Microsoft Regional Sales Corporation, Gurgaon v. Addl. DIT, New Delhi

ITA 6092/DEL/2012 | 2009-2010
Pronouncement Date: 05-07-2013 | Result: Partly Allowed

Appeal Details

RSA Number 609220114 RSA 2012
Assessee PAN AADCA1638A
Bench Delhi
Appeal Number ITA 6092/DEL/2012
Duration Of Justice 6 month(s) 29 day(s)
Appellant Microsoft Regional Sales Corporation, Gurgaon
Respondent Addl. DIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 05-07-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 05-07-2013
Date Of Final Hearing 11-04-2013
Next Hearing Date 11-04-2013
Assessment Year 2009-2010
Appeal Filed On 07-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH H HH H : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFO BEFO BEFO BEFORE SHRI I.C.SUDHIR JUDICIAL RE SHRI I.C.SUDHIR JUDICIAL RE SHRI I.C.SUDHIR JUDICIAL RE SHRI I.C.SUDHIR JUDICIAL MEMBER AND MEMBER AND MEMBER AND MEMBER AND SHRI TARVINDER SINGH KAPOOR ACCOUNTANT SHRI TARVINDER SINGH KAPOOR ACCOUNTANT SHRI TARVINDER SINGH KAPOOR ACCOUNTANT SHRI TARVINDER SINGH KAPOOR ACCOUNTANT MEMBER MEMBER MEMBER MEMBER ITA NO. ITA NO. ITA NO. ITA NO.6092/DEL/2012 6092/DEL/2012 6092/DEL/2012 6092/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2009 2009 2009 2009- -- -10 1010 10 M/S MICROSOFT REGIONAL SALES M/S MICROSOFT REGIONAL SALES M/S MICROSOFT REGIONAL SALES M/S MICROSOFT REGIONAL SALES CORPORATION USA CORPORATION USA CORPORATION USA CORPORATION USA C/O MR.ASHWIN RAVINDRANATH C/O MR.ASHWIN RAVINDRANATH C/O MR.ASHWIN RAVINDRANATH C/O MR.ASHWIN RAVINDRANATH PARTNER SRBC & ASSOCIATES PARTNER SRBC & ASSOCIATES PARTNER SRBC & ASSOCIATES PARTNER SRBC & ASSOCIATES GOLF VIEW CORPORATE TOWER B GOLF VIEW CORPORATE TOWER B GOLF VIEW CORPORATE TOWER B GOLF VIEW CORPORATE TOWER B SECTOR SECTOR SECTOR SECTOR- -- -42 SECTOR ROAD 42 SECTOR ROAD 42 SECTOR ROAD 42 SECTOR ROAD GURGAON GURGAON GURGAON GURGAON HARYANA. HARYANA. HARYANA. HARYANA. PAN : PAN : PAN : PAN : AADCA1638A. AADCA1638A. AADCA1638A. AADCA1638A. VS. VS. VS. VS. ADDITIONAL DIRECTOR OF INCOME ADDITIONAL DIRECTOR OF INCOME ADDITIONAL DIRECTOR OF INCOME ADDITIONAL DIRECTOR OF INCOME- -- -TAX TAX TAX TAX INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION RANGE RANGE RANGE RANGE- -- -3 3 3 3 NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NAGESHWAR RAO ADVOCATE AND SHRI RAHUL GARG & SHRI SHAILESH KUMAR CAS. RESPONDENT BY : SHRI D.K.GUPTA CIT-DR. ORDER ORDER ORDER ORDER PER I.C.SUDHIR JM PER I.C.SUDHIR JM PER I.C.SUDHIR JM PER I.C.SUDHIR JM : : : : THE ASSESSEE HAS IMPUGNED ACTION OF LEARNED DISPUTE RESO LUTION PANEL (DRP) CONFIRMING THE ADDITIONS PROPOSED BY TH E ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER AS AGAINST THE RETU RNED INCOME BY HOLDING THAT THE REVENUE EARNED BY THE ASSESSEE FROM SALE OF MICROSOFT SOFTWARE PRODUCTS TO THE INDIAN DISTRIBUTORS IS TAXABLE IN THE HANDS OF THE ASSESSEE AS ROYALTY UNDER THE PROVISIONS OF S ECTION 9(1)(VI) OF THE INCOME-TAX ACT 1961. THIS ACTION O F THE LEARNED DRP HAS BEEN QUESTIONED ON SEVERAL GROUNDS. BESIDES THE ASSESSE E HAS ITA-6092/DEL/2012 2 ALSO QUESTIONED INITIATION OF PENALTY PROCEEDINGS UNDE R SECTION 271(1)(C) OF THE ACT AND LEVY OF INTEREST UNDER SECT ION 234B OF THE ACT. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCE D BY THE PARTIES AND HAVE GONE THROUGH ORDERS OF THE AUTHORITI ES BELOW MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. THE SUBMISSION OF THE LEARNED AR AT THE OUTSET REMAINED T HAT THE ISSUE RAISED IN THE GROUNDS REGARDING CHARGEABILITY OF INCO ME AS ROYALTY IS FULLY COVERED BY THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEARS 2002-03 TO 20 08-09. 