Relief to Airtel, Charges Paid for Bandwidth to Overseas Telecom Operators Do Not Amount to Royalty under Income Tax Act: Delhi HC

The Delhi High Court held that payments by Bharti Airtel to overseas telecom operators for bandwidth capacity do not constitute "royalty" under Income Tax Act Section 9(1)(vi), quashing a ₹1,200 crore tax demand. Justice Yashwant Varma distinguished between mere capacity use and technology transfer, ruling that standard bandwidth agreements lack the "process or secret formula" elements required for royalty characterization. The judgment analyzed ITAT precedents and OECD Model Convention commentary to confirm that undersea cable capacity payments are business-to-business service contracts. This precedent protects telecom operators from 18% withholding tax on global connectivity purchases, estimated to save the industry ₹8,000 crore annually. The revenue department's argument that bandwidth involves "use of equipment" was rejected as overly expansive. The verdict requires assessing officers to examine actual contract terms rather than applying presumptive taxation. While relieving telcos, the CBDT may appeal to safeguard taxation rights over emerging digital infrastructure models. Operators are advised to review all international capacity agreements and seek lower/NIL withholding tax certificates under relevant treaties.