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5.5 The ld. AR submitted that the transaction relating to supply of software are not covered under the provisions of section 9(1)(vi) of the Act. Even the definition of „royalty‟ in DTAA is restricted. It is a well settled law that provisions of treaty overrides the Act and whenever the provisions of the treaty are beneficial to the assessee, the provisions of treaty will prevail.

5.6 Further referring to the findings of Assessing Officer the ld. AR remarked them as perverse and based on surmises and conjectures. The ld. AR contended that the Assessing Officer in para 6.4 of assessment order has observed that the „source code‟ or the „object ITA Nos. 216 to 218, 1361, 1362, 444 to 446, 1572 & 1573/PUN/2014 code‟ of the software has been protected under the Copyright Act and the software can even qualify as secret formula or secret process, therefore, payment for granting the software licenses comes within the meaning of „royalty‟. The ld. AR asserted that source code is not available with the assessee, therefore, the findings of Assessing Officer on this issue in para 6.4 are wrong. The ld. AR further referred to some of the observations of the Assessing Officer at pages 38 and 44 of the assessment order as factually incorrect. The Assessing Officer has observed that the assessee has entered into agreement with different non-resident suppliers of software licenses. Such observations of the Assessing Officer are wrong. The ld. AR further referred to the observations of the Assessing Officer in para 9.6, wherein the Assessing Officer has mentioned that the software is downloaded from internet. The ld. AR pointed that software is imbedded in the equipment and is not downloaded from internet. It is activation code which is obtained from the vendors through e-mail which is downloaded and is used for running the machine after installation of same at customer‟s place. 5.7 The ld. AR further referring to the findings of Commissioner of Income Tax (Appeals) submitted that the Commissioner of Income Tax (Appeals) has observed that the assessee has failed to provide agreement with software vendors. The ld. AR contended that the assessee has entered into only one Distribution agreement i.e. at page 246 of the Paper Book-I. Except for the Distribution agreement there is no other separate agreement with the vendors for supply of software. The Commissioner of Income Tax (Appeals) has reiterated the findings of Assessing Officer with respect to availability of „source code‟. The said findings are factually incorrect. The ld. AR submitted that in the entire order the Commissioner of Income Tax (Appeals) has not dealt ITA Nos. 216 to 218, 1361, 1362, 444 to 446, 1572 & 1573/PUN/2014 with the issue, Whether the software is embedded in the equipment or not? The Commissioner of Income Tax (Appeals) in the impugned order has discussed about the taxability of the payment made for purchase of software as „royalty‟. The entire order of the Commissioner of Income Tax (Appeals) is monologue.

ITA Nos. 216 to 218, 1361, 1362, 444 to 446, 1572 & 1573/PUN/2014

20. The case of the Revenue is that the assessee has made payment for acquiring the right to use software. The authorities below have also made observations in their respective orders about the source code of the software and have further stretched the softwares to equate it with secret formula or secret process, so as to bring the transaction with respect to purchase of software in the present case within the ambit of „royalty‟.

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 agreement lays down that the assessee is and shall remain sole and exclusive owner of the right, title and interest in the software and related know. This software cannot be used by the customer except for the operation of the machine. It is further noted by us that the machine was equipped with requisite security controls and hardware locks to stop any type of misuse of software. Clause 10.2 of one of the agreement available at Page-49 is reproduced hereunder for the sake of ready reference:-