Royalty receipts on software distribution were deleted from assessment where the same income was already taxed in another entity's hands.

Receipts from sale and distribution of Microsoft software products were treated as royalty in character, but were not assessable in the assessee's hands because the same income had already been held taxable in the hands of M/s Gracemac Corporation. Following the Tribunal's earlier view on identical facts, the addition was deleted. The penalty ground was treated as premature, and the interest ground was held to be consequential and dependent on the final tax outcome. The appeal was thus allowed partly.

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Issues: Whether the receipts from sale and distribution of Microsoft software products to Indian distributors were assessable as royalty in the hands of the assessee under the Income-tax Act, 1961 and the India-US tax treaty.

Analysis: The issue was identical to the assessee's earlier years and had already been decided by the Tribunal on similar facts. Following that binding view, the Court held that although the receipts constituted royalty in character, they were not assessable in the hands of the present assessee because the same income had already been held taxable in the hands of M/s Gracemac Corporation. The penalty ground was treated as premature, and the interest ground was held consequential.

Conclusion: The addition was deleted in the hands of the assessee. The appeal was allowed partly, while the penalty issue was rejected as premature and the interest issue was left to follow the result.

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