DCIT (IT)-4(1)(1), MUMBAI vs. M/S RELIANCE JIO INFOCOMM LTD, MUMBAI

O R D E R

PER ABY T. VARKEY, JM:

by the Revenue in this appeal are against the action of the Ld. CIT(A)/NFAC holding that, the amount paid by the assessee to Reliance Jio Infocomm UK Limited (hereinafter “RJIUK”) for availing Bandwidth Services did not constitute “Royalty”, within the meaning of Section 9(1)(vi) of the Act read with Article 13(3) of the Double Taxation Avoidance Agreement (‘DTAA’) between the Republic of India (‘India’) and the United Kingdom (‘UK’).

4. Brief facts as noted by the Ld. CIT(A) is that the assessee is a public limited company engaged in the business of providing digital services and has built a next generation all-IP data network with latest 4G LTE technology. It had entered into a Bandwidth Services Agreement dated 01.09.2017 which was amended by another Agreement dated 15.01.2019 with M/s. RJIUK, a tax resident of the UK. In terms of the said Agreement, M/s. RJIUK had provided Bandwidth Services to the assessee for connectivity between Palermo, Italy and Frankfurt, Germany. In lieu, thereof, the assessee had remitted USD 18,795 to M/s. RJIUK on which withholding taxes aggregating to Rs.1,48,776/- was deducted and deposited u/s 195 of the Income Tax Act, 1961 (hereinafter “the Act”) on 30.04.2019. The case of the assessee is that it is not required to withhold tax u/s 195 of the Act on such payment and has therefore carried this matter by way of appeal seeking declaration in terms of Section 248 of the Act that no tax is required to be deducted on such payment. And the Ld.

Reliance Jio Infocomm Ltd. CIT(A)/NFAC has declared that bandwidth charges paid to M/s RJIUK is not liable to be taxed in India. And therefore, the assessee is not under any obligation to deduct tax at source u/s 195 of the Act. The Ld. CIT(A) noted that the same issue cropped up before his predecessor and the aforesaid view taken by the latter was upheld by this Tribunal in the assessee’s own case in to 6334/Mum/2018 dated 05.11.2019. Following the same, the Ld. CIT(A)/NFAC held that the assessee was not obliged to deduct tax at source while making payment to M/s. RJIUK for bandwidth services and declared so in terms of section 248 of the Act.

9. The Ld. AR thereafter drew our attention to the copy of the Agreement between M/s. RJIL (assessee) and M/s. RJIUK (UK Resident) and particularly to the various clauses in this agreement to show that the assessee had no right to use any equipment and therefore the factual premise of the arguments made by the Revenue were flawed.

Reliance Jio Infocomm Ltd.

(a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8.

11. Thereafter, he drew our attention to the definition of the term ‘royalty’ as per Article 13(3) of the Indo-UK Tax Treaty which read as under:

12. Referring to the above relevant clauses, the Ld. AR showed us that the definition of ‘royalty’ as per the Indo Singapore Treaty as well as the Indo UK Treaty is the same, without any difference. Therefore, according to him, the ratio laid by the Tribunal in assessee’s own case for earlier years was rightly followed by Ld. CIT(A)/NFAC while passing the impugned order for the relevant year.

13. Countering the Ld. DR’s reliance on the decision of Hon’ble Madras High Court in the case of M/s. Verizon Communication (supra), the Ld. AR submitted that the facts are clearly distinguishable. The Ld. AR placed before us a chart, which is found placed at page nos. 2 to 24 of the Paperbook (‘PB’), in which he demonstrated that M/s. RJIUK has only provided standard bandwidth services to M/s. RJIL and while doing so it has not provided any Reliance Jio Infocomm Ltd. equipment to M/s RJIL. Therefore, the Ld. AR submitted that M/s. RJIL did not use nor was it conferred with the right to use M/s. RJIUK’s equipment.

