Transponder access payments not royalty under India-USA DTAA; no withholding tax under section 195 when recipient had no PE in India.

Payments for transponder access to a United States resident satellite operator with no permanent establishment in India were treated as not constituting royalty under Article 12 of the India-USA DTAA because the payer obtained only specified capacity and no control over the satellite or equipment. The wider domestic definition of royalty in Explanation 6 to section 9(1)(vi) was held not to expand the treaty meaning. As the amount was not chargeable to tax in India in the recipient's hands, no deduction of tax at source arose under section 195.

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Issues: Whether payments made for use of transponder facilities to a non-resident satellite operator constituted royalty and were liable to deduction of tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The payment was made to a United States resident having no permanent establishment in India. The facility used was a transponder on a satellite operating in space, and the assessee had only access to a specified capacity without control over the satellite or equipment. The payment was held to be outside the scope of royalty under Article 12 of the India-USA DTAA. The enlargement of the domestic definition of royalty by Explanation 6 to section 9(1)(vi) of the Income-tax Act, 1961 was held not to alter the treaty meaning. As the amount was not chargeable to tax in India in the hands of the recipient, the obligation to deduct tax at source did not arise.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

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