Rule 253: Meaning of business relationship for section 515(3)(b)(ii)(H)
Rule 253 explains what "business relationship" means for section 515(3)(b)(ii)(H). It is any transaction entered into for a commercial purpose, except two kinds: professional services an auditor or audit firm is permitted to provide, and ordinary-course transactions of the company at fair market price, such as selling products or services to the auditor as a customer.
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Bare law
Rule 253 - Nature of business relationship
For the purposes of section 515(3)(b)(ii)(H), the term "business relationship" shall be construed as any transaction entered into for a commercial purpose, other than —
(A) 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 (38 of 1949) and the rules or regulations made under the said Acts; and
(B) 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.
Rule breakdown
The general rule
A "business relationship" is any transaction entered into for a commercial purpose.
Two exclusions
Professional services that an auditor or audit firm is permitted to provide under the Act and the Chartered Accountants Act, 1949 and the rules or regulations under them.
Transactions in the normal course of the company's business at a fair market price, such as sales of products or services to the auditor as a customer by companies in telecommunications, airlines, hospitals, hotels and similar industries.
Practical check
List every transaction between the company and the auditor or audit firm.
Remove permitted professional services and ordinary customer transactions at fair market price.
What remains is a "business relationship" for section 515(3)(b)(ii)(H).
Key takeaways
Broad meaning
Any commercial transaction is a business relationship unless excluded.
Audit services excluded
Permitted professional services by the auditor are excluded.
Ordinary sales excluded
Normal-course sales at fair market price are excluded.
Practical checklist
- Document that customer transactions with the auditor were at fair market price and in the normal course.
Avoid
- Do not treat a special-terms commercial arrangement with the auditor as excluded merely because it is small.
FAQs
Is buying an airline ticket from the client a business relationship?
Rule 253(B) excludes transactions in the normal course of business at fair market price, such as an airline selling services to the auditor as a customer.
Are permitted audit-related services a business relationship?
No. Professional services permitted to an auditor under the Act and the Chartered Accountants Act, 1949 are excluded (Rule 253(A)).
Which provision uses this definition?
Section 515(3)(b)(ii)(H).
Glossary
- Business relationship
- Any transaction entered into for a commercial purpose, other than the two exclusions in Rule 253.
- Fair market price
- The price at which the company sells in its regular operations, which is relevant to exclusion (B).