Microsoft Regional Sales Corporation, Gurgaon v. DDIT, New Delhi

ITA 5478/DEL/2011 | 2008-2009
Pronouncement Date: 29-02-2012 | Result: Allowed

Appeal Details

RSA Number 547820114 RSA 2011
Assessee PAN AADCM1638A
Bench Delhi
Appeal Number ITA 5478/DEL/2011
Duration Of Justice 2 month(s) 22 day(s)
Appellant Microsoft Regional Sales Corporation, Gurgaon
Respondent DDIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-02-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 29-02-2012
Date Of Final Hearing 14-02-2012
Next Hearing Date 14-02-2012
Assessment Year 2008-2009
Appeal Filed On 07-12-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NOS. 5477 & 5478/DEL/2011 ASSESSMENT YEAR: 2007-08 & 2008-09 MICROSOFT REGIONAL SALES CORPORATION VS. DEPUTY DI RECTOR OF IT C/O S.R. BATLIBOI & CO GOLF VIEW CIRCLE 3(2) CORPORATE TOWER B SECTOR 42 NEW DELHI SECTOR ROAD GURGAON (HR.) (PAN: AADCM1638A) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI NAGESHWA R RAO & MRS. PRITY GOEL ADVOCATES RESPONDENT BY: SHRI DK GUPTA C IT(DR) DATE OF HEARING : 14.02.2012 DATE OF PRONOUNCEMENT : 29.02.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF ASSESSEE AGAINST THE SEPARATE ORDERS OF EVEN DATE I.E. 26.9. 2011 PASSED BY THE LEARNED ASSESSING OFFICER UNDER SEC. 143(3) READ WITH SECTI ON 144C OF THE INCOME- TAX ACT 1961 IN ASSESSMENT YEARS 2007-08 AND 2008- 09. 2. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THE FACTS AND CIRCUMSTANCES ARE COMMON IN BOTH THE ASSESSMENT YEARS. THEY ARE IDENTICAL TO THE FACTS AVAILABLE IN EARLIER ASS ESSMENT YEARS AND ALL THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT PASSED IN ASSESSMENT YEARS 2002-03 TO 2006-07. HE PLACED O N RECORD COPY OF THE 2 ITATS ORDER DATED 30.11.2011 VIDE WHICH ITAT HAS D ECIDED THE APPEALS FOR ALL THESE ASSESSMENT YEARS. 3. THE BRIEF FACTS OF THE CASE IN ASSESSMENT YEAR 2 006-07ARE THAT ASSESSEE M/S. MICROSOFT REGIONAL SALES CORPORATION IS A COMP ANY INCORPORATED IN USA AND ENGAGED IN DISTRIBUTION OF MICROSOFT PRODUC TS IN ASIA (WITH RESTRICTION IN CHINA KOREA AND TAIWAN ). THE MICRO SOFT REGIONAL SALES CORPORATION US A LEADING SOFTWARE DEVELOPER IS TH E SOLE OWNER OF INTELLECTUAL PROPERTY RIGHTS VESTED IN MICRO SOFTWA RE. IT HAS GRANTED EXCLUSIVE LICENSE TO MANUFACTURE AND DISTRIBUTE MICROSOFT PRO DUCTS TO ONE OF ITS WHOLLY OWNED SUBSIDIARY M/S. GRACEMAC CORPORATION (NOW MER GED WITH MOL CORPORATION) WHICH IN TURN GRANTED SIMILAR NON-EXCL USIVE RIGHTS TO ITS WHOLLY OWNED SUBSIDIARY MICROSOFT OPERATION PVT. LTD. SI NGAPORE (WHICH IS REFERRED TO MO SINGAPORE) TO MANUFACTURE MICROSOFT PRODUCTS IN SINGAPORE AND DISTRIBUTE SUCH PRODUCTS IN ASIA. THE ASSESSEE HAS BEEN APPOINTED AS A DISTRIBUTOR OF MICROSOFT PRODUCTS IN ASIA BY MO SI NGAPORE. IT HAS FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING NIL INCOME WHICH WAS LATER ON REVISED ON 31.3.2009. ACCORDING TO THE ASSESSING OF FICER ASSESSEE IS ENGAGED IN SELLING/LICENSING OF SOFTWARE THROUGH IN DEPENDENT DISTRIBUTOR TO THE END USER UNDER LICENSE END USER LICENSE AGREEME NT. IN ASSESSMENT YEARS 1999-00 TO 2001-02 THE SALES PROCEEDS RECEIV ED BY THE ASSESSEE WERE TREATED AS ROYALTY INCOME AND ASSESSED ACCORDINGLY. ASSESSING OFFICER FURTHER OBSERVED THAT THIS VIEW WAS CONFIRMED BY TH E LEARNED CIT(APPEALS) ALSO IN HIS CONSOLIDATED ORDER DATED 14.1.2005. HE CONFRONTED THE ASSESSEE AS TO WHY THE REVENUE RECEIPTS FROM LICENSING OF SOFTW ARE SHOULD NOT BE TAXED AS ROYALTY INCOME. THE ASSESSEE RAISED A NUMBER OF ARGUMENTS. IT HAS POINTED OUT THAT IN THE ASSESSEES OWN CASE ITAT HAS UPHEL D THAT THE TAXATION OF 3 ROYALTY IN THE HANDS OF GRACEMAC CORPORATION AND NO T IN THE HANDS OF ASSESSEE THEREFORE IT IS A COVERED ISSUE IN FAVOU R OF THE ASSESSEE AND BOTH THE ASSESSEES CANNOT BE TAXED FOR THE SAME AMOUNT I .E. ASSESSEE AS WELL AS M/S. GRACEMAC CORPORATION. LEARNED ASSESSING OFFICE R MADE THE ADDITION OF RS.1274 55 32 704 AS AGAINST NIL INCOME ON THE GROU ND THAT THE DISPUTE RESOLUTION PANEL HAS CONSIDERED THIS ASPECT AND OBS ERVED THAT ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE THE HON'BLE HI GH COURT