K.D. Ranjan, Accountant Member. - These group of appeals by three different assessees arise out of separate orders of the ld. CIT (Appeals)-XXIX, New Delhi. These appeals were heard together and, for the sake of convenience, are being disposed of by this consolidated order.

2. The appeal for assessment year 1996-97 of M/s. Microsoft Corporation in ITA No. 1392 (Delhi) of 2005 and three appeals in ITA Nos. 1393/Delhi/2005 to 1395/Delhi/2005 for assessment years 1999-2000 to 2001-02 of Microsoft Regional Sales Corporation (MRSC) were heard together and thereafter 6 appeals of Gracemac Corporation in I.T. Appeal Nos. 1331, 1332, 1333, 1334, 1335 and 1336 (Delhi) of 2008 for assessment years 1999-2000 to 2004-05 were also heard. The issues involved in the appeals are common and both assessees and Revenue have requested that the arguments and submissions for all the appeals should be considered together.

3. Microsoft Corporation (MS Corp) in its return filed for AY 1996-97 offered its income from licensing of software to Original Equipment Manufacturers (OEM) to tax and did not offer to tax its income from sale of Microsoft software products to Indian Distributors. The assessing officer, however, taxed the payments received from Indian Distributors as ‘royalty’ under section 9(1)(vi) of Income-tax Act, 1961 and Indo-US DTAA. Against the said order, MS Corp filed appeal before CIT(A) and while passing an order CIT(A) also confirmed the addition made to the income of MS Corp. Against this order, assessee is in appeal before this Tribunal.

4. For AY 1999-2000 to 2001-02 in case of MRSC, the payments received from Indian distributors on sale of Microsoft software products were not offered to tax as royalty. However, the assessing officer assessed the entire payments in the hands of MRSC as royalty income on the ground that payments have been received towards licensing of Microsoft software products which amounts to grant of right in Intellectual Property Rights (IPRs). On appeal against the order of assessing officer, ld. CIT(A) has considered that the software is being licensed and not sold and accordingly the consideration received for supply of software should be taxed as royalty. Against this order the assessee is in appeal before this Tribunal.

5. In case of Gracemac for assessment years 1999-2000 to 2004-05, the assessing officer had taxed the payments made by MO Singapore to Gracemac, USA @ 35 per cent/40 per cent of net sales consideration received by MRSC from Indian distributors in India under section 9(1)(vi)(c) of the Act and Article 12(7)(b) of the Indo-US Double Taxation Avoidance Agreement (DTAA) on the ground that Gracemac’s source of royalty is MO which distributes Microsoft software products in India through MRSC and accordingly, Gracemac is getting royalty out of the licensing of Microsoft software products carried out in India. The assessing officer also held that the royalty received from MO is taxable under Article 12(7)(b) of the India US DTAA as the payment to Gracemac is based on the number of users of Intellectual Property Rights in India. Ld. CIT(A), however enhanced the assessment by bringing the entire consideration received by MRSC from Indian distributors on the contention that MRSC and MO are legal façade. To this extent, the same revenue is being taxed in case of MRSC and Gracemac for the Assessment Years 1999-2000 to 2001-02 and this according to assessee has resulted in double taxation for these Assessment Years.

6. For sake of convenience as identical issue is involved in these cases, we will take up appeal filed by assessee in the case of Gracemac Corporation in I. T. Appeal Nos. 1331 to 1336 (Delhi) of 2008 for Assessment years 1999-2000 to 2004-05. The grounds of appeal raised by the assessee are as under:—

"On the facts and in the circumstances of the case, the ld. Commissioner of Income-tax (Appeals), XXIX, Delhi ["ld. CIT (A)] has :

1.Erred in law in determining the income of Gracemac Corporation