Income Tax, Issue Update

Definition of term ‘process’ as per Explanation 6 to Section 9(1)(vi) of the Income Tax Act: Interpretation of definition of term ‘royalty’ under the tax treaty


Outcome: Assessee


  • The Assessee had earned income from providing transponder services to customers in India. According to the Assessee, the income earned by it from providing transponder services was neither taxable as per provisions of the Act nor as per India-Thailand tax treaty.
  • However, the Assessing Officer held the Assessee to be in default and held that the transponder charges received by the Assessee were taxable as royalty in the hands of the Assessee under the provision of Explanation 6 to section 9(1)(vi) of the Act as well as corresponding provisions of tax treaty between India and Thailand.

Key Points

  • The Tribunal placed reliance on the decision laid down in the Assessee’s own case wherein it was concluded that it was fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) vide Explanation 6 could not result in a change in interpretation of the tax treaty.
  • Applying the said proposition to the facts and circumstances of the case, the income received by the Assessee on account of transponder charges from the customers in India was not taxable as royalty in its hands and the same was also not taxable under the provisions of tax treaty between India and Thailand.

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