14. The Ld. AR further pointed out that, the Hon’ble Madras High Court had held that, the definition of ‘royalty’ under DTAA and the Act are in pari materia. The Hon’ble High Court accordingly upheld the order of the Tribunal, holding that the consideration paid to the assessee was for the use of ‘equipment’ as well as use of ‘process’, and therefore constitutes ‘royalty’ within the meaning of Explanation-2(iii) to Section 9(1)(vi) of the Act and Article 12(3) of the DTAA between India and Singapore. According to the Ld. AR, no amendment in the Act, whether retrospective or prospective can be read in a manner so as to extend its operation to the terms of an international instrument effected between two Sovereign States prior to such amendment. For this, he drew our attention to the decision of the Hon’ble Delhi High Court in the case of M/s. New Skies Satellite BV (2016) (68 taxmann.com 8) which had distinguished the ruling of the Hon’ble Madras High Court in M/s. Verizon Communication Singapore (supra). For doing so, the Hon’ble Delhi High Court had cited two (2) reasons viz., (i) the Madras High Court did not assign any reasons or basis for extending the amended definition of royalty under the Act to the DTAA and, (ii) the amendment to a DTAA is not on the same footing as an amendment to the domestic law, in as much as the Parliament itself is not equipped with the power to change the terms of a DTAA through unilateral amendment in domestic law. The relevant Reliance Jio Infocomm Ltd. extract of the order of the Hon’ble Delhi High Court in New Skies (supra), as relied upon by the Ld. AR, is reproduced below: - “38. The circumstances in this case could very well go to show that the amendment was no more than an exercise in undoing an interpretation of the court which removed income from data transmission services from taxability under Section 9(1)(vi). It would also be difficult, if not impossible to argue, that inclusion of a certain specific category of services or payments within the ambit of a definition alludes not to an attempt to illuminate or clarify a perceived ambiguity or obscurity as to interpretation of the definition itself, but towards enlarging its scope. Predicated upon this, the retrospectivity of the amendment could well be a contentious issue. Be that as it may, this Court is disinclined to conclusively determine or record a finding as to whether the amendment to 9(1)(vi) is indeed merely clarificatory as the Revenue suggests it is, or prospective, given what its nature may truly be. The issue of taxability of the income of the assessees in this case may be resolved without redressal of the above question purely because the assessee has not pressed this line of arguments before the court and has instead stated (75 US) 330, 19 L Ed 396 (1869) 223 F2d 668 (8th Cir. 1955) 134 Cal App 3d 428 105 Ill App 3d 661 ITA 473/2012, 474/2012, 500/2012 & 244/2014 Page 29 that even if it were to be assumed that the contention of the Revenue is correct, the ultimate taxability of this income shall rest on the interpretation of the terms of the DTAAs. Learned Counsel for the assessee has therefore contended that even if the first question is answered in favour of the Revenue, the income shall nevertheless escape the Act by reason of the DTAA. The court therefore proceeds with the Reliance Jio Infocomm Ltd. assumption that the amendment is retrospective and the income is taxable under the Act.

15. The Ld. AR further brought to our notice that the aforesaid decision of the Hon’ble Delhi High Court (supra) has been concurred by the Hon’ble jurisdictional Bombay High Court in the case of M/s. Reliance Infocomm Ltd. (ITA. No. 1395 of 2016). In the decided case, the Hon’ble Bombay High Court had held that amendments in the Act would not override the provisions of DTAA. It was further observed that a change in executive position cannot bring about a unilateral amendment into a treaty concluded between two Sovereign States. In this regard, the Ld. AR drew our attention to page no. 93 of the paper book wherein the Hon’ble Bombay High Court has framed the following questions of law for their consideration : - "(a) Whether on facts and circumstances of the case and in law, the Tribunal erred in holding that the amount payable by payee was not taxable as royalty in the hands of the payee, under the DTAA between India and Netherlands and hence not liable for tax withholding u/s. 195? (b) Whether on facts and circumstances of the case and in law, the Tribunal erred in relying upon the decision of Hon'ble Delhi High Court in case of payee i.e. New Skies Satellites NV, Netherlands to hold that the amount was not taxable under the Reliance Jio Infocomm Ltd. treaty in hands of payee without appreciating that the provisions of section 9(1)(vi) are pari-materia with the Royalty itxa-1395- 2016.odt provisions under the DTAA as also held by Madras High Court in case of Poompuhar Shipping 360 ITR 257 and Verizon Communication Singapore Pte ITR 575 (Mad.)? (c) Whether on facts and circumstances of the case and in law, the Tribunal erred in relying upon the decision of Hon'ble Delhi High Court in case of payee i.e. New Skies Satellites NV, Netherlands to hold that the amount was not taxable under the treaty in hands of payee, without appreciating that the said decision of Delhi High Court had not considered the principles of updating construction, as enunciated by apex court in case of Podar cements 226 ITR 625 (SC)?".

