Treaty override on transponder charges excludes royalty, FTS and business income; withholding tax not required, refund interest remanded.

Transponder charges paid to a non-resident satellite service provider were treated as not taxable in India under the applicable tax treaty, because the treaty's royalty definition was regarded as exhaustive and the retrospective expansion of section 9(1)(vi) could not override it. The payment also did not qualify as fees for technical services, as no technical knowledge or skill was made available to the payer, and no business connection in India was established merely from use of transponder capacity by Indian customers. As the payment was not taxable in the non-resident's hands, no withholding obligation under section 195 arose. The claim for interest on refund under section 244A was remitted for fresh examination.

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Issues: (i) whether transponder charges paid to the non-resident satellite service provider were chargeable to tax in India as royalty, fees for technical services or business income, and whether tax was deductible at source under section 195; and (ii) whether interest on refund under section 244A was to be granted.

Issue (i): whether transponder charges paid to the non-resident satellite service provider were chargeable to tax in India as royalty, fees for technical services or business income, and whether tax was deductible at source under section 195

Analysis: The payment was held to be covered by the earlier decisions on identical transponder arrangements, including the ruling in the payee's own case, where such receipts were found not taxable in India under the applicable tax treaty. The definition of royalty in the treaty was treated as exhaustive, and the retrospective domestic-law expansion of section 9(1)(vi) could not be read into the treaty. The payment also did not satisfy the treaty test for fees for technical services, as no technical knowledge or skill was made available to the assessee. The finding of business connection in India was rejected because use of transponder capacity by Indian customers did not by itself establish a business connection of the payee in India.

Conclusion: The transponder payments were not taxable in India as royalty, fees for technical services or business income, and no obligation to deduct tax at source arose; the issue was decided in favour of the assessee.

Issue (ii): whether interest on refund under section 244A was to be granted

Analysis: The claim for interest required fresh examination in the light of the relevant CBDT circular and the factual position regarding the refund arising from tax deposited under section 195.

Conclusion: The question of interest under section 244A was remitted to the Assessing Officer for reconsideration.

Final Conclusion: The assessee succeeded on the substantive taxability and withholding issue, while the claim for refund interest was sent back for fresh decision.

Ratio Decidendi: Where a treaty contains an exhaustive definition of royalty, a subsequent unilateral amendment to the domestic statute cannot enlarge that treaty meaning, and no withholding obligation arises on a payment that is not taxable in the hands of the non-resident under the treaty.

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