Business connection in British India brought non-resident bank profits to tax, with resident bank treated as agent.

Profits of a non-resident bank were treated as accruing through a real business connection in British India under Section 42(1) of the Income-tax Act, 1922, even though the loans were negotiated outside British India and routed through branch operations. The Privy Council held that the statutory language was wide enough to cover indirect accrual through a genuine business connection, and the facts showed that the loans would not have been made but for that connection between the banks. Once that link was established, the resident bank was correctly treated as the agent of the non-resident bank under Section 43 as a statutory consequence.

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Issues: Whether the profits from the six loan items accrued or arose to the non-resident bank directly or indirectly through or from a business connection in British India within Section 42(1) of the Income-tax Act, 1922, and whether the resident bank was rightly treated as its agent under Section 43.

Analysis: The arrangement showed that the two banks were controlled by the same family and that the lending transactions were carried out through their branches as parts of the respective banks, not as separate legal entities. The Court rejected the contention that the case must fail because the loans were negotiated outside British India, holding that the statutory words were wide enough to cover profits accruing through a business connection existing in British India. On the facts, the Pudukottai Bank had a real business connection with the Kanadukathan Bank in British India, the loans could not have been made but for that connection, and the profits from the assessment in question accrued through it. Once that conclusion was reached, the treatment of the resident bank as agent under Section 43 followed as a statutory consequence.

Conclusion: The profits were held to have accrued through a business connection in British India, and the resident bank was validly treated as agent of the non-resident bank.

Ratio Decidendi: For Section 42(1) of the Income-tax Act, 1922, profits of a non-resident are taxable where they accrue directly or indirectly through a real business connection in British India, even if the immediate transactions are routed through branches or are negotiated outside British India; the agency machinery in Section 43 then applies.

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