Dipak Kumar Sen, J. - (1.) The facts material as on record in and the proceedings leading up to this reference are, inter alia, that N. V. Philips' Gloeilempenfabrieken, the assessee, which is a non-resident company incorporated in the Netherlands, entered into an agreement with one Crookes Interfran Ltd., an Indian company, in writing on July 8, 1964, under which the assessee agreed to furnish to the Indian company assistance and information at the disposal of the assessee in respect of working methods, manufacturing processes and methods of application relating to vitamin D to enable the Indian company to manufacture, use and sell vitamin D in India. The agreement provided, inter alia, that the assessee would provide to the Indian company the following data, assistance and information: (a) Drawings with detailed instructions and directions for a plant to be set up in the specified territory by the Indian company of an agreed capacity of production for the purpose of manufacturing vitamin D. (b) Data regarding working methods and manufacturing processes including indications, instructions, specifications, standards and formulae as also methods of analysis and quality control to enable the Indian company to start and carry on the manufacture of vitamin D with basic ingredients in an economical and efficient way. (c) In particular, the assessee would supply information relating to the processes of irradiation of basic materials, the purification thereof, solution in suitable solvents and conversion thereof into other compounds. (d) If required by the Indian company, further assistance and information relating to manufacture of a basic cholesterol compound at the disposal of the assessee. (e) Medical and other information relating to pharmacological and pharmaceutical properties of vitamin D at the disposal of the assessee. (f) Training of technicians of the Indian company in the factory of the assessee at Netherlands for the setting up of the plant in the specified territory or placing at the disposal of the Indian company a technical expert for erection and initial working of the plant. (g) Training of qualified staff members of the Indian company in the manner to be agreed upon for their being acquainted with the working methods and manufacturing processes of the assessee in respect of vitamin D. (h) Assistance to the Indian company in the initial costing of production and advice in respect of problems arising out of establishment, installation, running and administration of the plant. (i) Analysis in the laboratories of the assessee in Netherlands, of samples of the products of the Indian company free of charge of each batch of production by the Indian company in quantities as might be agreed upon from time to time. (j) Salaries, costs and expenses incurred for making available experts and training by the assessee of the members of the Indian company would be borne by the latter. (k) The Indian company would pay to the assessee in consideration of the technical assistance and information as above, 5% of the net selling price of vitamin D manufactured and sold by the Indian company subject to taxation under the Indian law. (l) The agreement would remain in force for 10 consecutive years and would continue for a further one year unless terminated by either party on six months' previous notice in writing.
(2.) Crookes Interfran Ltd. subsequently came to be known at Duphar Interfran Ltd.
(3.) In the assessment years 1973-74 and 1974-75, the corresponding accounting years ending on the 31st December of the calendar years 1972 and 1973, the assessee received from Duphar Interfran Ltd. Rs. 31,080 and Rs. 26,475, respectively, under the said agreement.;