Transponder bandwidth receipts are not royalty under an unamended treaty despite domestic amendment, where control remains with the provider.

Receipts from digital broadcasting services through transponders were treated as not taxable as royalty under the relevant treaty, because the Finance Act, 2012 did not alter Article 12 of an unamended Double Taxation Avoidance Agreement for earlier years. The analysis followed the Delhi High Court view in New Skies Satellite: customers obtained only access to bandwidth in the transponder, while control over the satellite and transponder remained with the service provider. On that basis, the receipts did not amount to royalty under the treaty, and domestic amendment could not expand the treaty meaning.

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Issues: Whether receipts from digital broadcasting services through transponders were taxable in India as royalty under the relevant Double Taxation Avoidance Agreement in light of the Finance Act, 2012 and the Delhi High Court ruling in New Skies Satellite.

Analysis: The controlling principle applied was that the amendment brought by the Finance Act, 2012 did not alter the interpretation of Article 12 of the Double Taxation Avoidance Agreement for earlier assessment years or for cases governed by an unamended treaty. The decisive reasoning followed the Delhi High Court view that customers obtained only access to bandwidth in the transponder, while control over the satellite and transponder remained with the assessee. On that basis, the receipts could not be characterised as royalty under the treaty.

Conclusion: The receipts were not taxable as royalty under the relevant Double Taxation Avoidance Agreement, and the Revenue's challenge failed.

Ratio Decidendi: Where treaty definitions of royalty remain unchanged, domestic amendments by the Finance Act, 2012 do not expand the meaning of royalty under the Double Taxation Avoidance Agreement, and transponder-based data transmission receipts do not become royalty merely because bandwidth access is provided without transfer of control.

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