Satellite transponder receipts not taxable as royalty where treaty interpretation prevails over retrospective domestic amendment.

Receipts from leasing transponders or bandwidth for satellite transmission services were held not taxable in India as royalty under section 9(1)(vi) and Article 12 of the India-USA DTAA. The tribunal followed earlier decisions in the assessee's own case and the jurisdictional High Court, holding that satellite transmission receipts did not constitute royalty on the binding treaty interpretation. It further held that the retrospective amendment to section 9(1)(vi) could not be used to enlarge the scope of taxation under the DTAA, and with no change in the material facts, the consistent earlier view was applied in favour of the assessee.

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Issues: Whether the receipts from leasing transponders or bandwidth for satellite transmission services were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA DTAA.

Analysis: The issue was held to be covered by earlier decisions in the assessee's own case and by the jurisdictional High Court. It was found that the nature of the receipts from satellite transmission services had already been held not to constitute royalty, and that the retrospective amendment to section 9(1)(vi) could not be read so as to expand the operation of the treaty terms. In the absence of any change in the fundamental facts, the consistent view taken in earlier years was followed.

Conclusion: The receipts were not taxable as royalty in India and the issue was decided in favour of the assessee.

Ratio Decidendi: Satellite transponder or bandwidth receipts are not taxable as royalty in India where the treaty, as interpreted by binding precedent, does not permit the domestic retrospective amendment to enlarge the scope of taxation under the DTAA.

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