Satellite transponder capacity payments are not royalty where the payer only accesses a facility without control or possession.

Payment for access to satellite transponder capacity was treated as consideration for a transmission facility, not as payment for use of, or right to use, industrial, commercial or scientific equipment. On that basis, the receipt was not royalty under the treaty or the Income-tax Act, and it also did not constitute fees for technical services because no technical knowledge or know-how was made available. The foreign enterprise was found to have no permanent establishment in India for the contract, so the income was not taxable as business profits in India and section 195 withholding did not arise.

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Issues: (i) Whether the consideration paid for leasing navigation transponder capacity constituted royalty under the treaty and the Income-tax Act. (ii) Whether the foreign enterprise had a permanent establishment in India so that any part of the receipts could be taxed as business profits and tax had to be deducted at source under section 195.

Issue (i): Whether the consideration paid for leasing navigation transponder capacity constituted royalty under the treaty and the Income-tax Act.

Analysis: The payment was for access to space segment capacity of a passive navigation transponder, not for possession, control, operation, or use of the satellite equipment itself. The applicant merely availed a facility for transmitting uplinked data through infrastructure wholly operated by the foreign enterprise. On that footing, the arrangement did not amount to consideration for the use of, or right to use, industrial, commercial, or scientific equipment within the meaning of the treaty or the domestic provision. The arrangement also did not make any technical knowledge or know-how available so as to constitute fees for technical services.

Conclusion: The receipt was not royalty and was not fees for technical services; the issue was answered in favour of the assessee.

Issue (ii): Whether the foreign enterprise had a permanent establishment in India so that any part of the receipts could be taxed as business profits and tax had to be deducted at source under section 195.

Analysis: No factual basis was found for treating the foreign enterprise as having a permanent establishment in India in relation to the contract. Since the income was not chargeable to tax in India under the treaty, the obligation to withhold tax under section 195 did not arise. The business-profits article was therefore not attracted.

Conclusion: The foreign enterprise had no permanent establishment in India for this contract, no income was taxable as business profits in India, and no tax was deductible at source; the issue was answered in favour of the assessee.

Final Conclusion: Both referred questions were answered for the applicant, with the result that the remittance was held not to attract tax withholding on the facts and treaty provisions considered.

Ratio Decidendi: Mere access to or availing of satellite bandwidth or transponder capacity does not amount to use of equipment or right to use equipment unless possession, control, or operational dominion over the equipment is transferred to the payer.

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