ON THE ISSUE WHETHER ROYALTY INCOME IS TAXABLE IN THE HANDS OF A SSESSEE OR IN THE HANDS OF GRACEMAC CORPORATION THEREFORE IN THIS YEAR THE PENAL IS OF THE VIEW THAT NO CHANGE IN THE STAND OF THE REVENUE IS REQUIRED. THE ASSESSING OFFICER HAS NOTICED THE DIRECTION OF THE DRP AS UNDER: 10. THE ASSESSEE FILED GROUNDS OF OBJECTION BEFOR E THE DRP AGAINST THE DRAFT ASSESSMENT ORDER ON 31.01.2011 THE DRP HAS CONFIRMED THE ADDITION VIDE ITS DIRECTIONS U/S 144C(5) DATED 02.0 8.2011. THE DIRECTIONS OF THE DRP IS REPRODUCED BELOW: THE ITAT IN ITS DECISION DATED 26.11.2010 HAS CONF IRMED THE TAXATION OF ROYALTY IN THE HANDS OF GRACEMAC AND DE LETED THE ADDITION ON THE SAME HEAD IN THE CASE OF MRSC. THE DECISION WAS PRONOUNCED FOR A.Y. 1999-00 TO 2001-02 FOR MRSC ORDER FROM A.Y. 1999-00 TO 2004-05 FOR GRACEMAC. THE MAP ORDER FOR THE ABOVE MENTIONED YEARS HAVE BEEN ALSO PASSED HOLDING TAX LIABILITY IN THE HANDS OF GRACEMAC AND GIVING R ELIEF TO MRSC ON THE GROUND OF TAXING THE SAME AMOUNT IN THE HANDS OF BOTH THE ASSESSEE. THE ASSESSEE HAS NOT ACCEPTED TH E MAP RESOLUTION AND PREFERRED AN APPEAL BEFORE THE HON'B LE HIGH COURT IN THE CASE OF GRACEMAC . THE DEPARTMENT HAS ALSO GONE TO HIGHER APPEAL IN THE CASE OF THE ASSESSEE. 4 7.2.3 HOWEVER IN VIEW OF THE FACT THAT THE ISSUE I S BEING CONTESTED BOTH BY THE ASSESSEE AS WELL AS THE DEPAR TMENT BEFORE HON'BLE HIGH COURT THE PANEL IS OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE DRAFT ORDER OF THE ASSESSING O FFICER ON THIS ISSUE. 4. SIMILAR TREATMENT HAS BEEN GIVEN IN ASSESSMENT Y EAR 2008-09. THE ASSESSEE HAS TAKEN TWELVE GROUNDS IN ASSESSMENT YEA R 2007-08 AND NINE GROUNDS IN ASSESSMENT YEAR 2008-09. WE FIND THAT TH E GROUNDS TAKEN BY THE ASSESSEE IN SUBSTANCE IN BOTH THE ASSESSMENT YEARS ARE VERBATIM SAME THEY ARE SIMILAR TO THE GROUND TAKEN IN ASSESSMENT YEAR 2006-07 EXCEPT VARIATION OF QUANTUM. THE GROUND NO.3 TAKEN IN ASSESSMENT YEA R 2006-07 WHICH WE ARE GOING TO REPRODUCE IN THE LATER PART HAS NOT BE EN TAKEN IN THESE TWO ASSESSMENT YEARS. SIMILARLY IN GROUND NO.9 IN ASSE SSMENT YEAR 2007-08 ASSESSEE HAS PLEADED THAT DRAFT ASSESSMENT ORDER PA SSED BY THE ASSESSING OFFICER IS BEYOND THE STATUTORY TIME LIMIT AVAILABL E IN SEC. 153(1) OF THE INCOME-TAX ACT 1961. HOWEVER NO SUCH GROUND HAS B EEN TAKEN IN ASSESSMENT YEAR 2008-09 EXCEPT THESE VARIATION AND THE VARIATIONS IN QUANTUM OF ADDITIONS ALL OTHER ARGUMENTS AND THE GR IEVANCE PLEADED IN THE GROUNDS ARE IDENTICAL. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE ITAT WHEREAS LEARNED DR WAS UNABLE TO CONTROVERT THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE . THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT ADVANCE ANY ARGUMENT ON GROUND NO.9 IN ASSESSMENT YEAR 2007-08. THEREFORE THIS GROUND IS REJECTED. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. ON AN ANALYSIS OF THE FACTS AND T HE CIRCUMSTANCES WE FIND 5 THAT THERE IS NO DISPARITY ON FACTS IN ASSESSMENT Y EAR 2006-07 AS WELL AS IN THESE TWO ASSESSMENT YEARS. THE ITAT IN ASSESSMENT YEAR 2006-07 IN ITA NO.4588/DEL/2010 HAS TAKEN COGNIZANCE OF THE GROUND S OF APPEAL RAISED BY THE ASSESSEE AS WELL AS FACTUAL INACCURACY AVAILABL E IN THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL. IT READS AS UNDER : 2. QUANTUM APPEAL FILED BY THE ASSESSEE IS IN RESPE CT OF ASSESSMENT YEAR 2006-07. GROUNDS OF APPEAL RELATE S TO AN ADDITION MADE ON ACCOUNT OF ROYALTY OF AN AMOUNT OF ` 993 19 78 224/- WHICH AMOUNT HAS BEEN ASSESSED IN THE HANDS OF THE ASSESS EE AS ROYALTY AGAINST THE RETURNED NIL INCOME FILED BY THE ASSESS EE. THE SAID ADDITION HAS BEEN UPHELD BY THE DRP AND ORDER IN CO NFORMITY HAS BEEN PASSED BY THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE HAS FILED AN APPEAL RAISING VARIOUS GROUNDS WHICH READ AS UNDER:- 1. THAT ON FACTS AND IN LAW WHILE PASSING THE ASS ESSMENT ORDER THE ASSISTANT DIRECTOR OF INCOME TAX CIRCLE 3(2) NEW DELHI ('LEARNED AO') HAS ERRED IN COMPUTING THE TOT AL INCOME OF THE APPELLANT AT INR 9 931 978 224 AS AGAINST 'NIL' INCOME RETURNED BY THE APPELLANT AND THEREFORE THE ORDER OF THE LEARNED AO IS BAD IN LAW AND NEEDS TO BE ANNULLED. 