The Static vs Ambulatory DTAA Doctrine - Reliance Jio's April 2026 Vindication How ITAT Mumbai's Ruling on Voice Termination Services (ITA No. 2991/Mum/2023)

1. The Problem: A Decade-Long Dispute Over Whether Domestic Amendments Override DTAA Definitions

When the Finance Act, 2012 retrospectively amended Explanation 6 to Section 9(1)(vi) of the Income-tax Act, 1961 with effect from 1 June 1976, it inserted a broad definition of 'process' into the royalty charging provision - one wide enough, the Revenue contended, to capture payments for use of telecommunication infrastructure, software, and network systems as 'process royalty.' The amendment triggered a wave of assessments across every sector that pays cross-border service fees: banking, insurance, telecom, IT, pharmaceuticals, and e-commerce. At the intersection of this domestic amendment and India's 90-plus Double Taxation Avoidance Agreements lay a foundational interpretive question: does a unilateral retrospective amendment to the Income-tax Act automatically modify the meaning of terms used in a DTAA that was signed before the amendment?

This question - the static vs ambulatory interpretation of DTAA terms - has produced some of the most consequential litigation in Indian international tax law. The Delhi High Court in Director of Income Tax Versus New Skies Satellite BV, Shin Satellite Public Co. Ltd. - 2016 (2) TMI 415 - DELHI HIGH COURT and the Bombay High Court in COMMISSIONER OF INCOME-TAX Versus SIEMENS AKTIONGESELLSCHAFT - 2008 (11) TMI 74 - BOMBAY HIGH COURT had laid an early foundation: domestic amendments cannot unilaterally override DTAA terms. But the precise scope of this principle - especially as applied through the microscope of Article 3(2) of specific DTAAs - remained contested.

On 17 April 2026, the Mumbai ITAT in Reliance Jio Infocomm Pte. Limited (Singapore) and Reliance Jio Infocomm Pte. Limited Versus Deputy Commissioner of Income Tax, (International Tax) – 4 (1) (1), Mumbai - 2026 (4) TMI 1392 - ITAT MUMBAI  and Reliance Jio Infocomm USA Inc. Versus Deputy Commissioner of Income Tax, (International Tax) – 4 (1) (1), Mumbai - 2026 (4) TMI 1619 - ITAT MUMBAI  held that payments of Rs. 94.80 crore (Jio Singapore) and Rs. 23.20 crore (Jio USA) for bandwidth and voice termination services do not constitute royalty or FTS under the Income-tax Act or the respective DTAAs. The Tribunal applied a nuanced, provision-specific test for ambulatory vs static interpretation with implications far beyond the telecom sector. This article analyses the ruling, maps its doctrinal arc, and identifies five unresolved questions it leaves open.

2. The Statutory Architecture - The Royalty vs Business Profits Binary

Section 9(1)(vi) of the Income-tax Act deems royalty income to accrue or arise in India if it is paid by a resident or is paid by a non-resident for the purpose of a business carried on in India. Explanation 6, inserted retrospectively by the Finance Act, 2012, defines 'process' to include transmission by satellite, cable, optic fibre or by any other similar technology, and further clarifies that it is immaterial whether the payer has the right to use or the right to control use. The retrospective reach of this explanation was specifically designed to override the Delhi High Court's early ruling in Asia Satellite Telecommunications Co. Ltd. Versus Director of Income-tax - 2011 (1) TMI 47 - DELHI HIGH COURT - which had held satellite transponder receipts as non-royalty business income - and to nullify a series of rulings that had held payments for satellite bandwidth, telecom routing, and network infrastructure as non-royalty business income.

Under most DTAAs, the royalty definition in Article 12 is narrower than the post-2012 domestic definition, and the treaty rate on royalty (typically 10-15 per cent) is preferable to the 20-40 per cent withholding that might otherwise apply to gross payments. However, where the payment is characterised as 'business profits' under Article 7 rather than royalty under Article 12, and where the recipient has no Permanent Establishment in India, the taxing right shifts to the country of residence - producing nil withholding in India. The stakes in the Reliance Jio litigation were therefore significant: characterisation as royalty or FTS would trigger Indian withholding; characterisation as business profits without a PE would produce nil Indian tax.

