Area, Dalton, Israel Mumbai PAN AADCG8396D Appellant Respondent Appellant by: Shri Bomi Daruwala & Ms. Priyanka Jain Respondent by: Shri Jasbir Chouhan Date of Hearing: 21.06.2016 Date of Pronouncement: 29.06.2016 ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the final order of assessment for A.Y. 201213 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short 'the Act'), in pursuance of the directions issued by the Dispute Resolution PanelI, Mumbai under section 144C(5) of the Act vide order dated 28.09.2015. 2. The facts of the case, briefly, are as under: 2.1 The assessee, a 100% subsidiary of Sarin Technologies Ltd., Israel is engaged in the business of development of proprietary technology for automated evaluation of internal features in diamond, carrying out its operations in diamond processing centres at Surat and Mumbai. As part of its business, the assessee sells to its customers machines used in the diamond industry and operating application software which is an integral part of the said machine. It also sells spare parts and application software based on usage of the software. The said machines can be operated only if the operating application software is installed in the machine. The 2 ITA No. 5434/Mum/2015 M/s. Galatea Ltd. assessee was of the view that the payments received for sale of such operating/application software did not constitute 'Royalty' under the India Israel DTAA and therefore no withholding of tax was required to be made in respect of such receipts from sale of application software. In these factual circumstances, the assessee filed its return of income for A.Y. 201213 on 05.10.2013 and a revised return on 28.03.2014 declaring total income at Nil. The case was selected for scrutiny. The draft order of assessment was passed under section 144C(1) r.w.s. 143(3) of the Act vide order dated 23.02.2015 wherein the income of the assessee was determined at `74,24,17,360/ in view of the Assessing Officer (AO) holding that the above amount of `74,24,17,360/ received by the assessee from sale of operating/application software, spare parts and hardware supplied during the year under consideration is exigible to tax as 'Royalty' @10% on gross basis as per the provisions of section 90(2) of the Act and Article 12 of the IndiaIsrael DTAA. 2.2 Aggrieved, the assessee furnished its objections to the draft assessment order for A.Y. 201213 dated 23.03.2015 before the DRP. The DRP disposed off the assessee's objections by way of directions issued under section 144C(5) of the Act dated 28.09.2015 rejecting the assessee's objections and thereby upholding the AO's findings that the payments received by the assessee for sale of operational/ application software, spare parts, etc. were exigible to tax as Royalty. It is in pursuance of these directions of the DRP that the AO passed the impugned final order of assessment under section 143(3) r.w.s. 144C(13) of the Act vide order dated 09.10.2015. 3. Aggrieved by the final order of assessment for A.Y. 201213 passed under section 144C(13) r.w.s. 143(3) of the Act dated 09.10.2015, the assessee has preferred this appeal raising the following grounds: "1. That on the facts and circumstances of the case, the impugned assessment completed vide order dated 09.10.2015 under section 143(3) read with section 144C of the Incometax Act. 1961 ('the Act'), is illegal and bad in law. 3 ITA No. 5434/Mum/2015 M/s. Galatea Ltd. 1.1 That the assessing officer erred on facts and in law in completing the assessment vide order dated 09.10.20 15 under section 143(3) read with section 144C of the Act at an income of `74,24,17,360/ as against returned income of ` Nil!. 1.2 That the DRP erred on facts and in law in the affirming the draft assessment order by pass