2. TAX ON REVENUE ALLEGED 'AS ROYALTY' UNDER THE I NCOME-TAX ACT 1961 ('THE ACT') 2.1 THAT ON FACTS AND IN LAW THE HON'BLE DISPUTE R ESOLUTION PANEL ('DRP') HAS ERRED IN CONFIRMING THE VARIATION S PROPOSED BY THE LEARNED AO IN THE DRAFT ASSESSMENT ORDER AS AGAINST THE RETURNED INCOME BY HOLDING THAT THE REVENUE EARNED BY THE APPELLANT FROM THE SALE OF MICROSOFT RETAIL PRODUCT S TO THE INDIAN DISTRIBUTORS IS TAXABLE IN THE HANDS OF THE APPELLANT AS ROYALTY UNDER THE PROVISIONS OF SECTION 9(1 )(VI) O F THE ACT. 6 ACCORDINGLY THE ORDER PASSED BY THE LEARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW A ND ON FACTS. 2.2 THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS E RRED IN CONFIRMING THE VARIATIONS PROPOSED BY THE LEARNED A O IN THE DRAFT ASSESSMENT ORDER WHEREIN IT HAS BEEN HELD TH AT: 2.2.1 THE PAYMENT MADE BY THE INDIAN DISTRIBUTORS I S TOWARDS THE USE OF COPYRIGHT AND NOT FOR THE PURCHASE OF CO PYRIGHTED ARTICLE AND THEREFORE IS ROYALTY UNDER SECTION 9(1 )(VI) OF THE ACT; 2.2.2 ALTERNATIVELY CONSIDERATION RECEIVED FOR USE OF SOFTWARE CAN ALSO BE HELD TO HAVE BEEN RECEIVED TOWARDS USE OF 'INFORMATION DEVELOPED OUT OF SCIENTIFIC EXPERIENCE ' LITERARY OR SCIENTIFIC WORK PATENTED ARTICLE 'SCIENTIFIC KNOW LEDGE INVENTION SECRET FORMULA OR PROCESS' AND HENCE T AXABLE AS ROYALTY UNDER THE ACT. 2.2.3 SECOND PROVISO TO SECTION 9(1 )(VI) OF THE AC T EXCLUDES SUCH ROYALTY PAYMENTS FROM THE PURVIEW OF SECTION 9 (1 )(VI) OF THE ACT ONLY WHEN THE COMPUTER SOFTWARE IS SUPPLIED BY A NON- RESIDENT MANUFACTURER ALONG WITH COMPUTER OR COMPUT ER BASED EQUIPMENT UNDER ANY APPROVED SCHEME. ACCORDINGLY THE ORDER PASSED BY THE LEARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW A ND ON FACTS. 3. THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS ER RED IN CONFIRMING THE CONCLUSION DRAWN BY THE LEARNED AO I N THE DRAFT ORDER THAT THE PROVISIONS OF SECTION 115A OF THE ACT CHARACTERIZES THE INCOME FROM SALE OF SOFTWARE (DEE MED TO BE INCOME OF APPELLANT) AS 'ROYALTY' UNDER THE ACT. AC CORDINGLY THE ORDER PASSED BY THE LEARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW AND ON FAC TS. 4 TAX ON REVENUE ALLEGED AS 'ROYALTY' UNDER THE DO UBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND US ( 'INDIA US TAX TREATY') 7 4.1 THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS E RRED IN CONFIRMING THE VARIATIONS PROPOSED BY THE LEARNED A O IN THE DRAFT ASSESSMENT ORDER AS AGAINST THE RETURNED INCO ME BY HOLDING THAT REVENUE EARNED BY THE APPELLANT FROM S ALE OF MICROSOFT RETAIL PRODUCTS TO DISTRIBUTORS IN INDIA IS ROYALTY UNDER ARTICLE 12 OF THE INDIA US TAX TREATY. ACCORD INGLY THE ORDER PASSED BY THE LEARNED AO ON THE BASIS OF DRP' S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW AND ON FAC TS. 4.2 THAT ON FACTS AND IN LAW THE HON'BLE DRP AND LEARNED AO FAILED TO APPRECIATE THAT THE SALE OF SOFTWARE IS S ALE OF 'COPYRIGHTED ARTICLE' AND NOT 'COPYRIGHT' IN MICROS OFT SOFTWARE AND ACCORDINGLY THE REVENUE FROM SALE OF SOFTWARE IS IN THE NATURE OF BUSINESS INCOME NOT TAXABLE UNDER ARTICLE 7 OF INDIA US TAX TREATY IN THE ABSENCE OF THE 'PERMANENT ESTA BLISHMENT' OF THE APPELLANT IN INDIA. 4.3 THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS E RRED IN CONFIRMING THE CONCLUSION DRAWN BY THE LEARNED AO T HAT INCLUSION OF WORD 'COMPUTER SOFTWARE' IN THE DEFINI TION OF ROYALTY IN SOME OF THE TREATIES RECENTLY EXECUTED B Y INDIA IS CLARIFICATORY IN NATURE AND THAT THE CONCEPT OF TAX ABILITY OF SOFTWARE IS ALREADY EMBEDDED IN THE DEFINITION OF R OYALTY GIVEN IN OLD TREATIES. ACCORDINGLY THE ORDER PASSED BY T HE LEARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEO US BOTH IN LAW AND ON FACTS. 5 THAT ON FACTS AND IN LAW THE HON'BLE DRP AND LE ARNED AO HAVE ERRED IN NOT PASSING A SPEAKING ORDER BY NO T CONSIDERING THE BINDING JURISDICTIONAL PRECEDENTS R ELIED UPON BY THE APPELLANT WHICH SQUARELY APPLY TO THE FACTS OF THE APPELLANT'S CASE. 6 THAT ON FACTS AND IN LAW THE HON'BLE DRP AND LE ARNED AO HAVE ERRED IN DISREGARDING OECD COMMENTARIES US IRS REGULATIONS ON CLASSIFICATION OF TRANSACTIONS INVOL VING COMPUTER SOFTWARE INTERNATIONAL TAX COMMENTARIES RELEVANCE OF OECD & UN MODEL CONVENTION INTERNATIONAL REVENUE RULING S WHILE INTERPRETING TAX TREATIES. 