The Resolution Panel had endorsed the Revenue's 'process royalty' argument, characterising the bandwidth/voice termination services as involving use of 'process' within Explanation 6. The ITAT's April 2026 ruling reversed this, applying the Article 3(2) ambulatory/static test with a precision that had not previously been articulated in terms of treaty-specific language.

3. The Article 3(2) Static vs Ambulatory Framework - The Jio ITAT's Doctrinal Contribution

Article 3(2) of most Indian DTAAs provides that any term not defined in the Convention shall, unless the context otherwise requires, have the meaning which it has at that time under the law of the State applying the Convention. The phrase 'at that time' is the pivot point - it creates an ambulatory interpretation where domestic law as it stands when the treaty is applied (including post-treaty amendments) governs the meaning of undefined terms. This is sometimes called the 'dynamic' or 'ambulatory' approach: the DTAA incorporates current domestic law by reference.

However, the ITAT in the April 2026 ruling drew a critical distinction between the India-Singapore DTAA (Article 3(2)) and the India-USA DTAA (Article 3(2)). The India-Singapore DTAA's Article 3(2) uses the phrase 'laws in force'; the India-USA DTAA's Article 3(2) does not. This textual difference, the Tribunal held, is dispositive. Where the phrase 'laws in force' is used, an ambulatory approach may be defensible - the treaty incorporates current domestic law including amendments. Where the phrase is absent, the approach must be static - the treaty is interpreted by reference to the law as it stood when the treaty was entered into or when the specific term was first used, not as subsequently amended.

Applying the static approach to the India-USA DTAA, the Tribunal held that Explanation 6 to Section 9(1)(vi), inserted in 2012 retrospectively, cannot modify the meaning of 'royalty' under the India-USA DTAA's Article 12, which was signed in 1989. The 2012 domestic amendment is therefore irrelevant to the DTAA characterisation of voice termination services under the India-USA treaty. Applying the ambulatory approach (even assuming it is applicable) to the India-Singapore DTAA, the Tribunal then held that even under current domestic law, voice termination services do not satisfy the FTS 'make available' clause in Article 12(4)(b) of the India-Singapore DTAA - which requires that technical knowledge, skill, or experience must be transferred to ('made available' to) the service recipient. Routing voice calls through Jio USA's infrastructure does not transfer any technical knowledge or skill to Jio India; the service is consumed, not acquired.

The combined effect: Jio Singapore's bandwidth receipts and Jio USA's voice termination receipts are both business profits under Article 7 of the respective DTAAs. In the absence of a PE in India for either entity, the entire receipt is non-taxable in India. The Revenue's 'process royalty' argument fails under both the static (India-USA) and ambulatory (India-Singapore) approaches.

4. The Doctrinal Arc - From New Skies to Reliance Jio 2026

4.1 New Skies Satellite BV - The Delhi High Court Foundation

The doctrinal foundation was laid by Director of Income Tax Versus New Skies Satellite BV, Shin Satellite Public Co. Ltd. - 2016 (2) TMI 415 - DELHI HIGH COURT, which held that domestic amendments to the royalty definition under Section 9(1)(vi) do not alter the meaning of 'royalty' under DTAAs that predate those amendments. Applying Vienna Convention Article 26, the Court held that India cannot unilaterally modify DTAA obligations through domestic legislation. This became the leading authority on the static interpretation of pre-amendment DTAA royalty definitions - expressly building on Asia Satellite Telecommunications Co. Ltd. Versus Director of Income-tax - 2011 (1) TMI 47 - DELHI HIGH COURT original holding that satellite transmission receipts are non-royalty business income.

4.2 The Article 3(2) 'Laws in Force' Distinction

A significant analytical contribution came from the prior ITAT Jio ruling (ITA Nos. 6331-6334/Mum/2018, 15 November 2019), which first articulated the 'laws in force' distinction in Article 3(2). That ruling noted that the India-Singapore DTAA's use of 'laws in force' in Article 3(2) could, in theory, support an ambulatory interpretation incorporating post-treaty domestic amendments. However, it concluded that even on an ambulatory reading, the 'make available' test under Article 12(4)(b) was an independent bar to FTS characterisation. The April 2026 ITAT ruling formally adopts and extends this analysis - applying it for the first time simultaneously to both the India-USA and India-Singapore DTAAs in a single proceeding.

