Business connection and profit attribution can arise from systematic purchasing operations through an established agency in British India.

A continuous business relationship between a non-resident and an established agency in British India can amount to a business connection where the agency regularly and systematically carries out material procurement operations with skill, responsibility, and control over part of the business process. On the facts stated, the assessee's regular agency for buying raw materials in British India satisfied that test, and the connection was held established. Profits may also be reasonably attributed to operations in British India when the purchase of raw materials is a habitual and contributing stage in earning the profits. The Indian purchasing activity therefore justified apportionment of profits against the assessee.

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Issues: (i) Whether the assessee had a business connection in British India within the meaning of Sections 42(1) and 42(3) of the Indian Income-tax Act. (ii) Whether profits could reasonably be attributed to the purchase of cotton made in British India by the assessee's agents within the meaning of Sections 42(1) and 42(3) of the Indian Income-tax Act.

Issue (i): Whether the assessee had a business connection in British India within the meaning of Sections 42(1) and 42(3) of the Indian Income-tax Act.

Analysis: A business connection exists where there is a continuity of business relationship between the non-resident and the person in British India who helps to make the profits. Here, the assessee maintained a regular agency in British India for the purchase of the entire raw materials required abroad, and the agency was established and conducted on a continuing basis with skill, responsibility, and control over material business operations.

Conclusion: The existence of a business connection in British India was established, against the assessee.

Issue (ii): Whether profits could reasonably be attributed to the purchase of cotton made in British India by the assessee's agents within the meaning of Sections 42(1) and 42(3) of the Indian Income-tax Act.

Analysis: The purchase of raw materials by the agents in British India was a systematic and habitual business operation, not an isolated act. The statutory scheme permitted apportionment of profits attributable to operations carried out in British India, and the purchase activity formed one of the contributing stages in the earning of the profits.

Conclusion: Profits were rightly attributed to the purchase operations in British India, against the assessee.

Final Conclusion: The appeal failed on both substantive issues and the assessment based on apportionment of profits attributable to the Indian purchasing operations was sustained.

Ratio Decidendi: Under Sections 42(1) and 42(3) of the Indian Income-tax Act, systematic and habitual purchase operations carried on in British India through an established agency may constitute a business connection and justify attribution of a reasonable part of the profits to those operations.

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