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TMI Blog1960 (10) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and in the circumstances of this case any profits or gains accrued or arose or could be deemed to have accrued or arisen to the non-resident on account of the business connection of the non-resident with the assessee during the previous year under consideration?" The facts giving rise to these references are not in dispute, and are similar except with this difference that in Income-tax Reference No. 11 of 1958, the non-resident is a Belgium firm (Comptoirs Lainiers Osterieth S.A. Anvers), whereas in Income-tax Reference No. 13 of 1958, it is an Italian firm (Filaturae Tessitura Di Tollegno, Biella). The alleged agent, who is sought to be taxed under section 42(1) of the Act for the income which has accrued to these non-resident firms from their business connection in India is the same, namely, R.D. Aggarwal & Co., Bazar Ghanta Ghar, Amritsar. This firm is constituted of two partners, Dev Raj Aggarwal and Shiv Narain Aggarwal, with equal shares. The only connection this partnership has with the non-resident companies is that they canvass orders for them and forward the same to them for compliance. The option to comply with them is solely with the non-resident companies. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am, Process server. March 31, 1954. Affixed in my presence. (Sd.) Chaudhary Charan Singh. (Sd.) Sant Lal Chug, I.T.I. March 31. 1954'." Statement of Bhagat Ram, process server. "Sir, It is submitted that a copy of the notice under section 34 has been affixed on the shop in the presence of Inspector Shri Sant Ram Chug. At that time, Illaqa Chaudhary was also present." The Income-tax Officer examined the Inspector and the Illaqa Chaudhary and Bhagat Ram, process server. Even though the Illaqa Chaudhary denied any knowledge of the affixation, the Income-tax Officer believed the factum of the affixation of the notice by the process server in the presence of the Inspector and the Illaqa Chaudhary, particularly in view of the attestation of the Illaqa Chaudhary made on the report of the process server. It appears from the record that Bhagat Ram, process server, was again examined at the instance of the assessee on January 5, 1955 and he stated that the notice was affixed on the office premises of the assessee and not at any other place. The contentions raised by R.D. Aggarwal and Company before the Tribunal were: "1. The notice dated March 29, 1954, has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee be estimated at 2 per cent. of the sales." On an application by Messrs. R.D. Aggarwal & Co., the Tribunal under section 66(1) of the Income-tax Act has stated three questions of law already set out in the earlier part of this opinion. So far as the first question is concerned, the learned counsel for the assessee did not press it. Its answer, therefore, must be returned in the affirmative. As we are of the view that the answer to the second question must be returned in the negative, the third question does not arise for our consideration. The reasons why the answer to the second question must be returned in the negative may now be stated. In order to fasten liability on the non-resident companies or their alleged agent, there has to be a "business connection" in the taxable territories (India) out of which the income sought to be taxed has accrued or arisen. What is the meaning and scope of the expression "business connection" has been the subject-matter of numerous decisions. It has been repeatedly held that this expression cannot be precisely defined, and the Legislature, in the words of Sir Iqbal Ahmed, C.J., in Hira Mills Ltd. v. Income-tax Officer, Cawnpore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Commissioner of Income-tax [1950] 18 ITR 423 , and by the Supreme Court in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax [1953] 23 ITR 101. So far as the present cases are concerned, they seem to be almost identical on facts with Hira Mills' case (supra) and in our view the observations in that case apply with full force to the present cases before us. It is for that reason that I have taken the liberty to quote in extenso from that decision. At page 430 of the report, while dealing with that case, the following observations occur: "The assessee, the Hira Mills Ltd., undoubtedly, by the means we have described, sold its cloth to the value of nearly five lakhs in British India during the accounting year. It had customers in British India. It traded with British India. We think, therefore, that there was a business in British India, in the limited sense that a substantial part of the assessee's output found its way into consumption in British India. The next question is whether there was a 'connection' between the assessee and that business. In one way there was an obvious connection in that the assessee was the maker of the goods which were e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch varies from 1½ per cent. to 2½per cent. As a matter of fact, the entire sale transaction is completed outside the taxable territories. The only part of the transaction which takes place in the taxable territories is the canvassing by the alleged assessee agent for the goods of the non-resident companies. Such a connection, which is of a very loose nature and has no firm basis, cannot, in our opinion, be held to be "business connection" within the meaning of section 42(1) of the Act. Mr. Awasthy strongly relied on the following observations of the Supreme Court in Anglo-French Textile Co.'s case (supra) at page 108: "...but when there is a 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 realises the profits, such relationship does constitute a business connection." In the first instance, these observations must be taken to be with reference to the peculiar facts of that case and have no general application. It would be of interest to note that after the aforesaid observations, their Lordships of the Supreme Court made a particular reference to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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