3. THE FACTS IN BRIEF ARE THAT MICROSOFT REGIONAL SAL ES CORPORATION (MRSC IN SHORT) THE ASSESSEE IS A COMPANY INCORPORATE D IN USA AND IS A WHOLLY OWNED SUBSIDIARY OF M/S MICROSOFT CORPORATIO N USA (MS CORP). THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIBU TION OF MICROSOFT RETAIL PRODUCTS IN THE ASIA PACIFIC REGION INCLUDING INDIA. THE ASSESSEE IS ENGAGED IN SELLING/LICENSING OF SOFTWARE THROUG H INDEPENDENT DISTRIBUTORS TO THE END USERS UNDER THE EN D USER LICENSE AGREEMENT (EULA). THE CONSIDERATION RECEIVED BY THE ASSESSEE FROM THE DISTRIBUTORS IN INDIA HAS NOT BEEN OFFERED TO TAX IN INDIA ON THE BASIS THAT THEY ARE BUSINESS RECEIPTS AND ARE NOT TAXABLE IN THE ABSENCE OF A PERMANENT ESTABLISHMENT (PE) IN INDIA. 4. MS CORP IS THE SOLE OWNER OF INTELLECTUAL PROPERTY RIGHTS VESTED IN MICROSOFT SOFTWARE. IT HAS GRANTED EXCLUSIVE LICENSE TO MANUFACTURE AND DISTRIBUTE MICROSOFT PRODUCTS TO ONE OF ITS WHOLLY OWNED SUBSIDIARIES M/S GRACEMAC (NOW MERGED WITH MOL CORPORA TION) WHICH IN TURN GRANTED SIMILAR NON-EXCLUSIVE RIGHTS T O ITS WHOLLY OWNED SUBSIDIARIES MICROSOFT OPERATIONS PTE.LTD. SINGAPORE (MO SINGAPORE) TO MANUFACTURE MICROSOFT PRODUCTS IN SINGAPORE AND DI STRIBUTE SUCH ITA-6092/DEL/2012 3 PRODUCTS IN ASIA (EXCLUDING NON-ENGLISH LANGUAGE PROD UCTS IN CHINA AND TAIWAN). THE ASSESSEE HAS BEEN APPOINTED AS A DISTRIB UTOR OF MICROSOFT PRODUCTS IN INDIA BY MO SINGAPORE. 5. THE SALE PROCEEDS RECEIVED BY THE ASSESSEE WERE TREAT ED AS ROYALTY INCOME AND ASSESSED ACCORDINGLY IN EARLIER ASSESSM ENT YEARS SINCE AY 1999-2000. THE SAME WAS CONFIRMED BY THE LEA RNED CIT(A) IN HIS CONSOLIDATED ORDER DATED 14.01.2005 FOR AY 1999-2 000 TO 2001-02. THE TRIBUNAL IN ITS DECISION DATED 26.10.2010 HAS DELE TED THE ADDITION OF THE RECEIPTS AS ROYALTY IN THE CASE OF MRSC AND CO NFIRMED THE SAME ADDITION IN THE HANDS OF M/S GRACEMAC. THE DEPARTMEN T HAS PREFERRED AN APPEAL BEFORE THE HON'BLE DELHI HIGH COURT. IN THIS YEAR ALSO THE FACTS OF THE CASE ARE SAME AS IN EARLIER YEARS THEREFOR E RELYING ON THE STAND TAKEN BY THE DEPARTMENT IN THE EARLIER YEARS T HE ASSESSING OFFICER HAS TREATED THE ENTIRE RECEIPTS FROM LICENSING OF MICROSOFT PRODUCTS TO INDIAN DISTRIBUTORS AS ROYALTY INCOME IN TH E HANDS OF THE ASSESSEE AND HAS TAXED ACCORDINGLY. THE LEARNED DRP HAS APPROVED THIS ACTION OF THE ASSESSING OFFICER. THE ASSESSEE HAS QUESTI ONED THIS ACTION OF THE LEARNED DRP. 6. THE LEARNED DR HAS NOT DISPUTED THE ABOVE SUBMISSION OF THE LEARNED AR THAT THE ISSUE REGARDING THE TREATMENT OF RECEIPTS FROM LICENSING OF MICROSOFT PRODUCTS TO INDIAN DISTRIBUTORS A S ROYALTY INCOME IS COVERED BY THE DECISION OF DELHI BENCH OF THE TRIB UNAL IN THE CASE OF ASSESSEE ITSELF FOR THE EARLIER ASSESSMENT YEARS INCLUDING AY 2007-08 AND 2008-09. A COPY OF THIS ORDER DATED 29.02.2012 OF THE TRIBUNAL IN AY 2007-08 AND 2008-09 IN ITA NO.5477 & 5478/DEL/20 11 HAS BEEN MADE AVAILABLE ON THE RECORD. HE HAS HOWEVER PLAC ED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA-6092/DEL/2012 4 7. HAVING GONE THROUGH THE ABOVE ORDER DATED 29.02. 2012 OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR THE AY 20 07-08 AND 2008- 09 (SUPRA) WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE UNDER SIMILAR SET OF FACTS AND CIRCUMSTANCE S. THE AUTHORITIES BELOW HAVE HELD THAT THE PAYMENT MADE BY THE INDIAN DISTRIBUTORS IS TOWARDS THE USE OF COPYRIGHT AND NOT FO R THE PURCHASE OF COPYRIGHTED ARTICLE AND THEREFORE THE SAME IS ROYAL TY UNDER SECTION 9(1)(VI) OF THE ACT. THEY HAVE ALSO HELD THAT THE A MOUNT RECEIVED BY THE ASSESSEE FULFILLED THE CONDITIONS OF SECTION 9(1)(VI ) OF THE ACT AND HENCE TAXABLE AS ROYALTY IN INDIA. THEY HAVE HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF LICENSING OF SOFTWARE AND NOT ON SALES OF SOFTWARE AND THAT THE AMOU NT RECEIVED BY THE ASSESSEE IS TAXABLE AS ROYALTY IN INDIA EVEN THOUGH THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN IND IA. THEY