16. And the Hon’ble Bombay High Court answered the same as under: - “2 Though three separate questions are framed by the Revenue, issue is single namely - Whether the Respondent-Assessee while making payment on royalty to the payee Company failed to deduct tax at source, though required in law?

3 Before the Tribunal as well as before us, the Revenue has principally relied on the amendment to Section 9(1)(vi) of the Income Tax Act, 1961 (for short "the Act"), wherein explanations 5 and 6 were inserted by Finance Act, 2015 w.e.f. 1 st April, 1976. Both these explanations commence with the expression " for the removal of doubts, it is hereby declared that .... .... .... ....". According to the Revenue, these explanations are in the nature of declatory explanations and merely clarified the position in law and, therefore, the income of the foreign based Reliance Jio Infocomm Ltd. payee was taxable in India and the Assessee, therefore, had liability to deduct tax at source while making such payments.

4 The entire issue was examined in detail by the Delhi High Court in case of Director of Income Tax v/s. New Skies Satellite BV reported in 382 ITR 114. The High Court while dismissing the Revenue's appeal, in the context of the nature of amendments noted above, held and observed as under:-

The circumstances in this case could very well go to show that the amendment was no more than an exercise in undoing an interpretation of the court which removed income from data transmission services from taxability under Section 9(1)(vi). It would also be difficult, if not impossible to argue, that inclusion of a certain specific category of services or payments within the ambit of a definition alludes not to an attempt to illuminate or clarify a perceived ambiguity or obscurity as to interpretation of the definition itself, but towards enlarging its scope. Predicated upon this, the retrospectivity of the amendment could well be a contentious issue. Be that as it may, this Court is disinclined to conclusively determine or record a finding as to whether the amendment to 9(1)(vi) is indeed merely clarificatory as the Revenue suggests it is, or prospective, given what its nature may truly be. The issue of taxability of the income of the assesses in this case may be resolved without redressal of the above question purely because the assessee has not pressed this line of arguments before the court and Reliance Jio Infocomm Ltd. has instead stated that even if it were to be assumed that the contention of the Revenue is correct, the ultimate taxability of this income shall rest on the interpretation of the terms of the DTAAs. Learned Counsel for the assessee has therefore contended that even if the first question is answered in favour of the Revenue, the income shall nevertheless escape the Act by reason of the DTAA. The court therefore proceeds with the assumption that the amendment is retrospective and the income is taxable under the Act.

5 The Court further observed that mere amendments in the Act would not over-ride the provisions of Double Tax Avoidance Agreement (for short "DTAA"). It was held that: "on a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into treaty concluded between two sovereign states. It is 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) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State's discomfort at letting data broadcast revenue slip by, will be insufficient to persuade this Court to Reliance Jio Infocomm Ltd. hold that such amendments are applicable to the DTAAs. In the said decision, Delhi High Court had also referred and relied upon the decision of this Court in the case of CIT v/s. Siemens Aktiongesellschaft reported in 310 ITR 320, in which it was held that, mere amendment of the Act, would not over-ride the provisions of DTAA treaties".

6 In view of such detailed consideration by the Delhi High Court in the case of New Skies Satellite BV (supra), which is the foreign based company to whom the assessee has made payment in question, where identical issue came up for consideration, we do not find any reason to interfere this Appeal.”

