The Supreme Court of India dismissed the Revenue’s appeals and upheld the finding that T.I. & M. Sales Ltd. had no business connection with the non-resident companies under Section 9 of the Income-tax Act, 1961, on the facts before the Court. The decision turned on where the transactions were made and whether the Indian company had authority to accept offers on the non-residents’ behalf—not on a universal rule for Indian intermediaries.
What the Supreme Court decided
In Commissioner of Income Tax, Calcutta v. T.I. & M. Sales Ltd., decided on 10 April 1987, the Supreme Court dismissed the Revenue’s appeals without costs. It affirmed the Calcutta High Court’s conclusion that T.I. & M. Sales Ltd. had no business connection with the non-resident companies for the relevant Section 9 assessment. The Court said whether a relationship amounts to a “business connection” under Section 163(1)(b), for liability under Section 9(1), depends on the facts of the particular case. Read the Supreme Court judgment.
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The case concerned ten non-resident companies for which the Indian company had been assessed as a representative assessee. The result is a case-specific holding, not a blanket exemption for an Indian company that introduces customers, handles communications, or lacks formal authority to sign a contract.
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The dispute involved three groups of non-resident companies. For Group A, the Indian company dealt through an exporting company rather than under direct agreements with the non-residents. Tax authorities relied in part on a 1948 agreement and commission arrangements in finding a business connection. T.I. & M. Sales contested that characterization and described a different course of dealing.
An affidavit from the company’s secretary, Carol Stuart Cameron, and other undisputed evidence described the transactions as follows:
- Procurement and manufacture took place outside India.
- Orders sent from India were accepted by the non-residents in London.
- T.I. & M. Sales had no authority to accept offers on the non-residents’ behalf.
- Contracting, payment, and delivery took place outside India.
The Revenue did not contradict the affidavit’s factual assertions. The Court treated the evidence about acceptance of orders and the company’s lack of authority as important to the High Court’s conclusion.
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Why the affidavit mattered—and the procedural caution
The Appellate Assistant Commissioner had rejected the assessee’s contentions, saying it had not proved its assertions and had obstructed inquiry. The secretary’s affidavit was later filed with the appeal to the Tribunal. Although the Tribunal upheld the assessments, it did not consider the affidavit relevant to whether T.I. & M. Sales could be appointed an agent under Section 163. The High Court relied on it in finding no business connection.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteThe Supreme Court held that the Tribunal was wrong to brush aside the affidavit: its factual contents bore directly on whether a business connection existed. But the Court also cautioned that, ordinarily, a High Court should not use an affidavit to make factual findings. If the affidavit needed to be considered to resolve disputed facts, the proper course would generally have been to send the matter back to the Tribunal.
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The Court did not remand this case. The Revenue had notice of the affidavit, did not contest its admissibility or contents, and had itself relied on it in argument. Given the age of the assessments, the Court declined to prolong the proceedings and dismissed the appeals.
What “business connection” means in this decision
The Supreme Court’s stated approach was fact-specific: “Whether a relationship would amount to ‘business connection’ as provided in section 163(1)(b) of the Income-tax Act of 1961 for the purpose of giving rise to liability under section 9(1) of the Act would depend upon a set of facts arising in a particular case.”
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In discussing the earlier decision Commissioner of Income-tax, Punjab v. R.D. Aggarwal & Co., the Court reproduced this formulation: “A relation to be a business connection must be real and intimate, and through or from which income must accrue or arise whether directly or indirectly to the nonresident.” The reproduced passage also treats continuity as relevant and says an isolated transaction is normally insufficient. This language comes from the precedent as quoted by the Court, rather than a new test created in T.I. & M. Sales.
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Applied to the record, the Court upheld the High Court’s finding in light of the foreign acceptance of orders, the Indian company’s lack of authority to bind the non-residents, and the uncontradicted evidence about where the commercial steps occurred. The existence of commission arrangements or other dealings did not, by itself, settle the question.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the ruling does—and does not—establish
What it establishes
- Whether a relationship is a business connection under the provisions considered is determined from the facts of the case.
- Evidence about where contracts are accepted and whether an Indian intermediary can accept offers for a non-resident can be material.
- A tribunal should not disregard evidence that directly bears on the statutory question.
What it does not establish
- It does not mean every Indian intermediary without formal contract-acceptance authority lacks a business connection.
- It does not make the location of contract acceptance the sole test; the Court emphasized assessment of the full facts.
- It does not, by itself, resolve the effect of later amendments or subsequent decisions on current Indian tax law.
The judgment is a historical interpretation of Sections 9(1) and 163(1)(b) in the context of the record before the Court. Anyone assessing present-day tax exposure should check the law and authorities applicable to the relevant tax year rather than treat this ruling as current tax advice.
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