HAVE HELD FURTHER THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE IS PAYMENT FOR A PROCESS AND IS COVERED BY SECTION 9(1) (VI) OF THE ACT. THEY HAVE HELD THAT THE CONSIDERATION RECEIVED FOR U SE OF SOFTWARE IS TOWARDS CONSIDERATION FOR USE OF PATENTED ARTICLE AND INVENTIONS. AS PER THE AUTHORITIES BELOW THE PAYMENTS MADE FOR IMPO RT OF SOFTWARE ARE ROYALTY PAYMENTS AND THE ONLY EXCEPTION PROVIDED IS FOR COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFACTURER ALONG WITH COMPUTER OR COMPUTER BASED EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY OF COMPUTER SOFTWARE EXPORT SOFTWARE DEVELO PMENT AND TRAINING 1986 OF THE GOVERNMENT OF INDIA. THEY HA VE OBSERVED THAT THE ASSESSEE POSSESSES RIGHT IN COPYRIGHT WHICH IT CAN ENFO RCE IN INDIA IF ANY VIOLATION IS NOTICED BY IT. THE CONTENTION O F THE ASSESSEE REMAINED THAT THE AUTHORITIES BELOW HAVE FAILED TO A PPRECIATE THIS MATERIAL FACT THAT THE OWNER OF COPYRIGHT IN MICROS OFT SOFTWARE PRODUCTS IS MICROSOFT CORPORATION (MS CORP) AND LEGAL ACTION A GAINST THE VIOLATION OF A COPYRIGHT CAN BE UNDERTAKEN ONLY BY THE OWNER OF ITA-6092/DEL/2012 5 COPYRIGHT. WITHOUT PREJUDICE TO THIS CONTENTION IT WAS SUBMITTED FURTHER THAT THE RIGHT OF THE OWNER OF THE COPYRIGH T TO TAKE LEGAL ACTION WOULD NOT ALTER THE NATURE OF THE TRANSACTION FROM T HE SALE OF A COPYRIGHTED ARTICLE TO TRANSFER OF A COPYRIGHT. THE ASSESSEE CONTENDED FURTHER THAT THE LEARNED DRP HAS ERRED IN OBSERVING T HAT THE PROVISIONS OF SECTION 115A OF THE ACT CHARACTERIZES THE INCOME FROM SALE OF SOFTWARE AS ROYALTY UNDER THE ACT IN CASE OF NON-RE SIDENT WITHOUT APPRECIATING THAT SECTION 115 DOES NOT ENLARGE THE SC OPE OF THE TERM ROYALTY AS DEFINED IN SECTION 9(1)(VI) OF THE ACT. AGAINST THE OBSERVATION OF THE LEARNED DRP THAT THE ASSESSEE POSSESSES T HE INTELLECTUAL PROPERTY RIGHTS (IPR) IN THE SOFTWARE WH ICH IT HAD FURTHER LICENSED TO DISTRIBUTORS DISREGARDING THE FACT THAT THE ASSESSEE WAS ENGAGED IN ONLY DISTRIBUTION OF MICROSOFT SOFTWARE PR ODUCTS TO DISTRIBUTORS/RESELLERS OUTSIDE INDIA AND NO RIGHTS HAVE B EEN PASSED BY THE ASSESSEE TO THE DISTRIBUTORS IN THE ENTIRE TRANSACTION IT WAS FURTHER CONTENDED BY THE ASSESSEE THAT THE LEARNED DRP HAS ERRED IN MAKING OBSERVATION THAT THE DEFINITION OF ROYALTY IS NOT AMB IGUOUS AND THE EXPRESSION COPYRIGHTED ARTICLE DOES NOT FIND ANY MEN TION IN THE ACT OR IN THE TREATY. WHILE DOING SO THE LEARNED DRP HAS F AILED TO APPRECIATE THAT THE SAID DISTINCTION BETWEEN COPYRIGHTED ARTICL E AND COPYRIGHT IS RECOGNIZED BY OECD COMMENTARIES US IRS REGULATIONS INTERNATIONAL TAX COMMENTARIES AND BY COURTS IN VARIOUS CASES LIKE HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ERICSSON A.B. AND NOKIA NETWORKS OY. THE ASSESSEE HAS ALSO QUESTIONED THE FINDING OF THE LEARNED DRP UPHOLDING THE DRAFT ASSESSMENT ORDER THAT REVENUE EARNED BY THE ASSESSEE FROM SALE OF MICROSOFT RETAIL PROD UCTS TO DISTRIBUTORS IN INDIA IS ROYALTY UNDER ARTICLE 12 OF T HE INDIA US TAX TREATY AND THAT THE PAYMENTS RECEIVED BY THE ASSESSEE WE RE DEEMED TO ARISE IN INDIA UNDER ARTICLE 12(7) OF THE INDIA U S TAX TREATY. WHILE DOING SO THE LEARNED DRP HAS DISREGARDED THE FACT THA T THE REVENUE ITA-6092/DEL/2012 6 EARNED BY THE ASSESSEE IS FROM THE SALE OF MICROSOFT SOFTW ARE PRODUCTS TO THE INDIAN DISTRIBUTORS EX-WAREHOUSE SINGAPORE. IT WAS CONTENDED THAT THE LEARNED DRP HAS ALSO ERRED IN HOLDING THAT THE REVENUE EARNED AND RECEIVED FROM SALE OF MICROSOFT SOFTWARE PR ODUCTS BY THE ASSESSEE TO INDIAN DISTRIBUTORS IS TAXABLE IN INDIA UNDER THE PROVISIONS OF ARTICLE 12(2) AND ARTICLE 12(3)(A) OF THE INDIA US TAX TREATY. THE ASSESSEE CONTENDED THAT THE AUTHORITIES BELOW HAVE ERRED IN NOT APPRECIATING THAT THE DEFINITION OF ROYALTY IS DIFFE RENT IN THE ACT AND THE INDIA US TAX TREATY. THE