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been drawn on various pages of the paper book showing that there was no separate sale of software. All the customers purchased machines along with requisite software to operate that machine. Pages-222, 223 and 224 of the paper book are the lists showing party-wise details and sales made by the assessee. Page-225 of the paper book is the certificate of Galatea Ltd. certifying that software supplied by it to the end user was integrated with various machine supplied by it and the software had no other independent use as such except to enable such machine to function. Our attention was also drawn on the copy of invoice to show that all the customers purchased machine and software both. Our attention was also drawn on some of the copies of End User License Agreement (EULA) entered between the assessee company and its customers to show that the software had no independent existence. It was integral part of the machine and the customer was not allowed to isolate the software from the machine or to re-engineer the same. From various evidences and facts on record, it was shown by the Ld. Counsel for the assessee that the software was integral part of the machine and the transaction done with the customer was that of sale of machine and not of software. It was clarified by him that the software was separately mentioned in the invoice and its payments were also received separately for the purpose of proper assessment of custom duty etc and administrative convenience, but it was a transaction of predominantly sale of machine. He thus argued that it was a case of embedded software and, therefore, the transaction being predominantly sale of machine, the income arising there-from was not liable to be taxed in India under section 9(1)(vi). It was further submitted that since the undisputed facts on record are that assessee had no Permanent Establishment (P.E.) or business connection in India and, therefore, its business income was not liable to be taxed in India. In support of his proposition that in case of embedded software being integral part of machine, income on account of sale of software could not have been separately taxed as "Royalty" under section 9(1)(vi) of the Act, he relied upon the following judgments:-

i) DIT v/s Infrasoft Ltd., 39 Taxmann.com 88 (Del.);

ii) CIT v/s Siemens Aklcongesllschaft, 177 Taxmann 81 (Bom.);

iii) DIT v/s Nokia Networks O.Y., 358 ITR 259;

iv) B4U International Holdings Ltd. v/s DCIT, 148 TTJ 237 (Mum.); and

v) WNS North America Inc., v/s ADIT, ITA no.8621/ Mum./2010 (Mum.).

8. The third argument made by the Ld. Counsel for the assessee is that in any case, the impugned transactions could not be covered within the definition of "Royalty" as envisaged in section 9(1)(iv) since there was no transfer of any copyright. What was transferred at the best was a copyrighted article. It was submitted by him that if we go by definition of the term "Royalty" as per article-12(3) of Indo-Israel treaty, then unless there is a transfer of copyright itself, there would not be any occasion to treat the amount of consideration as "Royalty". He took us through section 14 of the Copyright Act, to demonstrate that there was no transfer of any copyright in this case. It was submitted that in this case, no source code was supplied by the assessee. The customer had no right to use or re-use the software elsewhere, the software could not have been re-issued to someone else by the customer, the software could have been used only as integral part of the machine. Under such circumstances, the consideration cannot fall within the scope of the term "Royalty". In support of his proposition, he relied upon the following judgments:-

17. We have carefully analyzed the facts of the case and arguments made by the Ld. Counsel for the assessee as well as counter arguments made by the Ld. Departmental Representative. The undisputed facts before us are that none of the customers have purchased only machine or only software. There was no customer who purchased only software. Ld. Counsel for the assessee drew our attention on various pages of the paper book to establish that the machine sold by the assessee could not be made operational or functional in the absence of operating software along with the application software. These facts were not controverted by the Ld. Departmental Representative during the course of hearing in response to a specific query put to him by the Bench. It is noted that complete details have been given by the assessee in the paper book at Page-222 and 224. Our attention was also drawn on certificate from the assessee enclosed at Page-225 of the paper book certifying that software supplied by the assessee to end user was for integration with the machine supplied by the assessee and that this software had no other independent use as such, except to enable such machine to function. We have also gone through the End User License Agreement (EULA) entered into by the assessee with the customers wherein there are various clauses which indicate that the software supplied by the assessee was meant only and exclusively for the purpose of making the said machine functional. Clause 2.1 of the agreement provides that customer is granted non-exclusive, non-transferable limited license to use the software and related knowhow on the machine for the sole purpose of scanning the internal / external feature of rough diamond and creating a three dimensional image of these features of rough diamond. Clause 2.2 of the agreement puts certain restrictions upon the customers for any other use of the software in any other machine. This clause restrains the customer from duplicating the software or making any copies, modifications, isolating the software and making it available as a standalone data base or product, removing any product identification, copyright or other proprietary notice from the software or decompiling, disassembling, reverse engineering, or making any other attempt to reconstruct or discover the source code, etc. This clause clearly lays down that customer shall not reproduce the software or any of the documentation provided in connection with the software or related knowhow. It is further noted that clause 6.2 of the said M/s. Galatea Ltd.

4. Re-assessment proceedings were initiated for the year under consideration. The assessee claimed that the income declared originally in the assessment proceedings be treated as return filed in the assessment proceedings. In the re-assessment order, the AO observed that the assessee, a company incorporated in France and other concerned countries used to manufacture, trade and supply equipments and services for GSM Cellular Radio Telephones Systems. The assessee had supplied hardware and software to various entities in India. Software licensed by the assessee embodies the process which is required to control and manage the specific set of activities involved in the business use of its customers. Software also made available the process to its customers, who used it to carry out their business activities. In this view of the matter, the AO felt that the consideration of supply of software amounted to royalty under Section 9(1)(vi) of the Income Tax Act. The CIT(Appeals) - to whom the assessee appealed and later the ITAT to whom the Revenue appealed concurrently held that the supply of embedded software (which was part of the hardware supplied to the assessee's customers by it) under consideration did not constitute royalty and, therefore, Section 9(1)(vi) was not attracted and for the same reasons, Article 13(3) of the DTAA was not involved.