SETHURAMAN J.

The Appellate Tribunal has referred the following question under s. 256(1) of the I.T. Act, 1961

"Whether, on the facts and in the circumstances of the case, the technical aid fee paid by the assessee to Joseph Lucas (Industries) Ltd. of the U.K. under the collaboration agreement dated May 4, 1966, is allowable as business expenditure or whether the whole or any part of it (not exceeding 50% thereof) is liable to disallowance as capital expenditure ?" *

The relevant assessment years are 1967-68, 1968-69 and 1969-70. The assessee carries on business in the manufacture and sale of brake equipments for automobiles including commercial vehicles. It commenced its business some time in 1963. For these assessment years, the question that arose for the consideration of the ITO was, whether the technical aid fee paid to M/s. Joseph Lucas under the agreement dated May 4, 1966, could be allowed in full. This agreement had the approval of the Govt. of India and was effective from January 1, 1966. But, under the direction of the Govt. of India, a, supplemental agreement on June 2, 1969, conferred retrospective effect to the agreement with effect from April 1, 1964. The