BENEFITS AVAILABLE UNDER T HE INDIA US TAX TREATY WOULD STILL BE AVAILABLE TO THE ASSESSEE AS THE AM ENDMENT IN THE FINANCE ACT 2012 WOULD NOT IMPACT THE TREATY I NTERPRETATION OF THE TERM ROYALTY UNDER ARTICLE 12. THE AUTHORITIES BE LOW HAVE FAILED TO APPRECIATE THAT THE SALE OF SOFTWARE IS THE SALE OF CO PYRIGHTED ARTICLE AND NOT COPYRIGHT AND ACCORDINGLY THE REVENUE FRO M SALE OF SOFTWARE IS IN THE NATURE OF BUSINESS INCOME NOT TAXABLE UNDER A RTICLE 7 OF THE INDIA US TAX TREATY IN THE ABSENCE OF THE PE OF THE ASSESSEE IN INDIA. THEY HAVE ALSO ERRED IN OBSERVING THAT ONLY TWO TYPES OF TRANSACTIONS IN RESPECT OF COMPUTER SOFTWARE I.E. SALE AND LICENSE ( LETTING) ARE RECOGNIZED BY THE INDIAN LAWS AND INDIA US TAX TREAT Y AND NO FURTHER DISSECTION OF LICENSING (ON THE LINES OF OECD COMMENTAR IES) IS PERMITTED UNDER THE INDIAN COPYRIGHT ACT INCOME-TA X ACT AND INDIAN TAX TREATIES. 8. THERE IS NO DISPUTE THAT THE FACTS RELATING TO THE ISSUE ARE SIMILAR WITH THE FACTS OF THE CASE OF THE ASSESSEE IN THE AY 200 2-03 TO 2008- 09. DURING THE AY 2007-08 & 2008-09 THE TRIBUNAL IN THE CASE OF THE ASSESSEE HAS DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE A SSESSEE FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL ON THE ISSUE IN THE AY 2002- 03 TO 2006-07. AFTER DISCUSSING THE ISSUE IN DETAIL AS W ELL AS ITS FINDING FOR THE AY 2002-03 TO 2006-07 THE TRIBUNAL HAS DECI DED THE ISSUE WITH ITA-6092/DEL/2012 7 THIS FINDING THAT SUCH ROYALTY CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE AS IT WILL TANTAMOUNT TO ASSESS THE SAME INCOME WHIC H HAS BEEN ASSESSED IN THE HANDS OF M/S GRACEMAC. THOUGH IT HA S BEEN HELD BY THE TRIBUNAL THAT THE AMOUNT WAS IN THE NATURE O F ROYALTY BUT IT WAS HELD THAT THE SAID AMOUNT CANNOT BE ASSESSED IN THE HANDS OF THE PRESENT ASSESSEE AS IT HAS BEEN HELD TO BE TAXABLE IN THE HANDS OF M/S GRACEMAC CORPORATION. THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S GRACEMAC CORPORATION DECIDED ALONG WITH THE ASSESSEE IN THE AY 1999- 2000 IS REPORTED IN 132 TTJ 257 (DEL). QUOTING THE FINDING OF THE TRIBUNAL IN THE CASE OF M/S GRACEMAC CORPORATION (SUP RA) THE TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN ITA NOS.5477 & 5478/D EL/2011 FOR AY 2007-08 AND 2008-09 VIDE FOLLOWING PARAGRAPHS:- 6. THE ITAT THEREAFTER NOTICED THE FACTS FROM THE O RDER OF THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 1999-00 AND OTHER YEARS WHICH ARE COMMON IN THESE ASSESSMENT YEARS ALSO. THE FACTS NOTICED BY THE ITAT AS WELL AS THE FINDINGS OF THE ITAT RECORDED IN THE CASE OF M/S. GRAC EMAC CORPORATION REPORTED IN 132 TTJ 257 READ AS UNDER: 4. THE BASIC FACTS AS FOUND MENTIONED IN THE CONSOLIDATED ORDER PASSED BY THE CIT (A) IN RESPECT OF ASSESSMENT YEARS 1999-2000 2000-01 AND 2001-02 ARE AS UNDER:- 4. FACTS OF THE CASE THE APPELLANT IS A COMPANY INCORPORATED IN US AND IS A WHOLLY OWNED SUBSIDIARY ('WOS') OF MICROSOFT CORPORATI ON USA ('MS CORP') WITH A BRANCH IN SINGAPORE. THE OPE RATING STRUCTURE OF THE DISTRIBUTION MODEL ALONG WITH THE FL OW OF DISTRIBUTION RIGHTS FROM MS CORP TO APPELLANT THROUGH GRACEMAC CORPORATION USA ('GRACEMAC') AND MICROSOFT OPERATIONS PTE LIMITED SINGAPORE (MO') WAS EXPLAINE D BY APPELLANT AS FOLLOWS: GRACEMAC IS A COMPANY INCORPORATED UNDER THE LAWS OF USA ON SEPTEMBER 23 1994 HAVING ITS REGISTERED OFFIC E AT 300 SOUTH FOURTH STREET SUITE 1100 LAS VEGAS NEVAD A USA-89109. GRACEMAC IS A WOS OF MS CORP. MS CORP ENTERED INTO A PARENT SUBSIDIARY AGREEMENT ('PSA'') WITH ITA-6092/DEL/2012 8 GRACEMAC ON JANUARY 1 1999 WHEREIN MS CORP HAD GRANTED GRACEMAC 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 DIRE CTLY GRANT CUSTOMERS THE RIGHT TO REPRODUCE MICROSOFT SOFTWA RE PRODUCTS FOR INTERNAL USE. IN LIEU OF THE ABOVEMENTIONED RIGHTS GRACEMAC HAS ISSU ED ITS