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The Ld.DRP had also not accepted the objections of the assessee and confirmed the draft assessment order and issued directions to the AO to IT(IT)A No. 548/Bang/2025 pass orders accordingly. Thereafter the AO had made the assessment and confirmed the levy by treating the said income as royalty / FTS.

3. As against the said order, the assessee has filed the present appeal before this Tribunal.

4. At the time of hearing, the Ld.AR submitted that the assessee had sold the software to its customers directly or through the distributor based on the purchase order placed by them. He further submitted that the assessee also supplied the software along with license keys and passwords. The Ld.AR further submitted that the supply of software could not be treated as royalty income or FTS when the assessee had not parted with the software once for all to the customers and also not allowed its customers to make use of the software for taking prints of the said software and therefore it could not be treated as royalty / FTS. The Ld.AR further submitted that the assessee had not sold the software for the life time but only for a limited period and thereafter the customers have to again purchase the software with license keys with passwords and therefore it could not be treated as royalty received by the assessee. The Ld.AR further submitted that the assessee had not permitted the customers / end users to install the said software in any of the systems and therefore the software could not be used by others in any other the systems and therefore the person who has purchased the said software alone could use the said software for their own purpose that too in the system in which the software was originally installed. Therefore the Ld.AR submitted that the sale of software and the income earned through the said sale could not be termed as royalty / FTS. Further, the Ld.AR submitted that the assessee had not shared the source code as seen from the various documents produced before the authorities and therefore without the source code, the customers cannot make use of the same by taking the copies of the said software and therefore it could not be termed as royalty / FTS. The Ld.AR also filed a paper book enclosing the written submissions and other documents to show that the assessee had sold the software and not received the payment for using the said software IT(IT)A No. 548/Bang/2025 as royalty / FTS. The Ld.AR also submitted that the assessee has no permanent establishment in India and therefore income could not be subjected to tax in India. The Ld.AR also relied on the Coordinate Bench order of this Tribunal as well as the Hon'ble Pune Tribunal and submitted that the income earned by the assessee could be termed as business income and therefore the same is eligible for exemption u/s. 10(50) of the Act. The Ld.AR also filed a synopsis at the time of hearing for the better understanding of the facts. The Ld.AR also filed the copy of the order of this Tribunal in IT(IT)A No. 1159/Bang/2023 in which a similar issue was decided by this Tribunal by relying on the judgment of the Hon'ble Supreme Court cited supra.

5. The Ld.DR relied on the directions of the Ld.DRP and the detailed findings given by the AO in the final assessment order and prayed that the final assessment order made by the AO may be sustained.

6. We have heard the arguments of both sides and perused the materials available on record.

7. The assessee is a resident of Switzerland and it is also not in dispute that the assessee had no permanent establishment or any liaison office in India. They are in the business of supplying the standardised computed aided engineering application software for its end customers either directly or through the Indian distributor. From the various records including the distribution agreement and the end user license agreement, we came to now that the assessee granted the non-exclusive, non-transferable license with limited right to the subscribers i.e. the end customer could download the software through the key provided by the assessee and the embedded software runs only on the designated system and the customers are only permitted to use the software and the source code was never shared either with the distributor or the end customer. In fact, the distributor had only furnished the key provided by the assessee to the end user and not forwarded any source code. Without the source code, the distributor or the IT(IT)A No. 548/Bang/2025 end user cannot take copy of the software or modify the software supplied by the assessee.

17. As regards addition cannot be made by merely filing a review petition in EAC: [Ground 14] Prayer:

Kindly take the above into records. We humbly request your honors to delete the additions made in scrutiny order taking the above into account. We are obliged to provide any other details upon your honors kind intimation."
9. We have also gone through the various materials furnished by the assessee to show that there is no copyright involved in these transactions in order to attract the term royalty / FTS. In fact, in the distribution agreement, it was clearly stated that the assessee had not parted with the source code to the licensee. We have also perused the purchase order placed by the customers in which it was specifically mentioned that the license to use the said software is only for a specific period and it should be renewed after the expiry of the said specific period. It shows that the source code was never shared with the customers and therefore customers would not be able to take copies of the said software to attract the provision royalty / FTS. Further, as seen from the various documents which are all mentioned in the synopsis, we find that the assessee had not transferred any technical knowhow / knowledge to the customers or their employees thereby make available the knowhow to the customers to attract the provision royalty / FTS. When there is no transfer of the technical knowhow and the assessee is not giving any such type of training to the customers on the software license granted to them, it could not be termed as FTS.
12. If the sale of software could be treated as royalty or FTS, then the authorities have every right to tax the said income under the Act. The various documents furnished by the assessee would demonstrate that there is no transfer of right to use the product in order to term the income as royalty but only the assessee had given his license to use the software for the use by the specific customer and not by any other 3rd parties. There is no evidence to show that the assessee had also parted with the source code so that the purchasers could make use of the source code and taken any number of prints out of the said software to attract the provision royalty / FTS. The authorities had relied on some clauses in the agreements including the confidential clause which are all not of any use to term the transaction as royalty / FTS. These are all the general clauses incorporated in any of the commercial contracts to protect their rights of both the parties. When the assessee is the owner of the software, and they are giving only the license to use the said software for the customers, it could be treated only as the income earned out of such sale of software and could be treated as business income and in that circumstances, section 10(50) of the Act would apply to the assessee and the necessary benefit should be granted to them. In compliance with the provision 10(50) of the Act, the assessee had also produced the receipt for paying the equalisation levy to the department and considering the entire facts and the materials placed before us, we concluded that the income earned by the assessee out of the sale of the software is nothing but a business income not liable to be taxed as royalty / FTS.