Income from leasing transponders not taxable as royalty in India under DTAA

The Tribunal ruled in favor of the assessee, holding that the income from leasing transponders for telecommunication purposes cannot be taxed as royalty in India under Section 9(1)(vi)(c) of the DTAA. The decision aligned with previous High Court rulings and emphasized the significance of precedent and the non-retrospective applicability of amendments to international treaties. As a result, the appeal of the assessee was allowed, and the income was not deemed taxable as royalty in India.

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Issues:
Taxability of receipts as royalty under Section 9(1)(vi)(c) of the Indo-US DTAA.

Analysis:
1. The assessee, a US tax resident, challenged the order bringing receipts as royalty in India under Section 9(1)(vi) of the Income-tax Act, 1961. The assessee leased transponders to customers in India and abroad for telecommunication purposes. The Assessing Officer (AO) held the receipts taxable as royalty under the Act and DTAA, citing OECD Commentary and PanAm Sat International Systems Inc. decision.

2. The AO attributed and taxed different portions of the total revenue from Indian and global customers. After DRP directions, Rs. 91.31,21,598 was taxed under Section 9(1)(vi)(c) of the DTAA. The assessee contended that consistent Tribunal decisions favored them, citing Asia Satellites and New Skies Satellite BV cases.

3. The Tribunal upheld the assessee's contention, noting no change in fundamental facts. Previous High Court decisions held that post-amendment, satellite transmission services' taxability under DTAA remained unchanged. The Tribunal, following precedent, ruled in favor of the assessee, stating the income cannot be taxed as royalty in India.

4. The judgment aligns with the consistent view of the High Court and Tribunal on the taxability of satellite transmission services. The decision emphasizes the importance of precedent and the non-applicability of retrospective amendments to international treaties. Consequently, the appeal of the assessee was allowed, and the income was not taxed as royalty in India.

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