4.3 Siemens, VSNL, ExxonMobil and the Make-Available Doctrine

The complementary strand is the 'make available' test for FTS characterisation. The Bombay High Court in COMMISSIONER OF INCOME-TAX Versus SIEMENS AKTIONGESELLSCHAFT - 2008 (11) TMI 74 - BOMBAY HIGH COURT and the ITAT in Deputy Commissioner of Income-tax Versus VSNL Broad Band Ltd. - 2013 (11) TMI 276 - ITAT MUMBAI established that technical services must enable the service recipient to apply the underlying technology independently - mere use of the service provider's infrastructure does not suffice. The make-available test received further refinement in ExxonMobil Company India Pvt. Ltd. Versus Addl. Commissioner of Income Tax, Range–3 (1), Mumbai - 2018 (3) TMI 938 - ITAT MUMBAI, which held that the expression 'make available' in Article 12(4)(b) of the India-US DTAA means the recipient of such service is able to apply or make use of the technical knowledge, know-how, etc., by himself in his business without recourse to the service provider in future. Voice termination and bandwidth services, which are consumed without any residual skill remaining with the recipient, cleanly fail this test. This doctrine was recently applied by the Delhi High Court to cloud computing services in The Commissioner Of Income Tax - International Taxation-1 Versus Amazon Web Services, Inc. - 2025 (6) TMI 84 - DELHI HIGH COURT, affirming that charges for services delivered using scientific equipment do not constitute equipment royalty under Article 12(3) of the India-US DTAA.

4.4 The April 2026 Synthesis

The April 2026 ITAT ruling ITA No. 7827/Mum/2025 and ITA No. 2991/Mum/2023) synthesises these strands into a two-step test applicable to every cross-border service payment under India's DTAAs: Step 1 - identify whether Article 3(2) contains 'laws in force' language; if not, domestic amendments are irrelevant (static approach). Step 2 - even on the ambulatory approach, independently test whether the service satisfies the make-available FTS test under the specific DTAA's Article 12. Only if both steps are resolved in favour of the Revenue does the post-2012 expanded royalty definition have traction. This two-step framework was earlier applied in the context of broadcast rights in The Commissioner Of Income Tax -International Taxation -1 Versus Fox Network Group Singapore Pte Ltd. and Ess (Formerly Known As Espn Star Sports) - 2024 (1) TMI 1008 - DELHI HIGH COURT - affirming that the absence of technology transfer precludes royalty/FTS characterisation regardless of domestic amendments. The April 2026 ruling extends the framework to simultaneously govern two different DTAAs (India-USA and India-Singapore) and two different categories of payments (voice termination and bandwidth) in a single proceeding.

5. The Five Unresolved Questions

5.1 Which Indian DTAAs Contain the 'Laws in Force' Ambulatory Trigger?

The April 2026 ruling turns on a textual distinction between the India-USA and India-Singapore DTAAs. The immediate practical question for practitioners is: which of India's 90-plus DTAAs contain the 'laws in force' phrase or equivalent ambulatory language in their Article 3(2)? A comprehensive survey has not been published by the CBDT or any academic institution. Practitioners must now examine the specific text of the relevant DTAA treaty before advising on the characterisation of cross-border service payments. A CBDT Circular mapping the Article 3(2) language across India's major DTAAs would eliminate the current treaty-by-treaty private inquiry.

