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TMI BlogIncome accruing or arising through or from business connection in India - Non-residents - Liability to tax under clause (i) of sub-section (1)X X X X Extracts X X X X X X X X Extracts X X X X ..... ible in his total income. Clarifications issued in the past by the Board on the scope of the provisions of section 42 and their applicability in certain types of cases, are hereby consolidated and restated for the information and convenience of the public. 2. The expression 'business connection' limits of no precise definition. The import and connotation of this expression has been explained by the Supreme Court in their judgment in C.I.T. v. R.D. Aggarwal and Co. and another, [56 I.T.R. 20] = 1964 (10) TMI 9 - SUPREME COURT. The question whether a non-resident has a 'business connection' in India from or through which income, profits or gains can be said to accrue or arise to him within the meaning of section 9 of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at prices which would be normally chargeable to other customers; (c) the non-resident exercises no control over the business of the resident and sales are made by the latter on his own account, or (d) the payment to the non-resident is made on delivery of documents and is not dependent in any way on the sales to be effected by the resident, it can be inferred that the transactions are on the basis of principal-to- principal. (ii) A question may arise in the above type of cases whether there is any liability of the non-resident under section 5(1)(a) of the Income-tax Act, 1961, on the basis of receipt of sale proceeds including the profit in India. If the non-resident makes over the shipping documents to a bank in his own country whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed to accrue or arise in India under section 9, provided that (a) the contracts to sell are made outside India, (b) the sales are made on a principal-to-principal basis and at arm's length and (c) the subsidiary does not act as an agent of the parent. The mere existence of a "business connection" arising out of the parent subsidiary relationship will not give rise to an assessment, nor will the fact that the parent company might exercise control over the affairs of the subsidiary. (3) Sale of plant and machinery to an Indian importer on instalment basis.- Where the transaction of sale and purchase is on a principal-to-principal basis and the exporter and the importer have no other business connection, the fact that the exporter allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been derived by the resident person from that business and include such amount in the total income of the resident person. (6) Sales by a non-resident to Indian customers either directly or through agents.- (a) Where a non-resident allows an Indian customer, facilities of extended credit for payment, there would be no assessment merely for this reason provided that (i) the contracts to sell were made outside India and (ii) the sales were made on a principal-to-principal basis. (b) Where a non-resident's sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent's s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the person in India who helps to make the profits and the person outside India who receives or realises the profits, is necessary. Where all that has happened is that a few transactions of purchases of raw materials have taken place in India and the manufacture and sale of goods have taken place outside India, the profits arising from such sales cannot be considered to have arisen out of a business connection in India. Where, however, there is a regular agency established in India for the purchase of the entire raw materials required for the purpose of manufacture and sale abroad and the agent is chosen by reason of his skill, reputation and experience in the line of trade, it can be said that there is a business connection in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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