Treaty royalty on bandwidth services rejected where customers received only connectivity, not control of equipment or process.

Bandwidth connectivity receipts from Indian customers were analysed under section 9(1)(vi) and Article 12(3) of the India-Singapore tax treaty. The service involved standard connectivity over a network controlled by the provider, and the customer obtained only a service, not possession, control, or economic exploitation of equipment or process. Because the treaty definition of royalty had not been enlarged by the domestic-law amendment, the treaty text remained controlling and the receipts were not taxable as royalty. On the advance-tax issue, interest under section 234B was held not leviable for a non-resident taxable, if at all, only under the treaty framework.

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Issues: (i) Whether receipts from provision of bandwidth services to Indian customers constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-Singapore tax treaty; (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Issue (i): Whether receipts from provision of bandwidth services to Indian customers constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-Singapore tax treaty.

Analysis: The receipts arose from standard bandwidth connectivity services rendered through a network controlled and operated by the assessee. The customer did not obtain possession, control, or economic exploitation of any equipment or process, but only received a service. The definition of royalty in the applicable treaty had not been amended to incorporate the expanded domestic-law explanation, and the treaty therefore continued to govern. The reasoning followed the line of authority that a unilateral amendment to domestic law does not enlarge the treaty definition where the treaty text remains unchanged.

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

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Analysis: The assessee was a non-resident taxable, if at all, only under the treaty framework. On that basis, the levy of advance-tax interest was held to be not attracted.

Conclusion: Interest under section 234B was not leviable, and the issue was decided in favour of the assessee.

Final Conclusion: The assessments sustaining royalty taxation were reversed, the assessee's substantive appeals succeeded, and the Revenue's challenge to levy of interest failed.

Ratio Decidendi: Where a tax treaty defines royalty and the relevant treaty text is not amended, a unilateral expansion of the domestic-law royalty provision cannot be imported into the treaty; payment for bandwidth connectivity services, without transfer of possession, control, or right to use equipment or process, is not royalty.

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