8 7 THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS ER RED IN CONFIRMING THE CONCLUSION DRAWN BY LEARNED AO BY PL ACING RELIANCE ON THE APPELLATE ORDER PASSED UNDER SECTIO N 250 OF THE ACT IN APPELLANT'S OWN CASE FOR ASSESSMENT YEARS 1 999-00 2000-01 AND 2001-02 THEREBY COMPLETELY DISREGARDIN G THE FACTUAL LEGAL POSITION. ACCORDINGLY THE ORDER PASS ED BY THE LEARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW AND ON FACTS. 8 THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS ER RED IN CONFIRMING THE CONCLUSION DRAWN BY LEARNED AO BY DISTINGUISHING FROM DECISIONS OF THE HON'BLE SUPREM E COURT IN CASE OF ASSOCIATED CEMENTS COMPANIES LTD (2001) [AI R 862] AND TATA CONSULTANCY SERVICES LTD (271 ITR 401). ACCORDINGLY THE ORDER PASSED BY THE LEARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW A ND ON FACTS. FACTUAL INACCURACIES : 9 THAT ON FACTS THE HON'BLE DRP AND LEARNED AO HA VE FAILED IN COMPREHENDING THE FACTS OF THE APPELLANT' S CASE AND ERRONEOUSLY OBSERVED THE FOLLOWING: (A) THAT THE APPELLANT IS ENGAGED IN LICENSING OF SOFTWARE THROUGH INDEPENDENT DISTRIBUTORS UNDER EULA; (B) REPRODUCING FROM SUBMISSIONS OF THE APPELLANT PURPORTEDLY FILED ON 5 NOVEMBER 2008 WHEREAS THE RE PRODUCED PORTIONS WERE NEVER FILED BY THE APPELLANT. HE COM PLETELY FAILED IN TAKING COGNIZANCE OF THE SUBMISSIONS ACTU ALLY FILED BY THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR; (C) THAT THE APPELLANT HAS AGREED THAT PAYMENT IS MADE ONLY FOR RIGHT TO USE SOFTWARE; (D) THAT THE COPYRIGHT OF SOFTWARE REMAINS WITH THE APPELLANT HOWEVER IT ALLOWS THE USE OF COPYRIGHT TO THE INDI AN DISTRIBUTORS; 9 (E) THAT THE LICENSE OF MERE USAGE IS SORT OF A LEA SE OF A SOFTWARE AND THUS THE SOFTWARE HAS BEEN MERELY GIVEN ON REN TAL; (F) THE APPELLANT POSSESSES RIGHT OVER THE INTELLECTUAL PROPERTY RIGHT (IPR) IN THE SOFTWARE WHICH IT IS FU RTHER LICENSING FOR DISTRIBUTION TO THE END USERS IN INDI A; (G) THAT THE APPELLANT POSSESSES RIGHT IN COPYRIGHT WHICH IT CAN ENFORCE IN INDIA IF ANY VIOLATION OF SUCH RIGHT IS NOTICED BY IT; (H) THAT THE SOURCE OF REVENUE DERIVED BY THE APPEL LANT IS FROM LICENSING OF SOFTWARE FROM UTILIZATION OF THE LICEN SE GRANTED TO THE USERS IN INDIA; (I) THAT DELIVERY OF THE PRODUCT TO DISTRIBUTORS O UTSIDE INDIA DOES NOT AFFECT TAXABILITY OF THE RECEIPT AS PER S ECTION 9(1 )(VI) OF THE ACT THE PLACE OF UTILISATION/ EXPLOITATION OF THE SOFTWARE IS IMPORTANT; (J) THAT THE APPELLANT HAS SHOWN THE RECEIPTS FROM COMPANIES IN INDIA AS 'ROYALTY' AND HAS PAID TAXES. 10 THAT ON FACTS AND IN LAW THE HON'BLE DRP HAS E RRED IN CONFIRMING THE CONCLUSION DRAWN BY LEARNED AO BY RE LYING ON THE DECISIONS OF HON'BLE SUPREME COURT AND HON'BLE HIGH COURTS WHICH ARE ON COMPLETELY DIFFERENT FACTS AND QUESTIONS OF LAW THEREIN. ACCORDINGLY THE ORDER PASSED BY THE L EARNED AO ON THE BASIS OF DRP'S DIRECTIONS IS ALSO ERRONEOUS BOTH IN LAW AND ON FACTS. 11 WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE HON 'BLE DRP AND THE LEARNED AO HAVE ERRED IN HOLDING THAT TOE R EVENUE EARNED BY THE APPELLANT FROM SALE OF PRODUCTS IS 'R OYALTY' UNDER THE ACT/INDIA US TAX TREATY WHEREAS THE AO OF GRAC EMAC HAS ALREADY TAXED THE SAME IN THE ASSESSMENT OF GRACEMA C FOR AY 2006-07 WHICH HAS RESULTED IN DOUBLE TAXATION OF S AME SOURCED INCOME. 10 12 WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE HON 'BLE DRP HAS ERRED IN CONFIRMING THE CONCLUSIONS DRAWN BY LE ARNED AO IN LEVYING INTEREST UNDER SECTION 2348 OF THE ACT W HILE COMPLETELY DISREGARDING THE PROVISIONS OF THE ACT A ND THE JUDICIAL PRECEDENTS. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAV ES LEAVE TO ADD ALTER AMEND AND / OR MODIFY ANY OF THE GROUND S OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL. 6. THE ITAT THEREAFTER NOTICED THE FACTS FROM THE O RDER OF THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 1999-00 AND OTHER Y EARS WHICH ARE COMMON IN THESE ASSESSMENT YEARS ALSO. THE FACTS NO TICED BY THE ITAT AS WELL AS THE FINDINGS OF THE ITAT RECORDED IN THE CA SE OF M/S. GRACEMAC CORPORATION REPORTED IN 132 TTJ 257 READ AS UNDER: 4. THE BASIC FACTS AS FOUND MENTIONED IN THE CONSO LIDATED ORDER PASSED BY THE CIT (A) IN RESPECT OF ASSESSMENT YEAR S 1999-2000 2000-01 AND 2001-02 ARE AS UNDER:- 4. FACTS OF THE CASE THE APPELLANT IS A COMPANY INCORPORATED IN US AND I S A WHOLLY OWNED SUBSIDIARY ('WOS') OF MICROSOFT CORPORATION USA ('MS CORP') WITH A BRANCH IN SINGAPORE. THE OPERATI NG STRUCTURE OF THE DISTRIBUTION MODEL ALONG WITH THE FLOW OF DISTRIBUTION RIGHTS FROM MS CORP TO APPELLANT THROU GH 11 GRACEMAC CORPORATION USA ('GRACEMAC') AND MICROSOF T OPERATIONS PTE LIMITED SINGAPORE (MO') WAS EXPLAI NED BY APPELLANT AS FOLLOWS: GRACEMAC IS A COMPANY INCORPORATED UNDER THE LAWS O F USA ON SEPTEMBER 23 1994 HAVING ITS REGISTERED OFFICE AT 300 SOUTH FOURTH STREET SUITE 1100 LAS VEGAS NEVADA USA-8 9109. GRACEMAC IS A WOS OF MS CORP. MS CORP ENTERED INTO A PARENT SUBSIDIARY AGREEMENT ('PSA'') WITH GRACEMAC ON JANUARY 1 1999 WHEREIN MS CORP HAD GRANTED GRACEMA C THE: A) EXCLUSIVE LICENSE TO MANUFACTURE MICROSOFT PRODUCTS B) EXCLUSIVE LICENSE TO DISTRIBUTE THE PRODUCTS SO MANUFACTURED DIRECTLY TO RETAILERS OR TO MS CORP OR TO SUBSIDIARIES OF MS CORP; AND C) EXCLUSIVE RIGHT TO LICENSE ANY THIRD PARTY TO DI RECTLY GRANT CUSTOMERS THE RIGHT TO REPRODUCE MICROSOFT SOFTWARE PRODUCTS FOR INTERNAL USE. IN LIEU OF THE ABOVEMENTIONED RIGHTS GRACEMAC HAS ISSUED ITS ENTIRE SHARE CAPITAL TO MS CORP. IN PURSUANCE OF THE RIGHTS GRANTED UNDER THE PSA G RACEMAC HAS ENTERED INTO A LICENSE AGREEMENT WITH MO (A COMPAN Y INCORPORATED UNDER THE LAWS OF SINGAPORE AND A WOS OF MS CORP) ON JANUARY 1 1999 WHEREIN GRACEMAC HAS GRAN TED MO THE: 12 A) NON-EXCLUSIVE LICENSE TO MANUFACTURE MICROSOFT P RODUCTS IN SINGAPORE; B) NON-EXCLUSIVE LICENSE TO DISTRIBUTE THE PRODUCTS SO MANUFACTURED TO RETAILERS OR TO MS CORP OR TO SUBSI DIARIES OF MS CORP; AND C) NON-EXCLUSIVE RIGHT TO LICENSE OR SUBLICENSE THE RIGHT TO REPRODUCE MICROSOFT SOFTWARE PRODUCTS TO CERTAIN EN D USERS (LARGE ACCOUNT CUSTOMERS) FOR THEIR INTERNAL USE. IN LIEU OF THE ABOVEMENTIONED RIGHTS GRACEMAC EARN S ROYALTY FROM MO. THE ROYALTY WAS COMPUTED ON THE BASIS OF T HE NET SELLING PRICE OF MICROSOFT PRODUCTS MANUFACTURED BY MO AND DISTRIBUTED TO RETAILERS MS CORP OR SUBSIDIARIES O F MS CORP. 4.1 IN TURN MO HAS ENTERED INTO A NON-EXCLUSIVE DI STRIBUTION AND INTER-COMPANY SERVICES AGREEMENT ('DISTRIBUTION AGREEMENT') WITH THE APPELLANT WHEREIN APPELLANT W AS APPOINTED AS A DISTRIBUTOR OF MICROSOFT PRODUCTS MA NUFACTURED BY MO. APPELLANT WAS GIVEN THE RIGHT TO DISTRIBUTE MICROSOFT PRODUCTS IN ASIA (WITH RESTRICTIONS IN CHINA KOREA AND TAIWAN) JAPAN SOUTH EAST ASIA AND THE SOUTH PACIF IC. THE ASSESSEE DID NOT HAVE ANY RIGHT TO COPY ADAPT ETC. THE SOFTWARE. THE DISTRIBUTION AGREEMENT SPECIFIES THAT MO WOULD SHIP THE PRODUCTS TO SUCH ADDRESSES (OF THE ASSESSEE OR ITS APPROVED DISTRIBUTORS) AS SPECIFIED BY THE APPELLANT. FURTHE R EXCEPT FOR 13 AUSTRALIA AND JAPAN THE TITLE OF THE PRODUCTS HAS BEEN AGREED TO BE TRANSFERRED TO APPELLANT IN SINGAPORE WHICH EVID ENCES THE FACT THAT DELIVERY TAKES PLACE OUTSIDE INDIA. 4.2 MO HAD AGREED TO SELL THE PRODUCTS TO APPELLANT AT A PRICE EQUAL TO 95% OF THE PRICE AT WHICH APPELLANT SELLS THE PRODUCT TO APPROVED DISTRIBUTORS OR OTHER MS CORP AFFILIATE S. PURSUANT TO THE DISTRIBUTION AGREEMENT THE ASSESSEE HAD ENTERE D INTO AGREEMENTS WITH VARIOUS DISTRIBUTORS IN 'APPROVED T ERRITORIES'. THE DISTRIBUTORS HAD A RIGHT TO DISTRIBUTE THE PROD UCTS IN INDIA. THE PRODUCTS SUPPLIED BY THE ASSESSEE ARE OFTEN STO CKED BY DISTRIBUTORS AND THEN SUPPLIED AGAINST SPECIFIC ORD ERS. THE PRODUCTS WERE DELIVERED BY THE ASSESSEE TO DISTRIBU TORS 'EX WAREHOUSE' FROM THE WAREHOUSING FACILITY NOMINATED BY THE ASSESSEE. FURTHER THE DISTRIBUTOR SOLD THE PRODUCT S TO A RESELLER IN INDIA WHO IN TURN SOLD IT TO A CONSUMER/ DISTRIB UTOR SELLS DIRECTLY TO CONSUMERS. THE RESELLERS/ CONSUMERS DID NOT HAVE THE RIGHT TO MAKE COPIES OF THE SOFTWARE FOR 'COMME RCIAL EXPLOITATION'. THE DISTRIBUTOR WAS NOT LIABLE TO PA Y THE ASSESSEE ONLY UPON SALE BY THE DISTRIBUTOR TO THE RESELLER/ CONSUMER. IT WAS LIABLE TO PAY THE ASSESSEE EVEN IF IT WAS NOT A BLE TO SELL THE PRODUCTS TO THE RESELLER/ CONSUMER. 