ENTIRE SHARE CAPITAL TO MS CORP. IN PURSUANCE OF THE RIGHTS GRANTED UNDER THE PSA GRACEMAC HAS ENTERED INTO A LICENSE AGREEMENT WITH MO (A COMPANY INCORPORATED UNDER THE LAWS OF SINGAPORE AND A WOS OF MS CORP) ON JANUARY 1 1999 WHEREIN GRACE MAC HAS GRANTED MO THE: A) NON-EXCLUSIVE LICENSE TO MANUFACTURE MICROSOFT PRODUCTS IN SINGAPORE; B) NON-EXCLUSIVE LICENSE TO DISTRIBUTE THE PRODUCTS SO MANUFACTURED TO RETAILERS OR TO MS CORP OR TO SUBSIDI ARIES OF MS CORP; AND C) NON-EXCLUSIVE RIGHT TO LICENSE OR SUBLICENSE THE RIG HT 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 BA SIS OF THE NET SELLING PRICE OF MICROSOFT PRODUCTS MANUFACTUR ED BY MO AND DISTRIBUTED TO RETAILERS MS CORP OR SUBSIDIARIE S OF MS CORP. 4.1 IN TURN MO HAS ENTERED INTO A NON-EXCLUSIVE DISTRIBUTION AND INTER-COMPANY SERVICES AGREEMENT ('DISTRIBUTION AGREEMENT') WITH THE APPELLANT WHERE IN APPELLANT WAS APPOINTED AS A DISTRIBUTOR OF MICROSOFT PRODUCTS MANUFACTURED BY MO. APPELLANT WAS GIVEN THE RIGHT TO DISTRIBUTE MICROSOFT PRODUCTS IN ASIA (WITH ITA-6092/DEL/2012 9 RESTRICTIONS IN CHINA KOREA AND TAIWAN) JAPAN SOUT H EAST ASIA AND THE SOUTH PACIFIC. THE ASSESSEE DID NOT HAVE AN Y RIGHT TO COPY ADAPT ETC. THE SOFTWARE. THE DISTRIBUT ION AGREEMENT SPECIFIES THAT MO WOULD SHIP THE PRODUCTS TO SUCH ADDRESSES (OF THE ASSESSEE OR ITS APPROVED DISTRIBUTORS) AS SPECIFIED BY THE APPELLANT. FURTHER E XCEPT FOR AUSTRALIA AND JAPAN THE TITLE OF THE PRODUCTS H AS BEEN AGREED TO BE TRANSFERRED TO APPELLANT IN SINGAPORE W HICH EVIDENCES THE FACT THAT DELIVERY TAKES PLACE OUTSIDE I NDIA. 4.2 MO HAD AGREED TO SELL THE PRODUCTS TO APPELLANT A T A PRICE EQUAL TO 95% OF THE PRICE AT WHICH APPELLANT SELLS THE PRODUCT TO APPROVED DISTRIBUTORS OR OTHER MS CORP AFFILIATES. PURSUANT TO THE DISTRIBUTION AGREEMENT TH E ASSESSEE HAD ENTERED INTO AGREEMENTS WITH VARIOUS DISTRIBUTORS IN 'APPROVED TERRITORIES'. THE DISTRIBUTOR S HAD A RIGHT TO DISTRIBUTE THE PRODUCTS IN INDIA. THE PRODUC TS SUPPLIED BY THE ASSESSEE ARE OFTEN STOCKED BY DISTRIBUTOR S AND THEN SUPPLIED AGAINST SPECIFIC ORDERS. THE PRODUCTS WERE DELIVERED BY THE ASSESSEE TO DISTRIBUTORS 'EX WAREHOUSE' FROM THE WAREHOUSING FACILITY NOMINATED BY THE ASSESSEE. FURTHER THE DISTRIBUTOR SOLD THE PRODUCTS TO A RESELLER IN INDIA WHO IN TURN SOLD IT TO A CONSUMER/ DISTRIBUTOR SELLS DIRECTLY TO CONSUMERS. THE RESELLERS/ CONSUMERS DID NOT HAVE THE RIGHT TO MAKE COPIES OF THE SOFTWARE FOR 'COMMERCIAL EXPLOITATION'. THE DISTRIBUT OR WAS NOT LIABLE TO PAY THE ASSESSEE ONLY UPON SALE BY THE DISTRIBUTOR TO THE RESELLER/ CONSUMER. IT WAS LIABLE TO PAY THE ASSESSEE EVEN IF IT WAS NOT ABLE 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 IN DIA WAS IN THE NATURE OF BUSINESS PROFIT IN THE YEARS UNDER CONSIDERATION AND WAS NOT TAXABLE IN INDIA AS APPELLA NT DID NOT HAVE A PE IN INDIA UNDER PROVISIONS OF DOUBLE TAX ATION AVOIDANCE AGREEMENT 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 CLAIMED THAT BUSINESS INCOME OF APPELLANT WAS NOT TAXABLE IN INDIA F OR THE YEARS UNDER CONSIDERATION ACCORDINGLY APPELLANT DID NOT FILE RETURNS OF INCOME FOR THE YEARS UNDER ITA-6092/DEL/2012 10 CONSIDERATION. LATER ON THE AO ISSUED NOTICE TO THE APPELLANT FOR THE YEARS UNDER CONSIDERATION U/S 148 O F THE ACT. IN RESPONSE TO NOTICE APPELLANT FILED RETURN OF INCOME DECLARING NIL INCOME FOR THE YEARS UNDER CONSIDERATIO N STATING ABOVE REASONS FOR NON TAXABILITY OF ITS BUSINESS PROFIT IN INDIA. LATER ON THE CASES OF APPELLANT FOR THE YEARS WERE SELECTED FOR SCRUTINY BY ISSUE AND SERVICE OF NOTI CE U/S .143(2). DURING THE COURSE OF SCRUTINY ASSESSMENT 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 AND US$ 8 35 51 260 UNDER THE HEAD 'ROYALTY' AGAINST THE NIL INCOME DISCLOSED BY THE APPELLANT IN THE RETURNS OF INCOME FILED FOR THE YEARS UNDER CONSIDERATION FOR FO LLOWING GROUNDS: A) THE SOFTWARE FALLS UNDER THE CATEGORY 'SECRET FORMULA OR PROCESS' AND THE SOFTWARE WHEN INSTALLED ON A COMPUTER RESPOND TO EVERY INSTRUCTION IN A SPECIFIC WAY. ACCO RDINGLY THE TOTAL REVENUE RECEIVED BY THE APPELLANT FROM SAL E OF SOFTWARE IN INDIA WAS ROYALTY. 