5.2 Does the Ruling Apply to Software Licensing Payments?

The Revenue's 'process royalty' argument has been most aggressively deployed for software licensing payments. The April 2026 ruling is decided in the context of voice termination and bandwidth services; its application to software licensing depends on whether the software-specific provisions of the relevant DTAAs are materially different. The Supreme Court's 2021 ruling in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED Versus THE COMMISSIONER OF INCOME TAX & ANR. - 2021 (3) TMI 138 - Supreme Court held that software payments are not royalty in the India-USA context; the Delhi High Court in The Commissioner Of Income Tax - International Taxation-1 Versus Amazon Web Services, Inc. - 2025 (6) TMI 84 - DELHI HIGH COURT extended this to cloud computing services. For software and cloud services, the static/ambulatory question was not expressly decided in Engineering Analysis - the April 2026 ruling's Article 3(2) framework now fills that gap for treaties where the ambulatory trigger ('laws in force') is absent. A High Court ruling expressly integrating the April 2026 Article 3(2) test with the Engineering Analysis software regime would complete the doctrinal architecture.

5.3 What Happens to PE-Tainted Receipts?

The April 2026 ruling produces nil-withholding because neither Jio Singapore nor Jio USA has a PE in India. Where a PE exists, business profits attributable to it are taxable in India under Article 7 - and the characterisation as business profits rather than royalty/FTS does not help. For entities with services-PE risks in India, the practical protection of the static/ambulatory test is limited. A CBDT Circular clarifying the PE threshold for cross-border telecom and bandwidth services, drawing on the Formula One World Championship Ltd. Versus Commissioner of Income Tax, International Taxation – 3, Delhi & Anr. - 2017 (4) TMI 1109 - Supreme Court 'at-the-disposal' test, would provide significant compliance certainty.

5.4 The Section 206AB Enhanced TDS Interaction

Section 206AB (inserted from 1 July 2021) requires deductors to apply twice the normal TDS rate where the payee has not filed returns for two preceding years. For payments where the DTAA route produces nil withholding, Section 206AB is academic. But where DTAA characterisation is still under litigation, Section 206AB creates a withholding cliff - the deductor must apply the enhanced rate pending resolution. A CBDT Circular should clarify that bona fide DTAA nil-withholding positions, supported by TRC and Form 10F, are exempt from the Section 206AB enhanced rate.

5.5 The Vienna Convention Article 26 Argument Post-MLI

The April 2026 ruling implicitly relies on Vienna Convention Article 26 (pacta sunt servanda) to reject the retrospective domestic amendment. Post-MLI, the Vienna Convention's role has become more complex. As established in the Sky High Lxxix Leasing Co. Ltd., Sky High XC Leasing Co. Ltd., Sky High LXXVIII Leasing Co. Ltd., Sky High LXXX Leasing Co. Ltd. And Sky High II Leasing Co. Ltd. Versus The ACIT (IT), Circle-4 (2) (1), Mumbai - 2025 (10) TMI 1217 - ITAT MUMBAI and related ITAT rulings), the MLI's own modifications require a separate section 90(1) notification to have domestic legal force. The interaction between (a) the static/ambulatory test, (b) the MLI's PPT modifications, and (c) the Vienna Convention's pacta sunt servanda principle creates a three-dimensional interpretive matrix that no Indian court or tribunal has yet fully resolved - and which the April 2026 ruling leaves open for future adjudication.

6. Practical Implications - A Five-Step Withholding Compliance Framework

For Indian companies making cross-border payments for telecom, bandwidth, software, or technical services, the April 2026 ruling provides both a defence and a compliance framework. The following five-step process operationalises the Jio doctrine:

(i) Identify the Applicable DTAA and Read Article 3(2): Examine whether the treaty contains the phrase 'laws in force' or equivalent ambulatory language. If absent, domestic amendments post-treaty are irrelevant to the characterisation of payment. Apply the static approach using pre-amendment treaty terms.

(ii) Apply the Treaty's Own Royalty Definition: Use the specific language of Article 12 of the applicable DTAA to characterise the payment. Do not apply Explanation 2, 4, or 6 to Section 9(1)(vi) if the relevant treaty's royalty definition is narrower or uses different terminology.

(iii) Apply the Make-Available Test for FTS: If the payment could potentially be FTS under Article 12, apply the 'make available' test. The service must enable the Indian recipient to independently apply the underlying technical knowledge or skill. Consumed services (routing, bandwidth, voice termination, maintenance) fail this test under ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED Versus THE COMMISSIONER OF INCOME TAX & ANR.- 2021 (3) TMI 138 - Supreme Court. and Deputy Commissioner of Income-tax Versus VSNL Broad Band Ltd. - 2013 (11) TMI 276 - ITAT MUMBAI.

