JUDGMENT

VENKATACHALIAH, J. :— This appeal by the assessee, the Alembic Chemical Works Co. Ltd., arises out of and are directed against the judgment dated 23-1-1974, of the High Court of Gujarat in Income-tax Reference 78 of 1970, answering in favour of the Revenue a question of law referred to it under Section 256(l) of the Income-tax Act, 1961, (Act) by the Income-tax Appellate Tribunal.

2. On 8-6-1961, the assessee, a company engaged in the manufacture of antibiotics and pharmaceuticals was granted licence for the manufacture, on its plant, of the well-known antibiotic, penicillin. In the initial years of its venture the assessee was able to achieve only moderate yields from the penicillin producing strains used by it which yielded only about 5000 units of penicillin per millilitre of the culture-medium.

In the year 1963, with a view to increasing the yield of penicillin, the assessee negotiated with M/s. Meiji Seika Kaisha Limited ("Meiji" for short), a reputed enterprise engaged in the manufacture of antibiotics in Japan, which agreed to supply to the assessee the requisite technical know-how so as to achieve substantially higher levels of performance of production - of more tha