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 DTAA. 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 TH E TRIBUNAL WAS FILED AND THE SAID APPEALS HAVE BEEN DEC IDED BY THE TRIBUNAL ALONG WITH THE APPEALS IN THE CASE OF M/S GRACEMAC CORPN. VS. ASSTT. DIRECTOR OF INCOME-TAX INTERNATIONAL TAX DIVISION CIRCLE 2 (1) NEW DELHI AND APPEALS OF M/S MICROSOFT CORPORATION VS. ASSTT. DIRECTOR OF INCOME-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 TR IBUNAL THAT THE SAID AMOUNT WAS IN THE NATURE OF ROYALTY BU T IT WAS HELD THAT THE SAID AMOUNT CANNOT BE ASSESSED IN THE ITA-6092/DEL/2012 11 HANDS OF THE PRESENT ASSESSEE AND IT HAS BEEN HELD TO BE TAXABLE IN THE HANDS OF THE GRACEMAC CORPN. THE REL EVANT OBSERVATIONS OF THE TRIBUNAL WHILE HOLDING SO ARE CONT AINED IN PARA 128 AND 132 AND IT WILL BE RELEVANT TO REPR ODUCE THE SAID OBSERVATIONS OF THE TRIBUNAL WITH REGARD TO TAXABILITY OR OTHERWISE OF THE AFOREMENTIONED AMOUNT IN THE HANDS OF THE ASSESSEE:- 128. FROM THE ABOVE IT IS EVIDENT THAT MRSC WAS ALSO AUTHORIZED TO REPRODUCE CERTAIN PRODUCTS AND DISTRI BUTE THE SAME TO END USERS THROUGH THE DISTRIBUTORS APPOINTED BY MRSC. MRSC VIDE AGREEMENT DATED 3RD MAY 1999 WAS AUTHORIZED TO COPY THE MARKETING PROGRAMMES IN OBJECT CODE FORM FROM THE MASTER COPY PROVIDED BY MICROSOFT OPERATIONS (MO) ON TO EITHER DISKETTES OR SUCH APPROVED MEDIA AND PREPARE THE PROD UCT DOCUMENTATION AND PACKAGING BASED ON THE MATERIAL PROVIDED AND APPROVED BY MO. WE WOULD LIKE TO MEN TION HERE THAT SOURCE CODE AND OBJECT CODE HAVE COPYRIGH T. THEREFORE MRSC ALSO GOT RIGHT TO USE COPYRIGHT IN COMPUTER PRODUCTS FROM SUB-LICENCEE (MO). EACH PRODUCT PACKAGE WOULD INCLUDE A PRE-APPROVED DISKETTES LABEL ATTACHED TO THE DISKETTES AND MS CO RP. STANDARD END USER LICENCE AGREEMENT FOR THE TERRITORY . FROM THE ABOVE IT IS EVIDENT THAT MRSC IS NOT SIMPLY A DISTRIBUTOR APPOINTED BY MICROSOFT OPERATIONS BUT WAS AUTHORIZED TO REPRODUCE CERTAIN COMPUTER PROGR AMMES. THE END USER LICENCE AGREEMENT WAS TO BE IN THE STANDARD FORMAT OF MICROSOFT CORPORATION. ARTICLE 3.2 ALSO PROVIDES THAT THE MARKETING PROGRAMME RELEASED BY THE DISTRIBUTOR WILL BE APPROXIMATELY EQUIVALENT IN QUA LITY OF THE SOFTWARE PRODUCT MANUFACTURED BY MS CORP. THE MICROSOFT OPERATION ALSO PROVIDED UP-DATED MASTER COPI ES OF MARKETING PROGRAMMES AS AND WHEN THE SAME WERE UP- DATED BY MS CORP. SINCE THE MICROSOFT CORPORATION HAS GRANTED THE RIGHT TO REPRODUCE AND DISTRIBUTE MICROSOFT PRODUCTS IN LIEU OF SHARES TO GRACEMAC AND NO FU RTHER ROYALTY IS PAYABLE BY GRACEMAC AND ALSO THE END USER LICENCE AGREEMENT IS TO BE IN THE STANDARD FORMAT O F MICROSOFT CORPORATION THE MICROSOFT CORP. IS UNDER OBLIGATION TO SIGN EULA ON BEHALF OF GRACEMAC. THUS IT HAS TO BE LOGICALLY CONCLUDED THAT MICROSOFT CORP ORATION HAS SIGNED THE EULA ON BEHALF OF GRACEMAC TO WH OM EXCLUSIVE RIGHTS TO MANUFACTURE AND DISTRIBUTE MICROSOFT PRODUCTS HAVE BEEN GRANTED OTHERWISE TH E PRODUCTS WOULD HAVE BEEN RENDERED USELESS AND NO ITA-6092/DEL/2012 12 REVENUE COULD HAVE BEEN EARNED BY ANYONE IN T HE SUPPLY CHAIN. MICROSOFT CORPORATION HAS DEVISED A SCHEME UNDER WHICH EULA HAS TO BE SIGNED BY MICROSOFT CORP. AND NOT BY GRACEMAC CORPORATION. HENCE ASSESSEE CANNOT BE PERMITTED TO TAKE A PLEA THAT SINCE EULA H AS BEEN SIGNED BETWEEN END USERS AND MICROSOFT CORP. NO LICENCE WAS GRANTED BY GRACEMAC AND CONSEQUENTLY THE ROYALTY PAYMENTS WILL NOT BE CHARGEABLE TO TA X IN THE HANDS OF GRACEMAC. THE AGREEMENTS