1. These appeals are disposed of by common order as they involve adjudication of the following substantial question of law as framed by the Hon'ble Supreme Court while remanding the proceedings to this Court in Civil Appeal Nos.7541-7542/2010 and connected matters, by setting aside the judgment passed by the Division Bench of this Court dated 24-9-2009.

The question which the High Court will answer is - 'whether on facts and circumstances of the case, the IT AT was justified in holding that the amounts paid by the appellants to the foreign software Suppliers was not 'royalty' and that the same did not give rise to any 'income' taxable in India and, therefore, the appellants was not liable to deduct any tax at source?

2. The material facts of the case leading up to these appeals which are necessary for answering the abovesaid question of law are as follows:

For the purpose of convenience, the facts in ITA No. 2808/2005 would be referred to.

The assessee-respondent herein is engaged in the development of computer software and exports such software developed to its head office located in South Korea. During the assessment years 1999-2000 to 2001-2002, the respondent imported software products from USA, France and Sweden. During the financial years 1998-1999, 1999-2000 and 2000-2001, relevant for the assessment years 1999-2000, 2000-2001 and 2001-2002, the assessee made payment of Rs. 2,28,960/-, Rs. 10,825/- and Rs. 151,85,430/respectively for importing software from non-resident companies of USA, France and Sweden. No tax was deducted at source in respect of such payments. As the Income Tax Officer was of the view that the appellant ought to have deducted the tax at source regarding such payments, he asked the assessee as to why tax was not deducted at source. The Manager (Finance) of the respondent-company appeared before the ITO (TDS) and filed a letter dated 20-3-2001 stating therein details of the software imported during the period mentioned above and contending that the software imported by the company is shrink wrap product and the same is not customized and no tax was deducted as it was not taxable in India and as the payment does not constitute royalty under Section 9(1)(vi) of the Income Tax Act, 1961 (hereinafter called the 'Act') and also in terms of the provisions of DTA agreement since the payment was not chargeable in the hands of the nonresident assessee at USA, France and Sweden, no tax arose in India and therefore, there was no obligation to pay the tax. It was also contended before the Assessing Officer by the assessee that the software imported was not customized and therefore not liable to tax. The Assessing Officer after hearing the assessee passed a detail order and held that payment made by the assessee would constitute royalty under Section 9(1)(vi) Explanation (2) of the Act and relevant clauses of the DTA agreement with USA, France & Sweden and therefore there was obligation to deduct tax at source under Section 195(1) of the Act and therefore for the default for non deduction of the advance tax which was payable by the non-resident assessee, the assessee respondent is liable to imposition of penalty and deducted tax at 1096 of the value as the said percentage of tax was beneficial to the assessee as compared to tax imposed under the Act and DTA agreement.

3. Being aggrieved by the said order passed by the assessing officer, an appeal was filed before the Commissioner of Income Tax (Appeals)-V in appeal No. ITA 17/TDS/CIT(A)V/2001-02 wherein the appellate authority confirmed the order passed by the assessing officer holding that payment made to the non resident companies was taxable in India and therefore non deduction of TDS under Section 195(1) of the Act would make liable the respondent to treat the same as income and therefore the respondent would be liable for default for non deduction of tax at source and dismissed the appeal Being aggrieved by the said order, the respondent filed an appeal b