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ITA nos.362 and 1736 Energy Solutions International India Pvt. Ltd., Hyderabad.

The assessee, in turn, on the basis of the purchase order of the customer, places a purchase order with its overseas associated enterprises for procuring the required software. The payment from customers towards software is received only once and there are no recurring payments. The learned AR submitted that the assessee is neither authorised nor is capable of making copies of the software as the software is protected with hardware lock or software lock permitting use by the end customer in India. Control over the hardware and software locks (source code) are the exclusive domain of AE. It was submitted, as a part of implementation process the assessee only carries out the configuration and parameter setting to suit the specific output needs of the clients. He further submitted, the overseas AE contract directly with the Indian customer for entering into the end user license agreement. It was submitted, the assessee does not have access to the source code of the software and the question of replicating/re-producing the software does not arise. It was submitted that in the aforesaid circumstances, the payment made to the Associated Enterprises (AE) cannot be considered to be royalty. In this context, the learned AR referred to clauses 14.4 of OECD commentary to stress upon the fact, when there is distribution of software on back to back basis, there is no requirement to deduct tax at source. In this context, the learned AR relied upon a decision in case of CIT vs. Dynamic Vertical Software India Private Limited (332 ITR 222). It was further contended by the learned AR that neither the Assessing Officer nor the CIT (A) have considered the facts and materials placed before them in proper perspective and hence have arrived at an erroneous conclusion. The learned AR further submitted that, the order of the ITA nos.362 and 1736 Energy Solutions International India Pvt. Ltd., Hyderabad.