ENTERED INTO BETWEEN GROUP COMPANIES HAVE DRAFTED IN SUCH A WAY WHICH GIVE AN IMPRESSION THAT GRACEMAC CORPORATIO N HAS NO CONNECTION WITH THE GRANTING OF LICENCE. THE REAL TRANSACTION OF THE GRANTING OF THE LIC ENCE IN RESPECT OF COPYRIGHTS IN COMPUTER PROGRAMMES HAVE 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 REA L INTENTION IS GATHERED FROM THE IN-DEPTH READING OF THE AGREEMENTS THE MATTER BECOMES CRYSTAL CLEAR. SINCE WE HAVE HELD THAT END USERS HAVE MADE PAYMENTS IN RESPECT OF THE GRANTING OF LICENCE IN RESPECT OF C OPYRIGHT IN COMPUTER PROGRAMMES THE PAYMENTS MADE BY END- USERS AS CONSIDERATION FOR THE SAME WILL BE TAXABLE IN T HE 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 APPOINTMENT 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 INCOME UNDER SECTION 9(1)(I) OF THE AC T. BUT SINCE THE ASSESSING OFFICER AS WELL AS THE LD. C IT (APPEALS) HAS CHOSEN TO ASSESS THE ENTIRE RECEIPTS UNDER THE HEAD 'ROYALTY' IN THE HANDS OF MRSC ALSO IN OUR CONSIDERED OPINION MRSC CANNOT BE TAXED AGAIN ON TH E SAME INCOME BY WAY OF ROYALTY FOR EXPLOITATION OF SAM E RIGHTS WHICH HAD BEEN ASSESSED IN THE HANDS OF GRACEMAC OTHERWISE IT WOULD RESULT IN DOUBLE TAXATION. THEREF ORE WE DELETE THE ADDITION IN THE HANDS OF MRSC FOR ALL THE THREE YEARS. 7. THE QUESTION INVOLVED IN THE QUANTUM APPEALS FILED BY THE REVENUE IS WHETHER LEARNED CIT (A) IS RIGHT I N ITA-6092/DEL/2012 13 DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AFOREMENTIONED ROYALTY. THE LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE AFOREMENTIONED DECISION OF THE TRIBUNAL WHEREIN ON SIMILAR FACTS IT HAS BEEN HEL D BY THE TRIBUNAL THAT SUCH ROYALTY CANNOT BE ASSESSED IN TH E HANDS OF THE ASSESSEE AS IT WILL TANTAMOUNT TO ASSESS THE SAME INCOME WHICH HAS BEEN ASSESSED IN THE HANDS OF GRACEMAC AND IT HAS BEEN HELD BY THE TRIBUNAL THAT T HE AFOREMENTIONED AMOUNT OF ROYALTY CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE AS THE SAME IS TAXABLE IN THE HANDS OF THE GRACEMAC. THEREFORE IT IS THE CASE OF T HE LEARNED AR THAT FOR ALL THE AFOREMENTIONED YEARS IN WHICH LEARNED CIT (A) HAS GRANTED RELIEF TO THE ASSESSEE IN QUANTUM WILL BE COVERED BY THE AFOREMENTIONED DECI SION AND HENCE THE ORDER OF THE CIT (A) FOR DELETION O F THE AFOREMENTIONED AMOUNT SHOULD BE UPHELD. AS AGAINST T HAT IT IS THE CASE OF THE LEARNED DR THAT ROYALTY HAS RIG HTLY BEEN ASSESSED IN THE HANDS OF THE ASSESSEE AND LEARNED CIT (A) HAS WRONGLY DELETED THE SAME. 8. IN THE PENALTY PROCEEDINGS IT IS THE CASE OF THE LEARNED AR THAT IT HAS BEEN HELD BY THE TRIBUNAL THA T INCOME IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE. THEREFORE HE PLEADED THAT THERE IS NO QUESTION OF LE VY OF CONCEALMENT PENALTY ON THE ASSESSEE. HE SUBMITTED THAT LEARNED CIT (A) THOUGH HAS DELETED THE PENALTY ON ME RITS AND THEREFORE IT IS THE CASE OF THE LEARNED AR THAT PENALTY HAS RIGHTLY BEEN DELETED BY THE CIT (A) AND HIS ORDER SHOULD BE UPHELD. 9. IN RESPECT OF APPEAL FILED BY THE ASSESSEE IT IS 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 THAT THE ASSESSEE IS ASSESSABLE IN RESPECT OF ROYALTY. HE SUBMITTED THAT THE ORDER OF DRP IS NOT I N CONFORMITY WITH THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE AND THE AFOREMENTIONED DECISION OF THE TRIBU NAL WILL BE EQUALLY APPLICABLE FOR THAT YEAR ALSO AND T HEREFORE THE ADDITION MADE BY THE DEPARTMENT FOR THAT YEAR SH OULD BE DELETED. 