Bandwidth services were not royalty under the India-UK DTAA, so no tax deduction at source was required.

Standard bandwidth connectivity services paid to a UK resident did not constitute royalty under the India-UK DTAA because the payer acquired no right to use equipment or any qualifying process. The Tribunal held that the treaty definition of royalty had to be applied on its own terms, and a later expansion of the domestic definition in section 9(1)(vi) could not enlarge or override the DTAA. As no royalty arose under the treaty, no tax deduction at source was required under section 195, and the Revenue's challenge failed.

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Issues: Whether consideration paid for bandwidth services to a UK resident constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 read with Article 13(3) of the India-UK DTAA, so as to require deduction of tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The payment was for standard bandwidth connectivity services and the payer did not obtain any right to use equipment or any independent process belonging to the non-resident. The definition of royalty in the India-UK DTAA was treated as materially identical to the definition considered in earlier decisions involving the assessee, and those decisions were followed. It was held that amendments to section 9(1)(vi) of the Income-tax Act, 1961, including the expanded domestic-law meaning of process, could not by themselves enlarge the scope of the treaty definition. The treaty term had to be applied on its own terms, and the domestic amendment could not override the DTAA.

Conclusion: The bandwidth payment was not royalty and no tax was deductible at source under section 195 of the Income-tax Act, 1961. The Revenue's challenge failed.

Ratio Decidendi: A unilateral amendment to domestic tax law cannot expand or override a concluded DTAA, and standard bandwidth services without a right to use equipment or a qualifying process do not constitute royalty under the treaty.

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