We pay a foreign satellite operator for transponder capacity, and the satellite is nowhere near India — is that payment royalty taxable in India?
No, on the reasoning of this judgment. The Delhi High Court held on 31 January 2011 that a customer buying transponder capacity uses neither equipment nor a process belonging to the satellite operator. A transponder cannot function apart from the satellite — it depends on the satellite's power, antennae, positioning, temperature control and tracking — so it is not equipment capable of being handed over, and control never leaves the operator. The labels lease, lessor and rental in the agreement are not determinative; the substance is that the customer is given access to bandwidth while the operator performs the process. There was accordingly no use of a process by the TV channels.
Decided by the High Court (Delhi High Court; A.K. Sikri and Reva Khetrapal JJ, judgment delivered by A.K. Sikri J) on 2011-01-31, reported as ITA Nos. 131 and 134 of 2003 (Delhi High Court). It bears on section 9(1)(vi), section 9(1)(i), section 5(2), section 234B of the Income Tax Act 1961, in Residence & Treaty Benefit and How Tax Law Is Read matters.
This is the judgment behind every argument that a bandwidth or capacity payment is not royalty for the use of equipment or of a process. Its test is control and constructive possession, not nomenclature: if the provider keeps operating the asset and the customer merely gets a result, there is no transfer of the right to use. The Court built that out of the ISRO ruling of the Authority for Advance Rulings, whose special leave petition the Supreme Court dismissed, and out of the Karnataka High Court's sales tax reasoning in Lakshmi Audio Visual, with its illustration of the carrier's lorry that is used exclusively for one consignment yet never passes into the customer's control. It also rejects the Tribunal's attempt to distinguish ISRO on whether the transponder amplifies the signal, holding that amplification was never the basis of that ruling.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant is a Hong Kong company in the business of private satellite communications and broadcasting, with no office in India. The year is assessment year 1997-98, and it says it had no Indian resident customers. It leased AsiaSat 1 and owned AsiaSat 2. Both sit in geostationary orbital slots allotted to the United Kingdom and later handed to China; neither uses an Indian slot nor is positioned over Indian airspace. Their footprints cover four continents, and India falls within the South Beam of AsiaSat 1 and the C Band of AsiaSat 2. TV channels uplink signals from their own facilities outside India; the transponder receives, amplifies and changes the frequency without altering the content, and relays the signals across the footprint. The only earth-based activity is telemetry, tracking and control, from Hong Kong. The appellant filed no return until called upon under section 142(1), then returned nil. The Assessing Officer assessed Rs.160.28 crore on a business connection, attributing eighty per cent of revenue to India. The Commissioner (Appeals) found no business connection but held the receipts to be royalty for use of a secret process. The Tribunal decided some issues each way and both sides appealed.
On the surviving text, the Court held there was no use of equipment and no use of a process by the customers, so the payments do not answer the definition of royalty in Explanation 2 to section 9(1)(vi). A transponder is not a self-contained operating unit whose control or constructive possession can be handed over; it is an inseverable part of the satellite and cannot function without the satellite's power generation and storage, its common input and output antennae, its positioning system and thrusters, its temperature control and its telemetry, tracking and control system. Control of the satellite and the transponder always remained with the appellant, which had given customers no more than access to bandwidth. The Tribunal had itself found that a transponder divorced from the satellite can perform no activity, but did not carry that finding to its conclusion. The Tribunal was also wrong to distinguish the ISRO ruling on the ground that the transponder there did not amplify, amplification not being the basis of that ruling.
The Court's method was to ask what the customer actually got. It took the Authority for Advance Rulings' decision in the ISRO case, where payments for access to a navigation transponder were held not to be for the use of equipment because the applicant reached the transponder through its own network, the data underwent no change, and operation and regulation stayed with the provider — in essence the provision of a communication link through a facility owned and exclusively controlled by another. The Court held the position substantially the same here, and that amplification was an additional factor in ISRO rather than its foundation. It then set out the six satellite systems on which a transponder continuously depends, none of which passes to the customer, to show that the transponder is incapable of independent function. On that footing the labels used in the agreement carry no weight; the clauses show control remaining with the appellant and no more than access to a broadband being given. The distinction drawn by the Karnataka High Court in Lakshmi Audio Visual was applied: where possession and effective general control pass, and the customer chooses the manner, time and nature of use, there is a transfer of the right to use; where the customer entrusts the achievement of a result and the goods stay in the provider's effective control, there is not. The illustration of the lorry carrying one customer's consignment, exclusively used yet never in the customer's control, makes the point. On the process limb the Court noted the argument that a process in Explanation 2 must be read as intellectual property, found some force in it, but decided the case on the narrower ground that there was no use of any process by the TV channels.
it is entirely wrong to assume that a transponder is a self-contained operating unit, the control and constructive possession of which is or can be handed over by the satellite operator to its customers.