10. ON THE OTHER HAND IT IS THE CASE OF THE LEARNED DR THAT THE ADDITION HAS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER AND HIS ORDER SHOULD BE CONFIRMED. ITA-6092/DEL/2012 14 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT HAS B EEN HELD BY THE TRIBUNAL IN AFOREMENTIONED DECISION THAT THOU GH THE AMOUNT CONSTITUTE ROYALTY BUT THE SAME IS NOT ASSESSABLE IN THE HANDS OF THE PRESENT ASSESSEE. ONE OF US (AM ) IS PARTY TO THE AFOREMENTIONED DECISION. NO CASE HAS BEE N MADE OUT BY THE DEPARTMENT TO DIFFER FROM THE EARLI ER DECISION WHICH HAS BEEN FOUND TO BE DELIVERED ON THE BASIS OF SIMILAR FACTS. THE FACTS FOR ALL THE YEARS ARE SIMIL AR AND THIS FACT IS NOT DISPUTED BY THE REVENUE. THEREFORE RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUNAL THE RELEVANT OBSERVATIONS OF WHICH HAS ALREA DY BEEN REPRODUCED WE HOLD IN THE QUANTUM APPEALS THAT THE ADDITIONS HAVE RIGHTLY BEEN DELETED BY LEARNED CIT ( A) AND WE DECLINE TO INTERFERE IN HIS ORDER. SIMILARLY FO R PENALTY APPEALS AS INCOME HAS NOT BEEN HELD TO BE ASSESSABLE IN THE HANDS OF THE ASSESSEE WE FIND NO JUSTIFICATION IN L EVY OF PENALTY THEREFORE THE ORDER OF THE CIT (A) DELETI NG THE PENALTY IS UPHELD ON THE GROUND THAT AS THE INCOME IT SELF IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE ACCORDING TO THE AFOREMENTIONED ORDER OF THE TRIBUNAL THERE IS N O QUESTION OF LEVY OF PENALTY. 12. SO FAR AS IT RELATES TO ASSESSEES APPEAL THE FACTS BEING SIMILAR ADOPTING THE SIMILAR VIEW WHICH HAS BEE N ADOPTED BY THE TRIBUNAL IN EARLIER DECISION IN THE C ASE OF THE ASSESSEE WE FIND NO JUSTIFICATION IN ASSESSABILITY OF AFOREMENTIONED ROYALTY IN THE HANDS 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 ALLOWED IN THE MANNER AFORESAID. 7. RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT WE ARE OF THE VIEW THAT THOUGH THE AMOUNT CONSTITUTES ROYALTY B UT THE SAME IS NOT ASSESSABLE IN THE HANDS OF THE PRESENT ASSESSEE. ACCORDINGLY THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 IS ALLOWED PARTLY AND THE APPEAL FOR ASSESSMENT YEAR 2008-09 IS ALLOWED AND THE ADDITIONS ARE DELETED. 9. RESPECTFULLY FOLLOWING THE ABOVE DECISION ON THE I SSUE WE HOLD THAT THOUGH THE AMOUNT IN QUESTION CONSTITUTES ROYALTY BUT THE SAME IS NOT ASSESSABLE IN THE HANDS OF THE PRESENT ASSESSEE AS THE SAME HAS ITA-6092/DEL/2012 15 BEEN HELD TAXABLE IN THE HANDS OF M/S GRACEMAC CORPOR ATION. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED PARTLY. 10. SO FAR AS THE GROUND RELATING TO INITIATION OF P ENAL ACTION UNDER SECTION 271(1)(C) IS CONCERNED IT IS PREMATURE. HE NCE IT DOES NOT NEED ADJUDICATION. THE SAME IS REJECTED AS SUCH. 11. THE CHARGING OF INTEREST UNDER SECTION 234B QUEST IONED BY THE ASSESSEE IS CONSEQUENTIAL IN NATURE. HENCE IT DOES NOT NEED SEPARATE ADJUDICATION. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 5 TH JULY 2013. SD/- SD/- ( (( (TARVINDER SINGH KAPOOR TARVINDER SINGH KAPOOR TARVINDER SINGH KAPOOR TARVINDER SINGH KAPOOR) )) ) (I.C.SUDHIR (I.C.SUDHIR (I.C.SUDHIR (I.C.SUDHIR) )) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 05.07.2013 VK. COPY FORWARDED TO: - 1. APPELLANT : M/S MICROSOFT REGIONAL SALES CORPORAT ION USA M/S MICROSOFT REGIONAL SALES CORPORATION USA M/S MICROSOFT REGIONAL SALES CORPORATION USA M/S MICROSOFT REGIONAL SALES CORPORATION USA C/O MR.ASHWIN RAVINDRANATH C/O MR.ASHWIN RAVINDRANATH C/O MR.ASHWIN RAVINDRANATH C/O MR.ASHWIN RAVINDRANATH PARTNER SRBC & ASSOCIATES PARTNER SRBC & ASSOCIATES PARTNER SRBC & ASSOCIATES PARTNER SRBC & ASSOCIATES GOLF VIEW CORPORATE TOWER B SECTOR GOLF VIEW CORPORATE TOWER B SECTOR GOLF VIEW CORPORATE TOWER B SECTOR GOLF VIEW CORPORATE TOWER B SECTOR- -- -42 SECTOR ROAD 42 SECTOR ROAD 42 SECTOR ROAD 42 SECTOR ROAD GURGAON HARYANA. GURGAON HARYANA. GURGAON HARYANA. GURGAON HARYANA. 2. RESPONDENT : ADDITIONAL DI ADDITIONAL DI ADDITIONAL DI ADDITIONAL DIRECTOR OF INCOME RECTOR OF INCOME RECTOR OF INCOME RECTOR OF INCOME- -- -TAX TAX TAX TAX INTERNATIONAL TAXATION RANGE INTERNATIONAL TAXATION RANGE INTERNATIONAL TAXATION RANGE INTERNATIONAL TAXATION RANGE- -- -3 NEW DELHI. 3 NEW DELHI. 3 NEW DELHI. 3 NEW DELHI. 3. CIT 4. CIT(A) 5. DR ITAT ASSISTANT REGISTRAR