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We find that the assessee had entered into a distribution agreement with ASL to distribute the software products developed by UK Company to the customers within the territory of India. The perusal of the agreement indicate that the assessee was granted a 'non exclusive' and 'non transferable' license to market and distribution the software products developed by ASL to end customers,that the assessee did not have any right to the source code of software products and was not permitted to modify the software products, including the documenta - tion,that ASL was the sole owner of IPR of the patents copy rights trademarks modifications and updates,that assessee was not given any of these proprietary rights by ASL, the assessee would be purchasing the license for software products from ASL and would distribute it to end-customers,that the end-customers would pay sub licensing fee to the assessee. If we consider all these facts it becomes clear that the assessee was functioning as a distributor of ASL.There is no doubt that ASL is a tax resident of UK and as per the provisions of India-UK DTAA was eligible to be governed by the tax treaty to the extent it was more beneficial vis- a-vis the provisions of the Act.

Similar is the position of Indo-UK DTAA,where term Royalty has not been defined. Considering the above,we are of the opinion that definition of term royalty as appearing in the India UK DTAA apply and amendments made by Finance Act,2012 would have no bearing on the present case.Even the Cir.No.333 of CBDT states that where a DTAA provides for a particular mode of computation of income, the same should be followed irrespective of the provisions of the Act.In the case before us,the DTAA is providing particular mode of computation for royalty.As per the agreement the assessee did not have any right to generate the license key or make copies of license key or was provided access to source code in the software.The ASL software products were developed and marketed by it were in the nature of shrink-wrap-software-products that are also known as off the shelf software products.The assessee had no role in developing a software,it was just distributing the software to the end users.Therefore, we are of the opinion that payment by the assessee to ASL for procuring and distributing copyrighted software on principal to principal basis could not be treated as payment towards royalty.ASL was not having a PE in India, therefore, the assessee was not liable to deduct tax at source as per the provision of section 195 of the Act,hence,for its failure it cannot be treated as A-I-D u/s. 201.Reversing the order of the FAA we decide effective First effective Ground of appeal(Gs.OA-1to3)in favour of the assessee.