17. Thereafter the Ld. AR also brought to our notice that this particular issue as to whether unilateral amendment in the Act can be read into a tax treaty has been finally laid to rest by the Hon’ble Supreme Court in the case of M/s. Engineering Analysis Centre of Excellence (P) Ltd. Vs. CIT (125 Taxmann.com 42). In the decided case, the Hon’ble Supreme Court has held that unless there is amendment to the treaty, domestic provisions to the extent less favourable to the tax payer cannot be read into the treaty while deciding issue of taxability as Royalty. Relying on the findings returned by the Hon’ble Delhi High Court in the case of New Skies (supra), the Hon’ble Supreme Court is noted to have held as under:-

“155. In Director of Income Tax v. New Skies Satellite BV, (2016) 382 ITR 114 [“New Skies Satellite”], a Division Bench of the High Court of Delhi correctly observed that mere positions taken with respect to the OECD Commentary do not Reliance Jio Infocomm Ltd. alter the DTAA’s provisions, unless it is actually amended by way of bilateral re-negotiation. This was put thus:

68. On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is 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) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State's discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this Court to hold that such amendments are applicable to the DTAAs.

19. We have heard both the parties. It is noted that, the assessee company had entered into a Bandwidth Services Agreement dated 01.09.2017 with M/s. RJIUK which is a company incorporated in the United Kingdom. The said payee is a tax resident of the United Kingdom as is evident from the Tax Residency Certificate. M/s. RJIUK is engaged in business activities relating to International Telecommunication and it provides services such as voice termination, IP transit etc. The Agreement is noted to have been later amended vide Agreement dated 15.01.2019. Upon reading of these agreements, it is noted that M/s. RJIUK has agreed to provide Bandwidth Services to the assessee for connectivity between Palermo, Italy and Frankfurt, Germany. In consideration, the assessee has remitted USD 18,795 to M/s. RJIUK towards the Bandwidth Services. The assessee is noted to have deposited withholding taxes aggregating to INR 1,48,776/- after grossing up as per Section 195A of the Act. Thereafter, the assessee filed an appeal before the Ld. CIT(A) in terms of Section 248 of the Act seeking declaration that it is not required to withhold tax u/s 195 of the Act which was allowed by the Ld. CIT(A). It is noted that identical issue had come up before this Tribunal in assessee’s own case Reliance Jio Infocomm Ltd. in earlier years, which was held in their favour, as noted (supra). We note that, this Tribunal has decided the issue regarding taxability of payment towards bandwidth services and whether the same constituted ‘royalty’ or not, in the light of Indo-Singapore DTAA in earlier year/s and answered the question in favour of the assessee. Having perused the definition of the ‘royalty’ in Indo-Singapore DTAA and India-UK DTAA (supra), we note that they are in pari materia and therefore the ratio laid down by this Tribunal in assessee’s own case in earlier years (supra) is applicable with equal force in the case before us as well. Accordingly, the contention of the Revenue to that extent is held to be devoid of any merit and is thus rejected.

20. Thus, the Ld. AR had rightly relied on the findings given by this Tribunal in the assessee’s own case for AY 2018-19 in to 6334/Mum/2018 dated 05.11.2019. In the decided case, this Tribunal followed their earlier order in assessee’s own case for AY 2016-17 reported in 108 taxmann.com 325, wherein it was held that the fees paid for bandwidth services did not constitute ‘royalty’ as defined in India-Singapore tax treaty (identical to India-UK DTAA). The relevant findings are noted to be as under:

