Business Connection: procuring orders alone does not create taxable business connection; agents' limited activities do not attribute non-resident profits.

Section 42(1) was construed to require a real and intimate relation, ordinarily with continuity, between a non-resident's outside-business activity and local activity that directly or indirectly contributes to profit-earning; mere local procurement of orders or communication of offers, without authority to conclude contracts, handle receipts or procure raw materials, does not create that business connection and therefore does not permit charging the non-resident's profits to tax in the agent's name under the domestic assessment machinery. The operative effect is that agents limited to procuring offers do not attract attribution of the non-resident's profits for taxation.

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Issues: Whether the relationship between the non-resident exporters and the agents in the taxable territories constituted a "business connection" within the meaning of section 42(1) of the Income-tax Act, 1961, such that income of the non-residents could be charged to tax in the taxable territories in the name of their agents.

Analysis: Section 42(1) brings within the taxable net income accruing or arising through or from any business connection in the taxable territories; section 40(2) provides the machinery to assess an agent of a non-resident in respect of income the agent receives or is entitled to receive on behalf of the non-resident. The expression "business connection" is not coextensive with "business" and requires a real and intimate relation, ordinarily involving an element of continuity, between the non-resident's business activity outside the taxable territories and activity within the taxable territories which contributes directly or indirectly to the earning of profits by the non-resident. Precedents distinguish cases where operations in the taxable territories (such as continuous procurement of raw materials, banking of collections, purchase or delivery operations) form part of the non-resident's business from cases where local activity is limited to canvassing orders or communicating offers which the non-resident may accept or reject. Where contracts are made, prices received and deliveries effected outside the taxable territories and the local activity is limited to procuring offers without authority to conclude contracts or to procure raw materials or handle sale proceeds, the necessary real and intimate connection and continuity to constitute a "business connection" under section 42(1) is absent.

Conclusion: The relation consisting solely of procuring orders (offers) by local agents, where contracts are concluded, prices received and deliveries effected outside the taxable territories and the agents lack authority to accept contracts or to handle the non-resident's receipts or purchases in the taxable territories, does not constitute a "business connection" within section 42(1) of the Income-tax Act, 1961; accordingly no part of the non-residents' profits can be charged to tax in the name of the agents on that basis.

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