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Handle my notice → Ask a CA on WhatsAppNo, on the reasoning of this judgment. The Delhi High Court held on 31 January 2011 that a customer buying transponder capacity uses neither equipment nor a process belonging to the satellite operator. A transponder cannot function apart from the satellite — it depends on the satellite's power, antennae, positioning, temperature control and tracking — so it is not equipment capable of being handed over, and control never leaves the operator. The labels lease, lessor and rental in the agreement are not determinative; the substance is that the customer is given access to bandwidth while the operator performs the process. There was accordingly no use of a process by the TV channels. This was decided by the High Court (Delhi High Court; A.K. Sikri and Reva Khetrapal JJ, judgment delivered by A.K. Sikri J) and bears on section 9(1)(vi), section 9(1)(i), section 5(2), section 234B of the Income Tax Act 1961. It is reported as ITA Nos. 131 and 134 of 2003 (Delhi High Court). This is the judgment behind every argument that a bandwidth or capacity payment is not royalty for the use of equipment or of a process. Its test is control and constructive possession, not nomenclature: if the provider keeps operating the asset and the customer merely gets a result, there is no transfer of the right to use. The Court built that out of the ISRO ruling of the Authority for Advance Rulings, whose special leave petition the Supreme Court dismissed, and out of the Karnataka High Court's sales tax reasoning in Lakshmi Audio Visual, with its illustration of the carrier's lorry that is used exclusively for one consignment yet never passes into the customer's control. It also rejects the Tribunal's attempt to distinguish ISRO on whether the transponder amplifies the signal, holding that amplification was never the basis of that ruling. If it applies to you, the first step is this: Argue control rather than words: show who operates and monitors the asset, who can reassign capacity, and whether the customer could use it in any manner it chose — the presence of lease, lessor and rental in the contract does not decide it.
The appellant is a Hong Kong company in the business of private satellite communications and broadcasting, with no office in India. The year is assessment year 1997-98, and it says it had no Indian resident customers. It leased AsiaSat 1 and owned AsiaSat 2. Both sit in geostationary orbital slots allotted to the United Kingdom and later handed to China; neither uses an Indian slot nor is positioned over Indian airspace. Their footprints cover four continents, and India falls within the South Beam of AsiaSat 1 and the C Band of AsiaSat 2. TV channels uplink signals from their own facilities outside India; the transponder receives, amplifies and changes the frequency without altering the content, and relays the signals across the footprint. The only earth-based activity is telemetry, tracking and control, from Hong Kong. The appellant filed no return until called upon under section 142(1), then returned nil. The Assessing Officer assessed Rs.160.28 crore on a business connection, attributing eighty per cent of revenue to India. The Commissioner (Appeals) found no business connection but held the receipts to be royalty for use of a secret process. The Tribunal decided some issues each way and both sides appealed. The matter was decided on 2011-01-31 by the High Court (Delhi High Court; A.K. Sikri and Reva Khetrapal JJ, judgment delivered by A.K. Sikri J). On those facts the High Court held as follows. On the surviving text, the Court held there was no use of equipment and no use of a process by the customers, so the payments do not answer the definition of royalty in Explanation 2 to section 9(1)(vi). A transponder is not a self-contained operating unit whose control or constructive possession can be handed over; it is an inseverable part of the satellite and cannot function without the satellite's power generation and storage, its common input and output antennae, its positioning system and thrusters, its temperature control and its telemetry, tracking and control system. Control of the satellite and the transponder always remained with the appellant, which had given customers no more than access to bandwidth. The Tribunal had itself found that a transponder divorced from the satellite can perform no activity, but did not carry that finding to its conclusion. The Tribunal was also wrong to distinguish the ISRO ruling on the ground that the transponder there did not amplify, amplification not being the basis of that ruling.
The Court's method was to ask what the customer actually got. It took the Authority for Advance Rulings' decision in the ISRO case, where payments for access to a navigation transponder were held not to be for the use of equipment because the applicant reached the transponder through its own network, the data underwent no change, and operation and regulation stayed with the provider — in essence the provision of a communication link through a facility owned and exclusively controlled by another. The Court held the position substantially the same here, and that amplification was an additional factor in ISRO rather than its foundation. It then set out the six satellite systems on which a transponder continuously depends, none of which passes to the customer, to show that the transponder is incapable of independent function. On that footing the labels used in the agreement carry no weight; the clauses show control remaining with the appellant and no more than access to a broadband being given. The distinction drawn by the Karnataka High Court in Lakshmi Audio Visual was applied: where possession and effective general control pass, and the customer chooses the manner, time and nature of use, there is a transfer of the right to use; where the customer entrusts the achievement of a result and the goods stay in the provider's effective control, there is not. The illustration of the lorry carrying one customer's consignment, exclusively used yet never in the customer's control, makes the point. On the process limb the Court noted the argument that a process in Explanation 2 must be read as intellectual property, found some force in it, but decided the case on the narrower ground that there was no use of any process by the TV channels. In the words reproduced by the source cited on this page: "it is entirely wrong to assume that a transponder is a self-contained operating unit, the control and constructive possession of which is or can be handed over by the satellite operator to its customers."
