Rule 253 — Nature of business relationship. Made under s.515 of the Income-tax Act, 2025.
Rule 253 gives effect to Section 515 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule defines one expression. For the purposes of section 515(3)(b)(ii)(H), "business relationship" is to be construed as any transaction entered into for a commercial purpose, other than two carve-outs. Clause (A) excludes commercial transactions which are in the nature of professional services permitted to be provided by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949, and the rules or regulations made under those Acts. Clause (B) excludes commercial transactions that are conducted in the normal course of business of the company at a fair market price, such as the sale of products or services to the auditor as a customer in the regular operation of business, by companies involved in telecommunications, airlines, hospitals, hotels, and other similar industries.
Section 515(3)(b)(ii)(H) disqualifies a person from being an accountant where a business relationship exists, but a wide reading would disqualify an auditor for buying a phone connection or an air ticket from the client. The rule keeps the disqualification aimed at commercial dealings that could compromise independence, and takes out of it the auditor's own permitted professional work and ordinary arm's length consumer purchases from the client.
The starting definition is wide — any transaction entered into for a commercial purpose — and the two clauses are the only exits from it. Clause (A) protects only professional services the auditor or audit firm is permitted to provide, and the permission has to come from the Act or the Chartered Accountants Act, 1949, or the rules or regulations under them, so a service outside what is permitted is a business relationship and not saved by being professional in character. Clause (B) is conditional in two ways at once: the transaction must be in the normal course of the company's business and at a fair market price, so a concessional rate offered to the auditor takes the dealing out of the exclusion even in an industry the clause names. The list of industries is illustrative — the clause reads "and other similar industries" — and the example given is the auditor buying as a customer, which is why the direction of the dealing matters.
An audit firm audits an airline and its partners buy tickets from the airline at the published fare in the ordinary way. That is a commercial transaction in the normal course of the company's business at a fair market price and falls within clause (B), so it is not a business relationship for section 515(3)(b)(ii)(H). Had the airline given the firm a substantial concession not available to other customers, the fair market price condition would fail and the exclusion would not apply.
You meet it when an auditor's eligibility to sign a report under the Act is being checked, and in any challenge to a report on the ground that the signatory had a business relationship with the assessee.
the term "business relationship" shall be construed as any transaction entered into for a commercial purpose
commercial transactions that are conducted in the normal course of business of the company at a fair market price