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Issues Involved:
1. Jurisdiction of the Tribunal in referring the question to the court. 2. Nature of the amounts received by the English company from the Indian company under the agreement dated 29th January, 1957. 3. Whether the payments constituted income assessable to tax. Summary: 1. Jurisdiction of the Tribunal: The Tribunal referred a single question to the court u/s 256(1) of the I.T. Act, 1961, despite the Revenue's application for four different questions. The court found no lack of jurisdiction in the Tribunal's action. 2. Nature of the Amounts Received: The case involved four assessment years (1965-66 to 1968-69) and the corresponding accounting periods. The English company, a non-resident entity, held 51% shares in the Indian company and maintained extensive technical research establishments in the UK. The agreement dated 29th January, 1957, between the English and Indian companies provided for the communication of information, processes, and inventions by the English company to the Indian company. The Indian company paid the English company 0.67% of its sales towards proportionate costs and expenses, as permitted by the Government of India. 3. Assessability of Payments as Income: The ITO treated the payments as royalty and assessed them as income, allowing 55% of the gross amount as expenditure and treating the balance as income. The AAC upheld this view, considering the payments as royalty for using capital assets. However, the Tribunal, after examining the agreement and the auditor's certificate, concluded that the payments were merely a recoupment of expenses incurred by the English company and did not constitute income. The Tribunal noted that the payments were for sharing research expenses and not for acquiring technical know-how or royalty. The court agreed with the Tribunal's view, emphasizing that the payments were for sharing research expenses and not for acquiring or using capital assets. The restriction of 0.67% on the turnover was due to government regulations. Thus, the amounts received by the English company did not constitute income assessable to tax. Conclusion: The question referred to the court was answered in the negative and in favor of the assessee. The parties were directed to bear their own costs.
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