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06. The assessing authority could not accept the claim of depreciation allowance as deductible. He examined the purchase agreements entered into between the assessee-company and the different suppliers and purchase invoices and other features of the transactions and came to the following findings :

i) The assessee has acquired the right to distribute the software with licence to use the source code, documentation and technical information associated with the software.
ii) The assessee has obtained exclusive and non-transferrable rights to market and sub-licence the software and user documentations and to use the software source to modify, enhance, change or convert the software packages as and when necessary in the light of marketing requirements.
iii) The assessee-company is basically a trader and distributor of software products. The assessee purchases licences, source codes and makes sales and distribution of updated products to end customers.
iv) What the assessee has purchased is comprehensive software packages and the right to sell to multiple customers and not any article or asset as explained by the assessee.
v) Therefore, the payments made by the assessee were in the nature of Royalty as explained in Explanation 2 to Section 9(1)(vi) of the Act and ITA.741,742, 774 & 775/B/2010 Page - 4 accordingly liable to tax as the income arising to the foreign suppliers are to be treated as income accruing or arising in India.