Treaty definition of royalty prevails: transponder service receipts were not taxable, and reassessment lost independent relevance.

Receipts from transponder services were treated as outside the treaty definition of royalty because Article 12 of the India-Thailand DTAA controlled the characterization, and retrospective amendments to section 9(1)(vi) could not expand that treaty meaning. Payments for transponder capacity were not consideration for the use of, or right to use, equipment or a secret process in the treaty sense, so the receipts were not taxable as royalty. Once that core taxability issue failed, the reassessment ground based on a higher tax rate no longer had independent relevance and became infructuous.

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Issues: Whether receipts from transponder services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Thailand Double Taxation Avoidance Agreement; and whether the related reassessment issue survived after the finding on taxability.

Analysis: The receipts were examined in the light of the domestic definition of royalty and the treaty definition under Article 12. The Court relied on the binding view that, where the treaty specifically defines royalty, subsequent retrospective amendments to section 9(1)(vi) cannot enlarge or alter the treaty meaning. It was held that payments for transponder capacity did not amount to consideration for the use of, or right to use, equipment or a secret process in the treaty sense. Once the receipts were held not taxable as royalty, the reassessment ground based on a higher tax rate ceased to have independent relevance.

Conclusion: The receipts from transponder services were not taxable as royalty under the India-Thailand DTAA, and the assessee succeeded on the core taxability issue. The reassessment ground became infructuous.

Final Conclusion: The appeals were allowed on the substantive issue of royalty taxation, while the remaining challenge to reassessment did not survive independently.

Ratio Decidendi: Where a tax treaty expressly defines royalty, retrospective amendments to the domestic charging provision cannot be read into the treaty, and payments for transponder capacity do not constitute royalty absent treaty-defined use of equipment or process.

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