4.3 ACCORDING TO APPELLANT THE INCOME EARNED FROM T HE SALE OF COMPUTER SOFTWARE TO INDEPENDENT DISTRIBUTOR IN IND IA WAS IN THE NATURE OF BUSINESS PROFIT IN THE YEARS UNDER CONSID ERATION AND WAS NOT TAXABLE IN INDIA AS APPELLANT DID NOT HAVE A PE IN INDIA 14 UNDER PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREE MENT BETWEEN INDIA AND USA (IN SHORT DTAA). IT WAS ALSO CONTESTED THAT ROYALTY INCOME FROM SALE OF SOFTWARE COULD NOT BE TAXED IN HAND OF APPELLANT WHICH WAS ONLY DISTRIBUTOR OF THE SOFTWARE OF MS CORP AND COPYRIGHTS OF THESE SOFTWARE WERE OWNED BY MS CORP NOT BY APPELLANT. FOR THESE REASONS IT WAS CLA IMED THAT BUSINESS INCOME OF APPELLANT WAS NOT TAXABLE IN IND IA FOR THE YEARS UNDER CONSIDERATION ACCORDINGLY APPELLANT DI D NOT FILE RETURNS OF INCOME FOR THE YEARS UNDER CONSIDERATION . LATER ON THE AO ISSUED NOTICE TO THE APPELLANT FOR THE YEARS UNDER CONSIDERATION U/S 148 OF THE ACT. IN RESPONSE TO NO TICE APPELLANT FILED RETURN OF INCOME DECLARING NIL INCOME FOR THE YEARS UNDER CONSIDERATION STATING ABOVE REASONS FOR NON TAXABIL ITY OF ITS BUSINESS PROFIT IN INDIA. LATER ON THE CASES OF AP PELLANT FOR THE YEARS WERE SELECTED FOR SCRUTINY BY ISSUE AND SERVI CE OF NOTICE U/S .143(2). DURING THE COURSE OF SCRUTINY ASSESSME NT THE A.O ASSESSED THE INCOME OF THE APPELLANT FOR THE YEARS UNDER CONSIDERATION AT US$ 1 01 75 235 US$ 5 87 64 099 A ND US$ 8 35 51 260 UNDER THE HEAD 'ROYALTY' AGAINST THE NI L INCOME DISCLOSED BY THE APPELLANT IN THE RETURNS OF INCOME FILED FOR THE YEARS UNDER CONSIDERATION FOR FOLLOWING GROUNDS: A) THE SOFTWARE FALLS UNDER THE CATEGORY 'SECRET FORMU LA OR PROCESS' AND THE SOFTWARE WHEN INSTALLED ON A COMPU TER RESPOND TO EVERY INSTRUCTION IN A SPECIFIC WAY. AC CORDINGLY THE TOTAL REVENUE RECEIVED BY THE APPELLANT FROM SA LE OF SOFTWARE IN INDIA WAS ROYALTY. 15 B) THE APPELLANT WAS TAXABLE IN INDIA UNDER PROVISIONS OF ACT AND THE DTAA AS INCOME FROM SALE OF SOFTWARE WAS IN THE NATURE OF ROYALTY U/S 9(1)(VI) AND ARTICLE 12 OF DT AA. 5. ACCORDINGLY AFOREMENTIONED INCOME WAS ASSESSED IN THE HANDS OF THE ASSESSEE AS ROYALTY UPON WHICH THE PENALTY HAS BEEN LEVIED BY THE ASSESSING OFFICER AS FOLLOWS:- ASSESSMENT YEAR 1999-2000 ` 6 45 31 340/- ASSESSMENT YEAR 2000-2001 ` 38 30 83 161/- ASSESSMENT YEAR 2001-2001 ` 58 18 92 771 6. THE AFOREMENTIONED ADDITIONS WERE ALSO UPHELD BY LEARNED CIT (A) AGAINST WHICH A FURTHER APPEAL TO THE TRIBUNAL WAS FILED AND THE SAID APPEALS HAVE BEEN DECIDED BY THE TRIBUNAL ALON G WITH THE APPEALS IN THE CASE OF M/S GRACEMAC CORPN. VS. ASSTT. DIREC TOR OF INCOME-TAX INTERNATIONAL TAX DIVISION CIRCLE 2 (1) NEW DELHI AND APPEALS OF M/S MICROSOFT CORPORATION VS. ASSTT. DIRECTOR OF IN COME-TAX VIDE ORDER DATED 26 TH OCTOBER 2010 WHICH IS SINCE REPORTED AS 132 TTJ 257 (DEL); 8 ITR (TRIB.) 522 (DEL); 42 SOT 550 (DEL ). THOUGH IT HAS BEEN HELD BY THE TRIBUNAL THAT THE SAID AMOUNT WAS IN THE NATURE OF ROYALTY BUT IT WAS HELD THAT THE SAID AMOUNT CANNO T BE ASSESSED IN THE HANDS OF THE PRESENT ASSESSEE AND IT HAS BEEN HELD TO BE TAXABLE IN THE HANDS OF THE GRACEMAC CORPN. THE RELEVANT OBSERVAT IONS OF THE TRIBUNAL WHILE HOLDING SO ARE CONTAINED IN PARA 128 AND 132 AND IT WILL BE RELEVANT TO REPRODUCE THE SAID OBSERVATIONS OF THE TRIBUNAL WITH REGARD TO TAXABILITY OR OTHERWISE OF THE AFORE MENTIONED AMOUNT IN THE HANDS OF THE ASSESSEE:- 16 128. FROM THE ABOVE IT IS EVIDENT THAT MRSC WAS A LSO AUTHORIZED TO REPRODUCE CERTAIN PRODUCTS AND DIST RIBUTE THE SAME TO END USERS THROUGH THE DISTRIBUTORS A PPOINTED BY MRSC. MRSC VIDE AGREEMENT DATED 3RD MAY 199 9 WAS AUTHORIZED TO COPY THE MARKETING PROGRAMMES IN O BJECT CODE FORM FROM THE MASTER COPY PROVIDED BY MICROSOFT OPE RATIONS (MO) ON TO EITHER DISKETTES OR SUCH APPROVED MEDIA AND PREPARE THE PRODUCT DOCUMENTATION AND PACKAGING BA SED ON THE MATERIAL PROVIDED AND APPROVED BY MO. WE WOULD