The existence of a "business connection" under Section 42 of the Indian Income Tax Act, 1922, and Section 9 of the Income Tax Act, 1961, requires the Indian assessee to have the authority to accept offers or to enter into contracts on behalf of the non-resident companies.

( 1 ) THIS reference under Section 256 (1) of the I. T. Act, 1961, arises out of 56 applications regarding assessments of T. I. and M. Sales Ltd. , hereinafter called the "indian company", treating it as an agent of a number of non-resident companies. Here we are concerned with eight companies, six of them have been described as "group A" companies, and two as "group B" companies. The Indian company had no direct agreement with the Group "a" companies but had dealings with them by virtue of an agreement with T. I. Export Ltd. , hereinafter referred to as the "export Company".

( 2 ) THE Group "b" companies are those with whom the Indian company had direct agreements. When the Tribunal heard the appeal, there were three Group B companies. We now have before us only two of them. The third company, viz. , M/s. Geo Tucker Eyelet Co. Ltd. , has been found by the Tribunal to be non-taxable in India and the Tribunal's decision is accepted by the Department. The Tribunal has also dealt with the consequences of the agreement with the Export company as well. But that does not form the subject-matter of the present reference.

( 3 ) LET us at the outset set out the relevant provisions of the statute. Section 3 of the Indian I. T. Act, 1922, is the charging section. Under Section 4, incomes which are received or which accrue or arise or are deemed to be received, to accrue or to arise in taxable territories during a year are taxable. In the instant case, it is common ground that, so far as the assessee is concerned, no income was received nor did any income accrue in India. The question is whether any income should be deemed to have been received or deemed to accrue. Section 4 (1) (c) also provides that if the person to be assessed is a non-resident in the taxable territories during the assessment year in question, the income which arises or accrues or is deemed to accrue or arise to him in the taxable territories would also be taxed here.

( 4 ) WE now come to Section 42 of the 1922 Act. The relevant provisions are as follows:" 42. Income deemed to accrue or arise within the taxable territories.--All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories. . . . . . . . . shall be deemed to be income accruing or arising within the taxable territories and where the person entitled to the income, profits or gains is not resident in the taxable territories, shall be chargeable to income tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of, this Act, the assessee in respect of such income-tax. . . . . . . . . (3) In the case of a business of which all the operations are not carried out in the taxable territories, the profits and gains of the business deemed under this section to accrue or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. "

( 5 ) THEN comes Section 43, which runs as follows :"43. Agent to include persons treated as such.--Any person employed by or on behalf of a person residing out of the taxable territories, or having any business connection with such person, or through whom such person is in the receipt of any income, profits or gains upon whom the Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the non-resident person shall, for all the purposes of this Act, be deemed to be such agent. . . . . . . "

( 6 ) NOW, the problems that arise for our consideration in this reference are : (a) whether the Indian company had any business connections within the meaning of Section 42 (1), (i) with Group A companies, and (ii) with Group B companies, and (b) whether, if such business connections existed, any part of the operations of such business was carried out in the tax