COMMISSIONER OF INCOME-TAX, PUNJAB versus R. D. AGGARWAL & COMPANY

Citation: [1965] 1 S.C.R. 660 · Decided: 06-10-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

660 
COMMISSIONER OF Il'iCOME-TAX, PUNJAB 
v. 
R. D. AGGARWAL & COMPANY 
October 6, 1964 
(K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI JJ.) 
Income-tax Act, 1922 ( 11 of 1922), s. 42( I )-"Rusi11ess connection", 
meaning of-Assessee catn•assing orders for non-residents in Jaxable ltrri-
tories v.•ithout au1hority to accept orders-No other part in transaction 
-Relation v.·ith non-resident whether amounrs to business connection-
Jncome i11tended to be taxed under s. 42(1 )-Nature of. 
The assessees were a firm carrying on business as importers and com-
mission agents. 
They communicated orders canvassed by them from 
dealers in India to non-residents for acceptance; if a contract rcsu1tcd and 
the price was paid by the Indian dealers tv the non-resident exporters the 
assessees became entitled to a commission. 
In assessment proceedings the 
income of the assessecs v.·as computed by the addition of 5% of the net 
total value of the sale effected by the non-resident exporters in the previous 
year, because in the Income-tax Officer's \iew there subsisted a 'business 
connection' between the non-resident dealer and the assessecs. 
The appel-
late authorities upheld the said view. 
The High Court however held that 
there was no 'business connection' v.·itbin the meaning of s. 42( 1) between 
the assessces and the non-resident exporters. 
The Comn1issioner of 
Income-tax appealed to the Supreme Court by special leave. 
HELD (i) Section 42(1) of the Indian Income-tax Act, 1922, &eels 
to tax those profi!s of a non-resident which arise or accrue to him out1ide 
the taxable territories through or from a "business connection" \vithin the 
taxable territories. [665 C-E). 
(ii) "Business connce1ion" which is nor defined in the Act, may take 
several forms : it may include carrying on a part of the main husines., 
activity incidental to the main business of the non-resident through an 
agent, or it may merely be a relation between the business of the non-
resident and the activitv in the taxable territories which facilitates or as5iats 
the carrying on of that busine~. In each case the question whether 
there is a busineo;;s connection from or through v.·hich income proftt5 and 
gains arise or accrue to a non-resident must be determined upon the facts 
and circumstances of the case. 
[664 H; 665 BJ. 
(iii) The expression "busin~s connection" postulates a real and inti· 
mate relation between trading activity carried on outside the taxable terri-
tories and trading activity within the territories, the relation between the 
two contributing to the earning of income by the non-resident in his trading 
capacity. 
In the prCsent case, the activity of the assessee in procuring 
orders was not as agents of the non-resident in the matter of sate of goods 
manufactured by the latter nor of procuring raw materials in the taxable 
territories for their manufacturing process. Their activity only led to the 
making of offers by merchants in the taxable territories to purchase goods 
manufactured by the non-residents assessees. 
[669 G-H; 670 A]. 
Commissioner of Income-tax v. Remington Typewriters Co. Bombay 
Ltd. L.R. 58 I.A. 42, Commissiontr of Income-tax, Bombay Prtsidency 
and Aden v. Currimbhoy Ebrahim and Sons Ltd. L.R. 63 I.A. I. Bangalore 
Wool/en, Colton and Silk Mills Co. Ltd. v. Commissioner of Income-tax 
Mndra.<, (1950) 18 J.T.R. 423. Abdul/abhai Abdul Kadar v. Commissioner 
of Income-tax Bombay City, (1952) 22 l.T.R. 241, Anglo-Frtnch Textile 
A 
B 
c 
D 
F 
G 
H 
C.I.T. V. AGGARWAL & CO. (Shah J.) 
661 
A 
Company Ltd. v. Commissioner of Income-tax, Madras, [1953] 
S.C.R. 
454 and Hira Mills Ltd. Cawnpore v. Income-tax Officer, Cawnpore, 
(1946) 14 I.T.R. 417, considered. 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 808 and 
809 of 1963. 
Appeals by special leave from the judgment and order dated 
ll October 5, 1960, of the Punjab High Court in Income-tax Refer-
ence Nos. 11 and 13 of 1958. 
c 
D 
E 
F 
G 
H 
K. N. Rajagopala Sastri, R. H. Dhebar and R. N. Sachthey, 
for the appellant. 
Veda Vyasa and B. P. M aheshwari, for the respondents. 
The Judgment of the Court was delivered by 
Shah J. R. D. Aggarwal & Company-called for the sake of 
brevity 'the assessees'-are a registered firm having their place of 
business at Amritsar in the State of Punjab. 
The assessees carry 
on business as importers and as commission agents or non-resident 
exporters with two of whom we are concerned in these appeals. 
These two non-resident

Excerpt shown. Read the full judgment & AI analysis in Lexace.