LIK E TO MENTION HERE THAT SOURCE CODE AND OBJECT CODE HAVE COPYRIGHT. THEREFORE MRSC ALSO GOT RIGHT TO USE COPYRIG HT IN COMPUTER PRODUCTS FROM SUB-LICENCEE (MO). EACH PRODUCT PACKAGE WOULD INCLUDE A PRE-APPROVED DISKETTES LABEL ATTACHED TO THE DISKETTES AND MS CORP. STANDARD E ND USER LICENCE AGREEMENT FOR THE TERRITORY. FROM THE ABOV E IT IS EVIDENT THAT MRSC IS NOT SIMPLY A DISTRIBUTO R APPOINTED BY MICROSOFT OPERATIONS BUT WAS AUTHORIZED TO REPRODUCE CERTAIN COMPUTER PROGRAMMES. THE END USER LIC ENCE AGREEMENT WAS TO BE IN THE STANDARD FORMA T OF MICROSOFT CORPORATION. ARTICLE 3.2 ALSO PROVIDES THAT THE MA RKETING PROGRAMME RELEASED BY THE DISTRIBUTOR WILL BE APPRO XIMATELY EQUIVALENT IN QUALITY OF THE SOFTWARE PRODUCT MAN UFACTURED BY MS CORP. THE MICROSOFT OPERATION ALSO PROVIDED UP- DATED MASTER COPIES OF MARKETING PROGRAMMES AS AND WHEN T HE SAME WERE UP-DATED BY MS CORP. SINCE THE MICROSOFT CORP ORATION HAS GRANTED THE RIGHT TO REPRODUCE AND DISTRI BUTE MICROSOFT PRODUCTS IN LIEU OF SHARES TO GRACEMAC AND NO FURTHER 17 ROYALTY IS PAYABLE BY GRACEMAC AND ALSO THE END USE R LICENCE AGREEMENT IS TO BE IN THE STANDARD FORMAT OF MICR OSOFT CORPORATION THE MICROSOFT CORP. IS UNDER OBLIGAT ION TO SIGN EULA ON BEHALF OF GRACEMAC. THUS IT HAS TO BE LOGICALLY CONCLUDED THAT MICROSOFT CORPORATION HAS SIGNED THE EULA ON BEHALF OF GRACEMAC TO WHOM EXCLUSIVE RIGHTS TO MANUFACTURE AND DISTRIBUTE MICROSOFT PRODUCTS HAVE BEEN GRANTED OTHERWISE THE PRODUCTS WOULD HAVE BEEN RE NDERED USELESS AND NO REVENUE COULD HAVE BEEN EARNED B Y ANYONE IN THE SUPPLY CHAIN. MICROSOFT CORPORATION HAS DEVISED A SCHEME UNDER WHICH EULA HAS TO BE SIGNED BY MICRO SOFT CORP. AND NOT BY GRACEMAC CORPORATION. HENCE ASSESS EE CANNOT BE PERMITTED TO TAKE A PLEA THAT SINCE EULA HAS BEE N SIGNED BETWEEN END USERS AND MICROSOFT CORP. NO LICENCE WA S GRANTED BY GRACEMAC AND CONSEQUENTLY THE ROYALTY PAYMENT S WILL NOT BE CHARGEABLE TO TAX IN THE HANDS OF GR ACEMAC. THE AGREEMENTS ENTERED INTO BETWEEN GROUP COMPANIES HAV E DRAFTED IN SUCH A WAY WHICH GIVE AN IMPRESSION THAT GRA CEMAC CORPORATION HAS NO CONNECTION WITH THE GRANTING OF LICENCE. THE REAL TRANSACTION OF THE GRANTING OF TH E LICENCE IN RESPECT OF COPYRIGHTS IN COMPUTER PROGRAMMES H AVE CAMOUFLAGED BY ENTERING INTO VARIOUS AGREEMENTS BETWEEN MICROSOFT AND GRACEMAC; GRACEMAC AND MICROSOFT OPERATIONS; MICROSOFT OPERATION AND MRSC; AND MRSC AND INDIAN DISTRIBUTORS BUT WHEN REAL INTENTION IS GATHERED FROM THE IN-DEPTH READING OF THE AGREEMENTS THE M ATTER BECOMES CRYSTAL CLEAR. SINCE WE HAVE HELD THAT END USER S HAVE MADE 18 PAYMENTS IN RESPECT OF THE GRANTING OF LICENCE IN RESPECT OF COPYRIGHT IN COMPUTER PROGRAMMES THE PAYMENTS MAD E BY END-USERS AS CONSIDERATION FOR THE SAME WILL BE TAX ABLE IN THE HANDS OF GRACEMAC. 132. AS DISCUSSED ABOVE MRSC REPRODUCED CERTAIN SOFTWARE PRODUCTS AND DISTRIBUTED THE SAME THROUGH CHAIN OF DISTRIBUTORS IN INDIA. THEREFORE THE VERY AP POINTMENT OF DISTRIBUTORS BY MRSC IN INDIA HAD BUSINESS CONNECTION IN INDIA AND THE PORTION OF INCOME EARNED BY MRSC PERHAPS COULD HAVE BEEN CHARGEABLE TO TAX AS BUSINESS INCOM E UNDER SECTION 9(1)(I) OF THE ACT. BUT SINCE THE ASS ESSING OFFICER AS WELL AS THE LD. CIT (APPEALS) HAS CHOSEN TO ASSES S THE ENTIRE RECEIPTS UNDER THE HEAD 'ROYALTY' IN THE HANDS OF M RSC ALSO IN OUR CONSIDERED OPINION MRSC CANNOT BE TAXED AGAIN ON THE SAME INCOME BY WAY OF ROYALTY FOR EXPLOITATION OF S AME RIGHTS WHICH HAD BEEN ASSESSED IN THE HANDS OF GRACEMAC OTHERWISE IT WOULD RESULT IN DOUBLE TAXATION. THEREFORE WE DELETE THE ADDITION IN THE HANDS OF MRSC FOR ALL THE THREE YEA RS. 7. THE QUESTION INVOLVED IN THE QUANTUM APPEALS FIL ED BY THE REVENUE IS WHETHER LEARNED CIT (A) IS RIGHT IN DELE TING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AFOREME NTIONED ROYALTY. THE LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE AFOREMENTIONED DECISION OF THE TRIBUNAL WHEREIN ON SIMILAR FACTS IT HAS BEEN HELD BY THE TRIBUNAL THAT SUCH ROYALTY CANNOT BE ASSESSED I N THE HANDS OF THE ASSESSEE AS IT WILL TANTAMOUNT TO ASSESS THE SAME I NCOME WHICH HAS 19 BEEN