“8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record and the judicial pronouncements relied upon by them. We find that our indulgence in the present appeal has been sought by the revenue to adjudicate as to whether the CIT(A) is correct in concluding that the amount paid by the assessee for availing bandwith services to RJIPL did Reliance Jio Infocomm Ltd. not constitute "royalty" and was its "business profits". Admittedly, as the revenue has not assailed the observations of the CIT(A) that the payments made by the assessee to RJIPL cannot be held as FTS, therefore, we confine ourselves to the issue to the extent the same has been assailed by the revenue before us. As is discernible from the record, the assessee pursuant to the terms of the 'agreement' had only received standard facilities i.e bandwith services from RJIPL. In fact, as observed by the CIT(A), the assessee only had an access to services and did not have any access to any equipment deployed by RJIPL for providing the bandwith services. Apart there from, the assessee also did not have any access to any process which helped in providing of such bandwith services by RJIPL. As a matter of fact, all infrastructure and process required for provision of bandwith services was always used and under the control of RJIPL, and the same was never given either to the assessee or to any other person availing the said services. We are persuaded to subscribe to the observations of the CIT(A) that as the process involved to provide the bandwith services was not a "secret" i.e IPR in the process was not owned/registered in the name of RJIPL, but was a standard commercial process that was followed by the industry players, therefore, the same could not be classified as a "secret process" which would have been required for charactering the aforesaid payment made by the assessee to RJIPL as "royalty" under the India-Singapore DTAA. We are further in agreement with the view taken by the CIT(A) that as the amount paid by the assessee to RJIPL was neither towards use of (or for obtaining right to use) Industrial, commercial or scientific equipment, nor towards use of (or for obtaining right to use) any secret formula or process, therefore, Reliance Jio Infocomm Ltd. the same could not be classified as payment of "royalty" by the assessee. Insofar the ld. D.R had tried to press into service Explanation 6 to Sec. 9(1)(vi), in order to drive home his contention that the payment made by the assessee to RJIPL for availing the bandwith services would fall within the sweep of "royalty" is concerned, we are unable to persuade ourselves to accept the same. In our considered view, the amendment in Sec. 9(1)(vi) will not have any bearing on the definition of "royalty" as contemplated in the India-Singapore DTAA. Our aforesaid view is fortified by the order of the Hon'ble High Court of Bombay in the case of The CIT v. Reliance Infocomm Ltd. (IT Appeal No. 1395 of 2016, dated 05.02.2019). The Hon'ble High Court in its aforesaid judgment had after referring to the judgments of the Hon'ble High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320/177 Taxman 8/(Bom.) had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of „royalty? as contemplated in the India-Singapore tax treaty. In our considered view there is substantial force in the contention advanced by the ld. A.R that though the term "royalty" as used in Article 12 of India-Hungary DTAA takes within its sweep "...transmission by satellite, cable, optic fibre or similar technology", however, the definition of "royalty" in the India- Singapore tax treaty with which we are concerned has a narrow meaning. In fact, we find that despite the fact that the India- Reliance Jio Infocomm Ltd. Singapore tax treaty was amended by Notification No. SO 935(E), dated 23.03.2017, however, the definition of "royalty" therein envisaged had not been tinkered with and remains as such. We thus in terms of our aforesaid observations are of the considered view that the amount received by RJIPL from the assessee for providing standard bandwith services could not be characterised as "royalty" as per the India-Singapore DTAA, and as rightly observed by the CIT(A), was in fact the "business profits" of RJIPL. Insofar the taxability of the aforesaid "business profits" is concerned, we find that as RJIPL did not have any business connection or a PE in India, therefore, the same as per Article 7 of the India-Singapore DTAA could not have been brought to tax in India.”

