Law:

Section:

JUDGMENT Ismail, J.—At the instance of the Commissioner of Income-tax, Madras, the Income-tax Appellate Tribunal, Madras Bench, under section 256(1) of the Income-tax Act, 1961, has referred the following questions of law, arising out of the order of the Tribunal dated December 31, 1971, relating to the four assessment years 1964-65 to 1967-68 for the opinion of this court: "(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the disputed 50% of the technical aid fees to Messrs. Joseph Lucas (Industries) Ltd., England, was revenue expenditure and, therefore, liable to be allowed as deduction from the income of the assessee? (2)Whether, on the facts and in the circumstances, the Appellate Tribunal was right in law in holding that the initial depreciation should not be deducted in determining the written down value of assets for computation of capital employed in the newly established industrial undertaking under rule 19 of the Income-tax Rules, 1962?" The assessee is a limited company engaged in the manufacture of electrical equipments like generators, starters, regulators, etc., and distributors for commercial vehicles, tractors, cars and motor cycles. It entered into a technical collaboration agreement dated June 6, 1962, with a foreign company, Messrs. Joseph Lucas (Industries) Ltd., England, hereinafter referred to as the foreign company. The foreign company granted to the assessee the exclusive right and licence to make, use, exercise and vend items of the electrical equipment for vehicles and engines and service tools. The agreement which has been annexed to the statement of the case marked annexure "A" contains several clauses which will give a clue as to the nature of the arrangement arrived at between the parties. In the agreement the foreign company is termed as "the grantor" and the assessee is termed as "the licensee". It also refers to the fact that the grantor is registered as proprietor of or has rights (including the right to sub-licence) in the patents effective in the licensed territory, meaning the geographical area of India. Such registered patents have been referred to in the…

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