Business connection and deemed agency under income-tax law extend to commission from sales through a controlled resident branch.

A resident branch may be deemed an agent of a non-resident for income-tax purposes even where no ordinary agency exists, because Sections 42 and 43 extend beyond strict common-law agency. The expression "business connection" covers a profit-making association in British India, not merely a creditor-debtor relationship or direct sale contract. On the stated facts, the non-resident firm controlled the Cawnpore branch, supplied goods for sale there, and the commission arose from sales effected in British India, so the right to commission was treated as accruing through that business connection.

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Issues: Whether the Cawnpore branch of the company could be treated as the agent of the non-resident firm within the meaning of Sections 42 and 43 of the Indian Income-tax Act, and whether the commission earned on sales in British India accrued or arose through a business connection in British India.

Analysis: The statutory scheme of Sections 42 and 43 permits a person to be deemed an agent for income-tax purposes even if not an agent in the ordinary legal sense. The expression "business connection" is not confined to a creditor-debtor relationship or to direct buying and selling alone, but denotes an association in a profit-making activity in British India. On the facts, the non-resident firm controlled the Cawnpore branch, supplied goods for sale there, and earned commission on the sales effected in British India. Although the commission became payable only after annual accounts were made up, the right to commission arose from and depended upon the sales made at Cawnpore.

Conclusion: The Cawnpore branch was rightly treated as the agent of the non-resident firm under Section 43, and the commission was income accruing or arising through a business connection in British India under Section 42.

Ratio Decidendi: Where a non-resident is associated with a resident branch in a profit-making commercial activity in British India, commission earned on sales made there accrues through a business connection and the resident branch may be deemed the non-resident's agent for taxation purposes.

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