21. It is noted that this Tribunal had also dealt with the applicability of definition of ‘royalty’ u/s 9(1)(vi) of the Act, as amended by Finance Act 2010, more particularly Explanation 6 to Section 9(1)(vi) in light of Article 3(2) of the tax treaty, which has been relied upon by the Ld. DR before us as well. The Tribunal is noted to have rejected this line of argument of the Revenue by holding as follows: “Insofar the ld. D.R had tried to press into service Explanation 6 to Sec. 9(1)(vi), in order to drive home his contention that the payment made by the assessee to RJIPL for availing the bandwidth services would fall within the sweep of "royalty" is concerned, we are unable to persuade ourselves to accept the same. In our considered view, the amendment in Sec. 9(1)(vi) will not have any bearing on the definition of "royalty" as contemplated in the India-Singapore DTAA. Our aforesaid view is fortified by the order of the Hon'ble High Court of Bombay in Reliance Jio Infocomm Ltd. the case of The CIT v. Reliance Infocomm Ltd. (IT Appeal No. 1395 of 2016, dated 05.02.2019). The Hon'ble High Court in its aforesaid judgment had after referring to the judgments of the Hon'ble High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320 (Bom)] had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of "royalty‟ as contemplated in the India- Singapore tax treaty. In our considered view there is substantial force in the contention advanced by the ld. A.R that though the term "royalty" as used in Article 12 of India-Hungary DTAA takes within its sweep "...transmission by satellite, cable, optic fibre or similar technology", however, the definition of "royalty" in the India-Singapore tax treaty with which we are concerned has a narrow meaning. In fact, we find that despite the fact that the India-Singapore tax treaty was amended by Notification No. SO 935(E), dated 23.03.2017, however, the definition of "royalty" therein envisaged had not been tinkered with and remains as such. We thus in terms of our aforesaid observations are of the considered view that the amount received by RJIPL from the assessee for providing standard bandwidth services could not be characterised as "royalty" as per the India- Singapore DTAA, and as rightly observed by the CIT(A), was in fact the "business profits" of RJIPL. Insofar the taxability of the aforesaid "business profits" is concerned, we find that as RJIPL did not have any business connection or a PE in India, therefore, Reliance Jio Infocomm Ltd. the same as per Article 7 of the India-Singapore DTAA could not have been brought to tax in India services was not a "secret" i.e IPR in the process was not owned/registered in the name of RJIPL, but was a standard commercial process that was followed by the industry players, therefore, the same could not be classified as a "secret process" which would have been required for charactering the aforesaid payment made by the assessee to RJIPL as "royalty" under the India-Singapore DTAA. We are further in agreement with the view taken by the CIT(A) that as the amount paid by the assessee to RJIPL was neither towards use of (or for obtaining right to use) Industrial, commercial or scientific equipment, nor towards use of (or for obtaining right to use) any secret formula or process, therefore, the same could not be classified as payment of "royalty" by the assessee. Insofar the ld. D.R had tried to press into service Explanation 6 to Sec. 9(1)(vi), in order to drive home his contention that the payment made by the assessee to RJIPL for availing the bandwidth services would fall within the sweep of "royalty" is concerned, we are unable to persuade ourselves to accept the same. In our considered view, the amendment in Sec. 9(1)(vi) will not have any bearing on the definition of "royalty" as contemplated in the India-Singapore DTAA. Our aforesaid view is fortified by the order of the Hon'ble High Court of Bombay in the case of The CIT v. Reliance Infocomm Ltd. (IT Appeal No. 1395 of 2016, dated 05.02.2019). The Hon'ble High Court in its aforesaid judgment had after referring to the judgments of the Hon'ble High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft[2009] Reliance Jio Infocomm Ltd. 310 ITR 320/177 Taxman 8/(Bom.) had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of „royalty‟ as contemplated in the India-Singapore tax treaty. In our considered view there is substantial force in the contention advanced by the ld. A.R that though the term "royalty" as used in Article 12 of India-Hungary DTAA takes within its sweep "...transmission by satellite, cable, optic fibre or similar technology", however, the definition of "royalty" in the India-Singapore tax treaty with which we are concerned has a narrow meaning. In fact, we find that despite the fact that the India-Singapore tax treaty was amended by Notification No. SO 935(E), dated 23.03.2017, however, the definition of "royalty" therein envisaged had not been tinkered with and remains as such. We thus in terms of our aforesaid observations are of the considered view that the amount received by RJIPL from the assessee for providing standard bandwidth services could not be characterised as "royalty" as per the India- Singapore DTAA, and as rightly observed by the CIT(A), was in fact the "business profits" of RJIPL. Insofar the taxability of the aforesaid "business profits" is concerned, we find that as RJIPL did not have any business connection or a PE in India, therefore, the same as per Article 7 of the India-Singapore DTAA could not have been brought to tax in India 8. Learned Departmental Representative's armoury is, however, not exhausted.

