Sanjeev Sachdeva, J.

1. This is an appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) filed by the Revenue impugning order dated 19.12.2008 passed by the Income Tax Appellate Tribunal (hereinafter referred to as “ITAT”)

2. Vide order dated 20.10.2009, the following substantial questions of law were framed:

“1) Whether the learned ITAT erred in holding that nature of receipts amounting to Rs. 2,74,00,630/- was business income and not royalty income wherein the meaning of Section 9(1)(vi) read (SIC) with Article 12 of Indo-US-DTAA?

2) Whether supply of software on license is royalty/included services within the meaning of Section 9(1)(vi) / Article of Income Tax Act / Indo-USA-DTAA?”

3. On 03.07.2013, the counsel for the respondent Assessee submitted that he was not relying upon Section 9(1)(vi) of the Income Tax Act and in view of the statement made by the counsel, we on 03.07.2013 held that Explanation 4 to Section 9(1)(vi) of the Income Tax Act, 1961 need not be examined and applied. Reference was also made to the judgment of the Supreme Court in UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 706. In view of what transpired on 03.07.2013, with respect to the examination and applicability of Section 4 to Section 9(1)(vi), the second issue framed on 20.10.2009, does not arise for consideration and is thus not dealt with in the present judgment. The substantial Question of law framed on 20.10.2009 was recast as under:

“Whether the Income Tax Appellate Tribunal was right in holding that the consideration received by the respondent Assessee on grant of licences for use of software is not royalty within the meaning of Article 12(3) to the Double Taxation Avoidance Agreement between India and the United States of America?”

4. The respondent/Assessee is an international software marketing and development company of an international group. The holding company is based in US being Infrasoft Corporation.

5. The Assessee M/s Infrasoft Ltd. is primarily into the business of developing and manufacturing civil engineering software. One such software, which is subject matter of the present controversy, is called MX. The said MX software is used for civil engineering work and for design of highways, railways, airports, ports, mines, etc. The said software is used by private consultants.

6. In view of the market position, the Board of the Assessee Infrasoft Limited opened a branch office in India. The branch in India imports the package in the form of floppy disks or CDs depending on the requirements of their customers. The system is delivered to a client/customer. The delivery of the system entails installation of the system on the computers of the customers and training of the customers for operation of the system. The branch office further undertakes the responsibility of updation and operational training apart from providing support for solving any software issues. The respondent Assessee develops customized software to be used by the customers for designing highways, railways, airports, ports, mines, etc. The software so customized is then licensed to an Indian customer and the branch office of the Assessee in India perform services involving interface to peripheral installation and training etc.

7. On 28.11.2003, the respondent Assessee vide its return of income, declared a loss of Rs.21,75,246/-. The same was assessed under Section 143(3) of the Act on 31.01.2006. The assessment order was framed by the Assessing Officer (hereinafter referred to as the “AO”) whereby the Assessing Officer taxed the receipts on sale of licensing the software as “royalty” as per Article 13 (Sic Article 12) of Indo-US Double Taxation Avoidance Agreement. Under Section 44D read with Section 115A of the Income Tax Act, the Assessing Officer brought the aggregate amount of Rs.2,85,76,278/-, received by the Assessee during the year under consideration to tax at 20%.

8. The AO issued a show cause n