Isolated loan transactions do not create business connection or statutory agency for taxing a non-resident's income.

An isolated loan transaction by a resident debtor to a non-resident creditor does not, by itself, create a business connection in British India under Section 42 of the Indian Income-tax Act, 1922. The debt was treated as a chose in action, not property in British India, so interest on the loan was not brought to tax on that basis. A debtor who merely pays interest is also not a person "through whom" the non-resident receives income for Section 43 purposes. Accordingly, the borrower could not be treated as the non-resident's statutory agent for assessment of the non-resident's other income in Bombay.

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Issues: (i) Whether interest paid on a single loan advanced by a non-resident could be treated as income accruing or arising through a business connection in British India under Section 42 of the Indian Income-tax Act, 1922, and whether the debt constituted property in British India for that purpose; (ii) whether the borrower could be treated as an agent of the non-resident under Section 43 of the Indian Income-tax Act, 1922 merely because interest was paid to him, so as to render the borrower liable for tax on the non-resident's other income in British India.

Issue (i): Whether interest paid on a single loan advanced by a non-resident could be treated as income accruing or arising through a business connection in British India under Section 42 of the Indian Income-tax Act, 1922, and whether the debt constituted property in British India for that purpose.

Analysis: A business connection requires more than an isolated lending transaction and must relate to a business carried on by the non-resident in British India. A mere loan by a wealthy person does not amount to money-lending business, and the borrower's use of the money for its own business does not create a business connection with the lender. The debt itself was treated as a chose in action and not tangible property in British India; on the reasoning adopted, the expression "property" in the section was not wide enough to include a mere debt.

Conclusion: The issue was answered against the assessee. The interest was not chargeable under Section 42 on the footing of a business connection or property in British India.

Issue (ii): Whether the borrower could be treated as an agent of the non-resident under Section 43 of the Indian Income-tax Act, 1922 merely because interest was paid to him, so as to render the borrower liable for tax on the non-resident's other income in British India.

Analysis: The statutory phrase "through whom" was construed reasonably and was not equated with "from whom". A debtor who merely pays interest to a non-resident is not, without more, a person through whom the non-resident is in receipt of income. The borrowing company was only a debtor and did not fall within the class of persons who may be appointed as statutory agents under Section 43; consequently, it could not be assessed in respect of the non-resident's palace income merely by reason of the loan transaction.

Conclusion: The issue was answered against the assessee. The borrower was not liable to be treated as the non-resident's agent under Section 43 for the purpose of assessing the non-resident's other property income in Bombay.

Final Conclusion: The reference was decided in favour of the Revenue on both questions, and the objections raised by the assessee failed.

Ratio Decidendi: An isolated loan transaction between a resident debtor and a non-resident creditor does not by itself create a business connection, and a mere debtor is not a person through whom the non-resident is in receipt of income for purposes of statutory agency under the Act.

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