, the specific plea taken in this appeal is that the Explanation 5 and 6 to Section 9(1)(vi) must hold the field, in the context of interpretation of Article 12 of the Indo Singapore tax treaty so far connotations of undefined expressions therein are concerned, in view of the specific provisions of article 3(2) of Indo Singapore tax treaty itself and in the light of, as the grounds of appeal point out, Hon'ble Supreme Court's judgment in the case of Vatika Township Pvt Ltd (supra).

10. It is only in exceptional cases that there is an occasion to deviate from the decisions of the coordinate benches, but that does not mean that in the covered cases all doors are shut on the parties. When a coordinate bench judgment does not appeal to another coordinate bench, or when the coordinate bench discovers that the judicial precedent is rendered per incurium, it could indeed be open to the coordinate bench to refer the matter for the consideration of a larger bench, or, in a fit case, hold that the judicial precedent, for the specific reasons set out, is not a binding judicial precedent. Let us also not lose sight of the fact that, as pointed out by the learned Departmental Representative, there is a direct decision of Hon'ble jurisdictional High Court in the case of CIT Vs Siemens Aktiongesellschaft [(2009) 310 ITR 320 (Bom)], upholding ambulatory approach to domestic law meaning of undefined terms under article 3(2), and, if the same approach is adopted in the present case for certain expressions appearing in the definition in the royalty, the plea of the revenue, at least on the face of it, does not seem to be totally Reliance Jio Infocomm Ltd. devoid of legally sustainable merits. In any event, even though the decision relied upon refers to the aforesaid decision, it does not at all deal with the interplay of domestic law definitions, under article 3(2), with undefined treaty expressions. Of course, that is only one of the aspects of the matter and there are many other nuances of the matter which need to be taken note of, analysed and taken a conscious call on. Let us, in this backdrop, neatly identify and then deal with the core issue, as being raised before us now, and that core issue is the interpretation to be assigned to the expression "process" for the purpose of Article 12(3)(a) which provides that "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process (Emphasis, by underlining, supplied by us now), or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information". The expression "process", which finds mention in this treaty provision, is not defined in the treaty itself. Learned Departmental Representative's contention is that in the light of article 3(2) of the treaty, which states that "(a)s regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have, the meaning which it has under the law of that State concerning the taxes to which the Agreement applies", the domestic law meaning of the expression "process", which is set out in Explanation 6 to Section 9(1)(vi), must hold the filed. Explanation 6 to Section 9(1)(vi), which was inserted Reliance Jio Infocomm Ltd. vide the Finance Act 2012 with retrospective effect from 1st June 1976, provides that "(f) or the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down- linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret". In plain words, going by the complex web of this line of argument, thus, in the absence of any specific definition of "process" in the Indo Singapore tax treaty, the domestic law meaning of this expression must law prevail under article 3(2), and, going by the domestic law meaning under Explanation 6 to Section 9(1)(vi), any transmission by satellite (including (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret, is covered by the definition of "royalty' under article 13(3)(a) of the Indo Singapore tax treaty, and since the bandwidth services, on the facts of this case, are transmitted by satellite, cable, optic fibre or other similar technology, the bandwidth services constitutes 'royalty' for the purpose of article 13(3)(a). As for the reference to Vatika Township decision (supra), it is contended, as stated in so many words in the fourth ground of appeal, the insertion of Explanation 5 and 6, though by the virtue of Finance Act 2012, is only a "declaratory and clarificatory amendment explaining the law as existing from 01.06.1976". A lot of emphasis has been placed on the interplay of article 3(2) with domestic law meaning of a term used in, but not defined in, the Indo Singapore tax treaty. The thrust of learned Departmental Representative's argument is that in such a situation, i.e. when a term used in a treaty is not defined in the Reliance Jio Infocomm Ltd. treaty, domestic law meaning of the term must prevail. The expression "process", on the basis of this argument and on the strength of article 3(2) of treaty itself, is claimed to cover "transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret" as is the case of bandwidth services provided by RJ-S. It is also pointed out that the adoption of domestic law meaning for treaty purposes, as it is mandated by the treaty itself vide article 3(2), remains unaffected by the provisions of Section 90(2). The question of treaty superiority, under the provisions of the Indian Income Tax Act 1961, comes into play only when the domestic law meaning is not assigned by the treaty itself.

