Transponder capacity receipts are not royalty or technical fees, and the non-resident may claim the more beneficial treaty rule.

Receipts earned by a non-resident satellite operator for transponder capacity were examined against the royalty and fees for technical services definitions under the Income-tax Act. The analysis followed prior binding authority on the same business model and concluded that such payments do not constitute royalty, and the statutory definition was not attracted on the facts. Once the receipts were not taxable as royalty or technical fees, the alternative claim under fees for technical services also failed. As a USA tax resident, the assessee could invoke the more beneficial provision under section 90(2), and the treaty position did not change the result.

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Issues: Whether receipts earned by a non-resident satellite operator from customers for transponder capacity were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961, or as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961, and whether the assessee was entitled to the benefit of the more beneficial provision under section 90(2) of the Income-tax Act, 1961.

Analysis: The receipts were examined in the light of the earlier binding decision on the same line of business, which had held that payments for use of transponder capacity did not amount to royalty under section 9(1)(vi). The reasoning accepted that the amounts received from customers abroad and in India could not be brought to tax merely by tracing an indirect or far-fetched flow of funds, and that the statutory definition of royalty was not attracted on the facts. The claim under section 9(1)(vii) also did not survive once the income itself was held not taxable as royalty or technical fees. The assessee, being a tax resident of the USA, was entitled under section 90(2) to the benefit of the provisions more favourable to it, and since no liability arose under the Act, the treaty analysis did not alter the result.

Conclusion: The receipts from transponder capacity were not taxable in India as royalty or fees for technical services, and the issue was decided in favour of the assessee.

Ratio Decidendi: Payments for transponder capacity, on these facts, do not constitute royalty or fees for technical services under the Income-tax Act, and a non-resident assessee is entitled to the more beneficial statutory provision under section 90(2).

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