It was decided by the High Court on 2011-01-31 and is reported as ITA Nos. 131 and 134 of 2003 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 9(1)(vi), section 9(1)(i), section 5(2), section 234B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. On the surviving text, the Court held there was no use of equipment and no use of a process by the customers, so the payments do not answer the definition of royalty in Explanation 2 to section 9(1)(vi). A transponder is not a self-contained operating unit whose control or constructive possession can be handed over; it is an inseverable part of the satellite and cannot function without the satellite's power generation and storage, its common input and output antennae, its positioning system and thrusters, its temperature control and its telemetry, tracking and control system. Control of the satellite and the transponder always remained with the appellant, which had given customers no more than access to bandwidth. The Tribunal had itself found that a transponder divorced from the satellite can perform no activity, but did not carry that finding to its conclusion. The Tribunal was also wrong to distinguish the ISRO ruling on the ground that the transponder there did not amplify, amplification not being the basis of that ruling. It arises in Residence & Treaty Benefit and How Tax Law Is Read matters, on section 9(1)(vi), section 9(1)(i), section 5(2), section 234B of the Income Tax Act 1961, and was decided by Delhi High Court; A.K. Sikri and Reva Khetrapal JJ, judgment delivered by A.K. Sikri J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that what the customer buys cannot function on its own; the finding that a transponder depends on the satellite's power, antennae, positioning and tracking systems is what defeated the equipment characterisation here. Meet the process limb separately from the equipment limb; the Court held the process in the transponder is carried on by the operator and is not used by the customer at all. Where the department relies on the customer's Indian revenue or Indian-facing content, keep that distinct from the question of what the payment is for; here the operator had no Indian customers and no Indian office.
Superseded by amendment. Parliament legislated against this judgment and a practitioner must start there. The Finance Act 2012 inserted Explanations 4, 5 and 6 to s.9(1)(vi) with effect from 1 June 1976, Explanation 6 defining 'process' to include transmission by satellite, cable, optic fibre or similar technology whether or not the process is secret. The Delhi High Court itself recorded the consequence in DIT v New Skies Satellite BV (8 February 2016) at para 19: 'with the insertion of the three explanations to Section 9 (1)(vi) of the Act, the matter has been settled beyond controversy. Consequently, the impugned orders, based as they are, on the reasoning in Asia Satellite, cannot stand, because the basis of that ruling has been undone.' But the same judgment fixes precisely what survives, at para 60: 'the first determinative interpretation given to the word royalty in Asia Satellite ... will continue to hold the field for the purpose of assessment years preceding the Finance Act 2012 and in all cases which involve a Double Tax Avoidance Agreement', because 'Neither can an Act of Parliament supply or alter the boundaries of the definition under Article 12 of the DTAAs'. New Skies also notes at para 15 that Asia Satellite itself was decided purely on s.9(1)(vi), there being no treaty on those facts - so on its own facts it is the case the amendment displaces. The Madras High Court has declined to follow it for post-amendment years: Verizon Communications Singapore Pte Ltd v ITO (7 November 2013) at para 42 - 'This decision of the Delhi High Court is distinguishable and has no relevance to the case on hand which has to be considered on the strength of the law prevailing now ... the said judgment was rendered in the year 2011, much before the amendment under Finance Act, 2012'. Cite it only for pre-2012 years or where a DTAA governs. A citedby search returns 65 later decisions. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two cuts have been made to this text. The harvest was truncated at 110,000 characters and about 65,000 characters of the middle were also dropped, so what survives is the facts and the orders of the Assessing Officer and the Commissioner (Appeals), and then a stretch of the Court's analysis on equipment, control and process. Missing are the Tribunal's findings as summarised by the Court, the parties' arguments, the analysis of business connection and section 9(1)(i), the treatment of the additional ground on fees for technical services under section 9(1)(vii), the apportionment and depreciation questions raised in the assessee's appeal, the interest question under section 234B raised in the Revenue's appeal, and — because of the truncation — the formal order disposing of both appeals. The holding recorded here is taken from the Court's own statements in the surviving reasoning, not from its order. The source printed no reporter citations, so the case numbers are used. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the surviving text, the Court held there was no use of equipment and no use of a process by the customers, so the payments do not answer the definition of royalty in Explanation 2 to section 9(1)(vi). A transponder is not a self-contained operating unit whose control or constructive possession can be handed over; it is an inseverable part of the satellite and cannot function without the satellite's power generation and storage, its common input and output antennae, its positioning system and thrusters, its temperature control and its telemetry, tracking and control system. Control of the satellite and the transponder always remained with the appellant, which had given customers no more than access to bandwidth. The Tribunal had itself found that a transponder divorced from the satellite can perform no activity, but did not carry that finding to its conclusion. The Tribunal was also wrong to distinguish the ISRO ruling on the ground that the transponder there did not amplify, amplification not being the basis of that ruling.
TaxSphere, “Asia Satellite Telecommunications Co Ltd v DIT”, https://taxnotice.vittsphere.com/caselaw/case/asia-satellite-telecommunications-co-ltd-v-dit/ (validity last checked 2026-08-29)
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