Treaty-defined royalty prevails over later domestic amendments; transponder capacity receipts were not taxable as royalty.

A unilateral amendment to section 9(1)(vi) by the Finance Act, 2012 could not enlarge or alter the meaning of "royalty" in Article 12 of the relevant DTAAs, because treaty terms must be interpreted independently and in good faith unless amended by mutual agreement. Applying the treaty definition, receipts from transponder capacity and data transmission services were held not to constitute royalty, as the assessees did not grant control or use of the satellite or process in the treaty sense. The treaty shield therefore remained available, and the receipts were not taxable as royalty under the DTAAs for the assessment years in question.

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Issues: (i) Whether the Finance Act, 2012 explanations to section 9(1)(vi) of the Income-tax Act, 1961 could be read so as to enlarge or alter the meaning of "royalty" under Article 12 of the relevant Double Tax Avoidance Agreements; (ii) Whether receipts from transponder capacity and data transmission services were taxable as royalty for the assessment years in question.

Issue (i): Whether the Finance Act, 2012 explanations to section 9(1)(vi) of the Income-tax Act, 1961 could be read so as to enlarge or alter the meaning of "royalty" under Article 12 of the relevant Double Tax Avoidance Agreements.

Analysis: The domestic law amendment was treated as capable of operating within the Income-tax Act, but the Court held that unilateral amendments to domestic law cannot rewrite the terms of a treaty already concluded between sovereign States. Where the DTAA itself defines royalty, that definition governs and cannot be expanded by later amendments to section 9(1)(vi). The Court further held that the statutory fiction introduced by the Finance Act, 2012 could not be imported into Article 12, and that the treaty had to be interpreted on its own terms in good faith.

Conclusion: The explanations inserted by the Finance Act, 2012 do not alter the meaning of "royalty" under the relevant DTAAs.

Issue (ii): Whether receipts from transponder capacity and data transmission services were taxable as royalty for the assessment years in question.

Analysis: For the periods covered by the appeals, the Court applied the earlier interpretation of royalty in the treaty context and held that the assessees were only providing data transmission services through transponder capacity, without conferring control or use of the satellite or process in the sense required to attract royalty under the treaty. The Court followed the settled position that such receipts do not become royalty merely because domestic law was later amended, and held that the treaty shield remained available to the assessees.

Conclusion: The receipts were not taxable as royalty under the relevant DTAAs for the assessment years in question.

Final Conclusion: The Revenue's challenge failed because the treaty definitions continued to govern and the assessees were entitled to relief under the DTAAs; the assessments as made could not be sustained.

Ratio Decidendi: A unilateral amendment to domestic tax law cannot expand or alter the meaning of a term expressly defined in a double taxation treaty, and treaty-defined royalty must be construed independently of later domestic amendments unless the treaty itself is amended by mutual agreement.

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