2026 Supreme(Online)(ITAT) 10288

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
Beena Pillai, JM
Reliance Jio Infocomm USA Inc. – Appellant
Versus
Deputy Commissioner of Income Tax – Respondent
I.T.A. No. 2991/Mum/2023

Payments for standard voice termination services do not constitute 'royalty' under DTAA as they lack proprietary secrecy or intellectual property transfer. Retrospective domestic law amendments cannot unilaterally expand treaty definitions of 'royalty' or redefine terms to prejudice the taxpayer's position under a tax treaty.

Headnote:(A) Income Tax Act, 1961 - Section 9(1)(vi) - Explanation 5 and 6 - Royalty - Definition of 'Process' - Payments for voice termination services - Whether taxable as royalty - Held, amendment to domestic law by insertion of Explanations 5 and 6 to Section 9(1)(vi) cannot override or expand the scope of 'royalty' under tax treaties where terms remain undefined or narrower in scope. (Paras 3.1, 4.11, 6.2)

(B) Double Taxation Avoidance Agreement (DTAA) - Article 12 - Interpretation of treaty terms - Definition of 'Royalty' - 'Secret process' - Where a term in a DTAA is not defined, domestic law meaning can be imported only if compatible with treaty obligations and not resulting in a unilateral treaty override. (Paras 6.2, 12-14, 21)

(C) Business Profits - Article 7 - Telecom services - Interconnectivity charges and voice termination services - In the absence of a permanent establishment, receipts for standard telecommunication services are in the nature of business profits and not taxable as royalty or fees for technical services. (Paras 2.5, 6.2, 6.5)

Facts of the case:
The taxpayer, a non-resident entity providing international telecom voice termination services, received payments from an Indian entity. The tax authorities treated these receipts as 'royalty' under domestic law, relying on the retrospective amendments to Section 9(1)(vi) of the Income Tax Act, which define 'process' to include transmission services. The taxpayer contended that these receipts were 'business profits' and not taxable in India as it lacked a permanent establishment, and argued that the treaty definition of royalty, being narrower, should prevail over domestic law.

Findings of Court:
The court observed that the definition of 'process' in the domestic law could not be imported into the DTAA to widen the scope of 'royalty' in a manner that creates a unilateral treaty override. The court found that the services involved standard commercial processes accessible to industry players and lacked the element of 'secrecy' or 'exclusivity' required for 'royalty' under the treaty. Consequently, the receipts were classified as business profits, not taxable in India.

Issues: The main issue was whether payments for voice termination services constitute 'royalty' under the domestic Act read with DTAA, and whether the retrospective domestic law amendments could redefine treaty terms to bring such payments under the tax net.

Ratio Decidendi: The court maintained that (i) the term 'royalty' in a DTAA is a defined term and takes precedence over domestic law definitions; (ii) 'process' under the treaty refers to a 'secret process' synonymous with intellectual property; (iii) unilateral domestic law amendments cannot be used to expand treaty obligations or override established judicial interpretations; and (iv) standard telecom services involving no transfer of intellectual property rights do not constitute royalty.

Result: Appeal allowed.