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4. As regards taxation of the software embedded in the telecom equipment or provided to the customers separately, the AO had show caused the assessee as to why the payments received or attributed for the supply of software emedded in the telecom equipment or software supplied to the various customers in India should not be treated as royalty u/s 9(1)(vi) of the Act and also under Article 12(3) of the DTAA between India and ITA 5870/Del/12 & ors. - ZTE Corporation China. The assessee had advanced following submissions, which have been summarized in para 11.1 of his order as under:

- No access to the "source cosies" in the software is granted to the customer.

- The payment for software is not related to the productivity, use or number of subscribers.

- The customers do not have the right to commercially exploit the software.

- The supply of software is in the nature of transfer of copyrighted article" and not transfer of "a copyrighted right".

(B) Legal Submissions Revenue from sale of computer software is in the nature of payment for the use of copyrighted article as against payment for use of a copyright in the software and hence such payment shall not constitute royalty under India- China tax treaty.

- The term "copyrighted article" is not defined in the Indian Copyright Act. The assessee has assigned the customers "the right to use the software" . The assignment of such rights does indicate that the customers have been given the "right to use the copyrighted right in the software". "

- The risk and title passed to the customer in the case of hardware but not in the case of software. As per the terms of the contract between the assessee and the customers, the buyer has no title or ownership rights. Buyer can neither license nor sell nor alienate or part with its possession. In view of this the said transaction is not a sale as per Sale of Goods Act but it is a limited right to use the software and hence the payment for the same is in the form of royalty .

58,40,406/- as under:

"13. As per the details submitted by the assessee, it has received an amount of Rs. 58,40,406/- [Rs.1 ,33, 16,020/- (representing total value of telecom equipment) - Rs.74,75,614/- (representing hardware component of the telecom equipment)] for supply of software from customers in India. This amount of Rs.58,40,406/- is treated as royalty under the Act and also under the Indo-China DTAA. As per Article 12(2) of the Indo- China tax treaty read with Section 90(2) of the Act, 10% of this amount i.e. Rs.5,84,040/- is the tax, which the assessee has to pay in India."