Business connection requires a real and continuous link; free-lance canvassing alone does not satisfy section 42(1).

A mere canvassing of orders by a resident, without appointment as agent, without control by the non-resident, and without a real and continuous business relationship, does not create a business connection under section 42(1) of the Indian Income-tax Act. Because the assessee acted only as a free-lance broker and the sales transaction was completed outside the taxable territories, the non-resident's income could not be treated as accruing or arising through a business connection. The relationship therefore fell outside the statutory deeming provision, and the issue was decided in favour of the assessee.

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Issues: Whether the relationship between the assessee and the non-resident constituted a business connection within the meaning of section 42(1) of the Indian Income-tax Act.

Analysis: Liability under section 42(1) requires a business connection in the taxable territories from or through which the non-resident's income can be said to have accrued or arisen. A mere canvassing of orders by a resident, without appointment as an agent, without control by the non-resident, and without a real and continuous business relationship, is too loose and indirect a link to satisfy that requirement. On the facts, the assessee functioned only as a free-lance broker and the sales transaction was completed outside the taxable territories. The relationship did not amount to the kind of business connection contemplated by the provision.

Conclusion: The relationship was not a business connection under section 42(1), and the answer on this issue was in favour of the assessee.

Ratio Decidendi: A resident who merely canvasses orders as a free-lance broker, without being appointed as an agent or subject to the non-resident's control, does not create a business connection for the purpose of deeming the non-resident's income to accrue or arise in the taxable territories.

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