Transponder charges to non-residents are not royalty under the DTAA, so no withholding tax obligation arose.

Transponder charges paid to non-resident entities for satellite transponder services were not royalty under the relevant India-US, India-UK and India-Malaysia DTAAs. Following the assessee's own case and the jurisdictional High Court, the Tribunal held that use of a transponder facility does not amount to royalty, and that the domestic law definition of "process" in Explanation 6 to section 9(1)(vi) cannot be imported to expand the treaty meaning of royalty. No tax was required to be deducted at source on these payments.

---

---

Issues: Whether tax was required to be deducted at source on transponder charges paid to non-resident entities as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and the relevant double taxation avoidance agreements.

Analysis: The payments were made for transponder services to non-resident recipients under the India-US, India-UK and India-Malaysia tax treaties. The dispute turned on whether such payments constituted royalty. The Tribunal followed the binding decision in the assessee's own case and the jurisdictional High Court decision holding that transponder charges paid for use of satellite transponder facility do not amount to royalty. It also rejected the contention that the domestic law definition of process in Explanation 6 to section 9(1)(vi) could be imported into the treaty where the treaty language used the expression "secret formula or process". The Tribunal held that a domestic amendment cannot be read into the treaty so as to enlarge the treaty definition of royalty.

Conclusion: The transponder charges were not taxable as royalty under the relevant DTAAs, and no obligation to deduct tax at source arose on the assessee.

---