explanation 2 to section 9(1)(vii). In exclusionary clause of explanation 2 to section 9(1)(vii) the words used are ‘undertaken by the recipient’ whereas in section 44bb(1) the words used are ‘in connection with ……….’. The scope and import of both the expressions is different and does not mean the same.

The necessary condition to be satisfied for bringing the income under section 44bb(1) is that the services or facilities should be rendered in connection with prospecting for or extraction or production of mineral oils. However, in order to fall under exclusionary clause of explanation 2 to section 9(1)(vii), activities of ‘mining’ or a project similar to that should be undertaken by the assessee himself. Hence, the services rendered ‘in connection with ……’ cannot be read as ‘undertaken by the recipient’.

Section 37(3) of Income Tax Act

General.

(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.

Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

(2) [***]

(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.

(3) [***]

(3A) [***]

(3B) [***]

(3C) [***]

(3D) [***]

(4) [***]

(5) [***]

Updated up to Finance Act 2021.