Royalty taxation of telecom connectivity services rejected; data transmission receipts held outside section 9(1)(vi) and the treaty.

Receipts from telecommunication connectivity and bandwidth services supplied from outside India were held not to constitute royalty under section 9(1)(vi) of the Income-tax Act or Article 12(3) of the India-Singapore tax treaty. Applying the assessee's earlier years' rulings, supported by Delhi High Court authority in New Skies Satellite and the Supreme Court in Engineering Analysis, the ruling reaffirmed that data transmission connectivity services do not amount to royalty, and the Finance Act 2012 amendment did not change the treaty position for the relevant years. The Assessing Officer's additions were deleted and the assessee succeeded.

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Issues: Whether the amounts received from Indian customers for provision of telecommunication connectivity and bandwidth services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India Singapore Tax Treaty.

Analysis: The assessee rendered international private leased circuit, MPLS and other data connectivity services from outside India. The issue had already been decided in the assessee's own case for earlier assessment years, and the same view was supported by the Delhi High Court in New Skies Satellite and by the Supreme Court in Engineering Analysis. The governing principle applied was that receipts for data transmission connectivity services do not constitute royalty, and the amendment by Finance Act, 2012 did not alter the treaty position for the years in question.

Conclusion: The receipts were not taxable as royalty. The additions made by the Assessing Officer were required to be deleted, and the appeal succeeded in favour of the assessee.

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