(iv) Determine PE Status: If the payment fails both the royalty and FTS tests, characterise as business profits under Article 7. Verify whether the foreign recipient has a PE in India - if not, nil withholding applies. Obtain Form 15CA/15CB and Tax Residency Certificate for the no-PE-nil-withholding position.

(v) Document the Article 3(2) Analysis: Place on record a written note documenting the specific Article 3(2) language of the applicable DTAA, the static/ambulatory approach adopted, and the make-available analysis. This protects against Section 40(a)(i) disallowance and Section 201 recovery if the characterisation is later challenged.

7. A Three-Point CBDT Action Plan

The April 2026 ruling exposes three areas where CBDT guidance would reduce litigation and provide compliance certainty:

(i) Issue a DTAA Article 3(2) Survey Circular: Publish a treaty-by-treaty mapping of which Indian DTAAs contain 'laws in force' or equivalent ambulatory language in their Article 3(2), and which do not. This one-page compendium would eliminate the current private treaty-by-treaty analysis burden and reduce the volume of Form 15CB/15CA disputes at the deductor level.

(ii) Clarify the Section 206AB Interaction with DTAA Nil-Withholding Positions: Issue a Circular clarifying that where the taxpayer has a bona fide DTAA characterisation position (supported by TRC, Form 10F, and PE-nil declaration), Section 206AB's enhanced rate does not apply. The enhanced rate was designed for non-filers, not for entities with documented nil-withholding treaty positions.

(iii) Issue a Guidance Note on PE Threshold for Cross-Border Telecom and Bandwidth Services: In the wake of the April 2026 ruling, the natural next question is whether provision of infrastructure for voice termination or bandwidth services constitutes a PE (through a server or equipment in India). Issue a Guidance Note clarifying the PE threshold, drawing on the Formula One World Championship Ltd. Versus Commissioner of Income Tax, International Taxation – 3, Delhi & Anr. - 2017 (4) TMI 1109 - Supreme Court 'at-the-disposal' test, to provide certainty for the growing population of cross-border telecom and data service arrangements.

8. Conclusion - A Doctrinal Clarification Eleven Years in the Making

The April 2026 Reliance Jio ITAT ruling resolves a doctrinal question that has produced litigation across virtually every sector since the Finance Act 2012's retrospective amendment. The static vs ambulatory interpretation of Article 3(2) is not merely a telecom-sector question - it applies to every payment characterisation dispute under every Indian DTAA. By articulating a treaty-specific two-step framework (Step 1: does Article 3(2) contain 'laws in force' language?; Step 2: does the service satisfy the make-available FTS test?), the Tribunal provides practitioners with a replicable analytical architecture.

The ruling builds on a doctrinal arc from Asia Satellite Telecommunications Co. Ltd. Versus Director of Income-tax - 2011 (1) TMI 47 - DELHI HIGH COURT through Director of Income Tax Versus New Skies Satellite BV, Shin Satellite Public Co. Ltd. - 2016 (2) TMI 415 - DELHI HIGH COURT, COMMISSIONER OF INCOME-TAX Versus SIEMENS AKTIONGESELLSCHAFT - 2008 (11) TMI 74 - BOMBAY HIGH COURT, Deputy Commissioner of Income-tax Versus VSNL Broad Band Ltd. - 2013 (11) TMI 276 - ITAT MUMBAI, and culminating in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED Versus THE COMMISSIONER OF INCOME TAX & ANR.- 2021 (3) TMI 138 - Supreme Court. The April 2026 ruling is the natural next step - the first authoritative articulation of a treaty-specific ambulatory/static test grounded in Article 3(2) textual differences. For practitioners, the five unresolved questions - the DTAA survey, software licensing applicability, PE-tainted receipts, Section 206AB interaction, and the MLI-Vienna Convention matrix - are the terrain on which the doctrine will continue to develop. The CBDT's three-point action plan represents the minimum institutional response needed to convert the Tribunal's analytical clarity into operational certainty. The law is clearer than it was on 16 April 2026. It is not yet clear enough.