Reliance Jio Infocomm Ltd. The expression "term" is defined as "a word or phrase used to describe a thing or to express a concept, especially in a particular kind of language or branch of study". A "term" is thus a word that has meaning and refers to objects, ideas, events or a state of affair. A term is thus, in addition to being a word, some kind of a point of reference, whereas a word is only a constituent of language. As a corollary to these discussions, Article 3(2) will come into play only in respect of the undefined treaty terms, which are in the nature of reference points and which have some peculiar significance as a term employed in the treaty, and not all the undefined words and expressions used in a treaty. To put a question to ourselves, does the expression "process", in its own right, has any relevance for the tax treaties or can "process" to be said to be a term employed in tax treaties? The answer is in negative. If at all the expression "process" has any relevance, it is in defining a treaty term i.e. "royalty". To look for statutory definitions of each word employed in a definition of the treaty term, and then construct the definition of treaty term as an assembly of the statutory definitions of all these words taken together will be too hyper technical an approach, and, in any case, beyond the mandate of article 3(2). That does not appeal to us. It is even more inappropriate because "process" is judicially explained but the statutory definition is being invoked, under article 3(2), to dislodge the judicial interpretation. Quite clearly, therefore, but for the binding force of article 3(2), this statutory definition does not come to the rescue of Assessing Officer's case, and it is this binding force of article 3(2) which does not come into play in explaining the word "process" used in definition of a treaty term i.e. royalty. Of course, "royalty" is a treaty term but since it is Reliance Jio Infocomm Ltd. well defined term in the treaty, its domestic law meaning is not relevant for treaty purposes. The expression "process" is defined in the domestic law but this definition is in the limited context of explaining the term "royalty" under the domestic law, it cannot be borrowed in the treaty for understanding connotations of "royalty" under the treaty. It cannot be, in our humble understanding, open to pick up a part of the definition of royalty under the domestic law and supply the same to an undefined expression in the definition of royalty under the treaty. The expression 'process' is not a treaty term per se, or a reference point, used in the treaty, rather it is an expression or word used in defining the treaty term 'royalty'. The expression "process" is used in the treaty in that limited context and it does not have an independent existence. The definition of "royalty" under the domestic law, as it stands now, is more exhaustive inasmuch as the expression "process" used in the definition is further elaborated upon in Explanation 6 to Section 9(1)(vi) which does not, in any case, provide a universal rule as it is in the context of this particular sub section dealing with the "income by way of royalty". The definition of expression 'process' is thus not a standalone definition which can be imported in treaty under article 3(2).

Reliance Jio Infocomm Ltd. and the crucial words "laws in force" on which so much emphasis was placed in judicial analysis by Hon'ble jurisdictional High Court do not find place in this treaty. Strictly speaking, therefore, the judicial sanction for the theory of ambulatory interpretation, for the purpose of article 3(2), does not, therefore, necessarily extend to Indo Singaporean tax treaty that we are concerned with.

22. In view of these discussions, and bearing in mind entirety of the case, we find no legally sustainable merits in the grievances raised before us. The arguments raised before us do not lead us to a different conclusion either. Concurring with the coordinate bench decisions, therefore, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. As we hold so, we may add that these observations regarding ambulatory or dynamic approach being inappropriate in the context of article 3(2) is confined to the peculiar facts discussed above, and, are not, therefore, of general application.”

Reliance Jio Infocomm Ltd. Engineering Analysis Centre of Excellence (P.) Ltd (supra) which has approved the legal principle that any change made to domestic law cannot be read into the International Treaty unless the International Treaty has been amended by bilateral re-negotiation to that extent. Therefore, taking note of these judicial precedents, the reliance placed by the Revenue in the case of Verizon Communication Singapore Pte Ltd (supra) is held to be untenable.