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3. The facts in brief are that Adobe Systems Software Ireland Ltd. (hereinafter referred to 'assessee') is a company incorporated under the laws of Ireland and is engaged into the licensing and distribution of computer software (Adobe products) outside of North America including India. Since, it is a tax resident of Ireland, therefore, assessee has claimed beneficial treaty provision of India-Ireland DTAA. The assessee had entered into non exclusive distribution agreements with Indian companies, namely, Ingram Micro India Private Limited; and Redington (India) Limited, wherein they have been appointed as distributor to distribute Adobe products in India. These products are delivered by the assessee to the Indian Distributors 'ex-warehouse' from the warehousing facility of the assessee outside India. For the Assessment Year 2008-09, the assessee has filed its return of income on 31st March, 2010 declaring 'Nil' income from the consideration paid by the Indian distributors to the assessee towards the purchase of Adobe products on the ground that the same is not taxable in India either as business income in absence of PE or as a 'royalty' under Article 12 of the Treaty. The arrangement and conduct between the assessee and the Indian distributor has been stated to be on principle to principle basis. The Assessing Officer in the course of draft assessment proceedings sought explanation from the assessee as to why the amount received by the assessee upon sale of Adobe software to the Indian distributors should not be taxed as 'royalty'. The assessee after explaining the nature of transaction, produced copy of agreements entered into with the Indian distributors for the distribution of software products; and the key feature of the transaction emanating from the said agreement have been stated to be following:-

The Indian distributors have been granted a non-exclusive, non-transferable license to supply Adobe's software products in India;
 The arrangement and conduct between Adobe Ireland and the Indian distributors is on a principal-to-principal basis;
Adobe Ireland retains exclusive ownership of the intellectual property rights vested in the software and trademark;
Adobe's software products that are distributed by the Indian distributors are shrink wrap products. In other words, the Indian distributors have been granted the license to distribute shrink wrap software products to the end users in India, with the copyright in such software product being vested with Adobe at all times,  Distributors, their dealers and customers, have been prohibited from duplicating, reverse engineering, selling or licensing the software products or otherwise exploiting the copyright in the said software products, or using them for any purpose other than that set out in the agreement;

2.3 List of Software Products, future Adobe Software Products may be added to the License Fee List and Adobe shall use reasonable efforts to notify' Distributor within thirty (30) days of any such addition. Adobe reserves the right to discontinue the distribution or availability of any Software Product upon thirty (30) days prior notice to Distributor. If Adobe discontinues a Software Product so that it becomes an End of Life Software Product, Adobe shall provide Distributor with thirty (30) days prior notice. Returns of such End of lifc Software Products shall be governed by Clause 5.9 (New Versions). Notices by Adobe under this Clause 2.3 (List of Software Products) maybe made by Adobe's on-line sales portal at http://partners.adobe.com or similar partner communication web sites, by fax or via email.

2.4 Distribution under License. Distributor agrees to use commercially reasonable efforts to: distribute tire Software Products under license in the Territory on a continuing basis, conduct its business in a manner that favourably reflects upon the Software Products and Adobe, and comply with good business practices and all laws and regulations relevant to this Agreement and its subject matter.

2.5 Anti-Piracy /Unauthorized Product Restrictions. Distributor agrees that it will not deal in illegal copies of Adobe software products or Unauthorized Products. Adobe reserves the right to terminate this Agreement with immediate effect if Distributor is found to be dealing in illegal copies of Adobe software products or Unauthorised Products. Such termination would be without prejudice to 'adobe's other remedies if any Adobe products were involved. A breach of Clause 3.1 (Eligibility and Distribution Rights) prohibiting distribution of the Software Products outside the Territory shall also be deemed - breach of this Clause 2 5 (Anti- Piracy/Unauthorised Product Restrictions).