ASSESSED IN THE HANDS OF GRACEMAC AND IT HAS B EEN HELD BY THE TRIBUNAL THAT THE AFOREMENTIONED AMOUNT OF ROYALTY CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE AS THE SAME I S TAXABLE IN THE HANDS OF THE GRACEMAC. THEREFORE IT IS THE CASE O F THE LEARNED AR THAT FOR ALL THE AFOREMENTIONED YEARS IN WHICH LEAR NED CIT (A) HAS GRANTED RELIEF TO THE ASSESSEE IN QUANTUM WILL BE COVERED BY THE AFOREMENTIONED DECISION AND HENCE THE ORDER OF TH E CIT (A) FOR DELETION OF THE AFOREMENTIONED AMOUNT SHOULD BE UPH ELD. AS AGAINST THAT IT IS THE CASE OF THE LEARNED DR THAT ROYALTY HAS RIGHTLY BEEN ASSESSED IN THE HANDS OF THE ASSESSEE AND LEARNED C IT (A) HAS WRONGLY DELETED THE SAME. 8. IN THE PENALTY PROCEEDINGS IT IS THE CASE OF TH E LEARNED AR THAT IT HAS BEEN HELD BY THE TRIBUNAL THAT INCOME IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE. THEREFORE HE PLEADED THAT THERE IS NO QUESTION OF LEVY OF CONCEALMENT PENALTY ON THE ASSESSEE. HE SUBMITTED THAT LEARNED CIT (A) THOUGH HAS DELETED THE PENALTY ON M ERITS AND THEREFORE IT IS THE CASE OF THE LEARNED AR THAT PE NALTY HAS RIGHTLY BEEN DELETED BY THE CIT (A) AND HIS ORDER SHOULD BE UPHE LD. 9. IN RESPECT OF APPEAL FILED BY THE ASSESSEE IT I S THE CASE OF THE LEARNED AR THAT THE FACTS FOR ASSESSMENT YEAR 2006- 07 ARE SAME AND ON THE BASIS OF SIMILAR FACTS LD. DRP HAS HELD THA T THE ASSESSEE IS ASSESSABLE IN RESPECT OF ROYALTY. HE SUBMITTED THA T THE ORDER OF DRP IS NOT IN CONFORMITY WITH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND THE AFOREMENTIONED DECISION OF THE TRIBUNA L WILL BE EQUALLY 20 APPLICABLE FOR THAT YEAR ALSO AND THEREFORE THE A DDITION MADE BY THE DEPARTMENT FOR THAT YEAR SHOULD BE DELETED. 10. ON THE OTHER HAND IT IS THE CASE OF THE LEARNE D DR THAT THE ADDITION HAS RIGHTLY BEEN MADE BY THE ASSESSING OFF ICER AND HIS ORDER SHOULD BE CONFIRMED. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT HAS BEEN HELD BY THE TRIBUNAL IN AFOREMENTIONED DECISION THAT THOUGH THE AMOUNT CONS TITUTE ROYALTY BUT THE SAME IS NOT ASSESSABLE IN THE HANDS OF THE PRESENT ASSESSEE. ONE OF US (AM ) IS PARTY TO THE AFOREMENTIONED DECI SION. NO CASE HAS BEEN MADE OUT BY THE DEPARTMENT TO DIFFER FROM THE EARLIER DECISION WHICH HAS BEEN FOUND TO BE DELIVERED ON THE BASIS O F SIMILAR FACTS. THE FACTS FOR ALL THE YEARS ARE SIMILAR AND THIS FA CT IS NOT DISPUTED BY THE REVENUE. THEREFORE RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUNAL THE RELEVANT OBSERVATIONS OF WHICH HAS ALREADY BEEN REPRODUCED WE HOLD IN THE QUANTUM APP EALS THAT THE ADDITIONS HAVE RIGHTLY BEEN DELETED BY LEARNED CIT (A) AND WE DECLINE TO INTERFERE IN HIS ORDER. SIMILARLY FOR PENALTY APPEALS AS INCOME HAS NOT BEEN HELD TO BE ASSESSABLE IN THE HANDS OF THE ASSESSEE WE FIND NO JUSTIFICATION IN LEVY OF PENALTY THEREFORE THE OR DER OF THE CIT (A) DELETING THE PENALTY IS UPHELD ON THE GROUND THAT A S THE INCOME ITSELF IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE ACCORDI NG TO THE AFOREMENTIONED ORDER OF THE TRIBUNAL THERE IS NO Q UESTION OF LEVY OF PENALTY. 21 12. SO FAR AS IT RELATES TO ASSESSEES APPEAL THE FACTS BEING SIMILAR ADOPTING THE SIMILAR VIEW WHICH HAS BEEN ADOPTED BY THE TRIBUNAL IN EARLIER DECISION IN THE CASE OF THE ASSESSEE WE FI ND NO JUSTIFICATION IN ASSESSABILITY OF AFOREMENTIONED ROYALTY IN THE HAND S OF THE ASSESSEE THEREFORE THE APPEAL OF THE ASSESSEE IS ALLOWED. 13. TO SUM UP IN THE RESULT ALL THE DEPARTMENTAL APPEALS ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS A LLOWED IN THE MANNER AFORESAID. 7. RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT WE ARE OF THE VIEW THAT THOUGH THE AMOUNT CONSTITUTES ROYALTY BUT THE SAME IS NOT ASSESSABLE IN THE HANDS OF THE PRESENT ASSESSEE. ACCORDINGLY THE APP EAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 IS ALLOWED PARTLY AND THE A PPEAL FOR ASSESSMENT YEAR 2008-09 IS ALLOWED AND THE ADDITIONS ARE DELET ED. DECISION PRONOUNCED IN THE OPEN COURT ON 29.02.2012 SD/- SD/- ( K.G. BANSAL ) ( RA JPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/02/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR