Treaty royalty limits for transponder services: domestic law expansion cannot override the DTAA, so no withholding tax arises.

Payments for transponder services to a UK resident were not royalty under the India-UK DTAA because the payer obtained only satellite capacity, with no transfer of control, possession, or right to use the satellite or transponder. The treaty definition in Article 13 was confined to use of, or right to use, a secret process, and the domestic-law expansion in section 9(1)(vi) could not be imported into the treaty through Article 3(3). As the recipient had no permanent establishment in India, the receipt was not taxable in India and no withholding obligation under section 195 arose.

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Issues: Whether transponder service fees paid to a UK resident for satellite transponder services constituted royalty under the India-UK DTAA so as to attract withholding tax under section 195 of the Income-tax Act, 1961.

Analysis: The payment was for availing transponder services through satellite facilities owned and operated by the non-resident provider, without any transfer of control, possession, or right to use the satellite or transponder. The treaty definition of royalty in Article 13 required the payment to be for use of, or right to use, a secret process, and the amended domestic-law explanation inserted in section 9(1)(vi) of the Income-tax Act, 1961 could not be read into the treaty merely by reason of Article 3(3). The payment therefore did not answer the treaty description of royalty, and the recipient's absence of a permanent establishment in India reinforced the non-taxability of the receipt in India.

Conclusion: The payment was not taxable as royalty under the India-UK DTAA and no obligation to deduct tax at source under section 195 arose.

Ratio Decidendi: Where a tax treaty defines royalty by reference to a secret process, a domestic-law amendment enlarging the meaning of process does not alter the treaty meaning unless the treaty itself is correspondingly amended.

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