Justice P.K. Balasubramanyan, Chairman - The applicant is a company incorporated in Australia. It claims to be one of the leading providers of software services which help in virtualization, networking and application delivery. It also offers a range of application collaboration, firewall, networking and streaming solutions. The applicant has entered into an agreement with independent Indian distributors for the distribution and sale of its software and hardware products in India. In the year 2006, the applicant entered into a distribution agreement with Ingram Micro India Limited (hereinafter referred to as "Ingram"), an independent Indian company engaged in the business of distribution of computer software and hardware. Under the agreement, Ingram was appointed as a non-exclusive distributor of the products of the applicant in India. Some of the key products distributed under the agreement are Citrix XenApp, Citrix Access Gatway and Citrix Netscaler. According to the applicant, under the agreement, the software products are purchased by the distributor from the applicant and sold by the distributor. With respect to the hardware products, the applicant shifted the products directly to the distributor which in turn supplied these products to re-sellers and end-user customers. But, for the software product, Citrix XenApp, while sale and collection is made through the distributor, no physical delivery of the product is made to the distributor. On the basis of the demand of the customers for Citrix XenApp, the distributor places orders of purchase with the applicant and makes payments for the same to the applicant. The applicant then directly transmits a "key" to the end-user customer who is required to download the XenApp software. On receipt of the key, the end-user customer downloads the software from the server of the applicant. The distributor Ingram owns the responsibility for collection of the price for the product from its customers. In addition to the distribution of hardware products and Citrix XenApp under the distribution agreement, Ingram also facilitates the execution of the Citrix Subscription Advantage Programme between the applicant and its existing customers. The programme is offered by the applicant in the form of a package of support services during the period of the programme. The support activities include product version updates, the subscription advantage news and updates and secure portal access. Ingram facilitates execution of the subscription programme in the same manner as in the case of software products. All transactions between Ingram and the applicant are on a principal to principal basis. Ingram effects direct sales to the customers at its discretion and earns a profit on every sale based on a percentage of the sale price.

2. The applicant is seeking an advance ruling on the taxability in India of the payments made by Ingram to it for the software product, Citrix XenApp and the Subscription Advantage Programme. The application under section 245Q of the Income-tax Act is made in that context.

3. While admitting the application for a ruling under section 245R(2) of the Act, this Authority accepted the following questions for the ruling.

1. "Whether the payments received by the applicant from the Distributor for sale of the software product is in the nature of 'royalty' within the meaning of the term in Explanation 2 to clause (vi) of Section 9(1) of the Income-tax Act, 1961 ("the Act") ?

2. Whether the payments received by the applicant from the Distributor for sale of the software product is in the nature of 'royalty' within the meaning of the term in Article 12 of the Agreement between the Government of Australia and the Government of Republic of India for the avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on income' ("the India-Australia Tax Treaty") ?

3. Whether the payments received by the applicant from the Distributor for the right to downloand/receiv