India-UAE DTAA royalty and PE rules: domain name, web hosting, and conference sponsorship receipts were not taxable in India.

Under the India-UAE DTAA, domain name registration receipts were treated as facilitative services rather than consideration for any right to use intellectual property or equipment, so they did not constitute royalty. Web hosting receipts were also held not to be royalty because the customer received hosting facilities without control, possession, or an independent right to use the equipment or platform, and the treaty meaning of royalty was not expanded by domestic law amendments. Sponsorship income from a short India conference was treated as business income taxable in India only if the non-resident had a permanent establishment; in the absence of a fixed place of business, the receipts were not taxable as business profits. The disputed additions were therefore deleted.

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Issues: (i) Whether income from domain name registration services is taxable as royalty; (ii) Whether income from web hosting services is taxable as royalty; (iii) Whether sponsorship income from the India conference is taxable as business income in the absence of a permanent establishment in India.

Issue (i): Whether income from domain name registration services is taxable as royalty.

Analysis: The domain name registration activity was examined as a facilitator's function in the registration process. The assessee had no proprietary right in the domain name, no right to use any trade mark or intangible asset, and no transfer of any such right to the customer. The treaty definition of royalty under Article 12(3) covered consideration for use of, or right to use, specified intellectual property or equipment, which was not satisfied on these facts. Once the payment did not fall within the treaty definition, the domestic law provision was not applied to enlarge the charge.

Conclusion: The income from domain name registration services was not royalty and the addition was deleted in favour of the assessee.

Issue (ii): Whether income from web hosting services is taxable as royalty.

Analysis: The web hosting receipts were examined as consideration for server space and allied hosting facilities, without conferring physical access, control, possession, or an independent right to use the equipment or platform. The domestic law amendment in Explanation 5 to section 9(1)(vi) did not govern the treaty meaning of royalty in the India-UAE DTAA. The web hosting activity was also held to be independent of domain name registration, so the two receipts could not be clubbed for royalty characterization.

Conclusion: The income from web hosting services was not royalty and the addition was deleted in favour of the assessee.

Issue (iii): Whether sponsorship income from the India conference is taxable as business income in the absence of a permanent establishment in India.

Analysis: The sponsorship receipts arose from a short conference conducted in India and not from the assessee's core business of domain and hosting services. A two-day conference was not held to constitute a fixed place of business under Article 5, and the activity was in the nature of preparatory or auxiliary activity excluded by Article 5(3). In the absence of a permanent establishment, Article 7 did not permit taxation of the sponsorship income as business profits in India. The direction for further enquiry was also found inconsistent with section 144C(8).

Conclusion: The sponsorship income was not taxable in India as business income and the addition was deleted in favour of the assessee.

Final Conclusion: The assessments for both years were set aside to the extent of the impugned additions, as all disputed receipts were held not taxable in India on the facts and under the treaty.

Ratio Decidendi: Under the India-UAE DTAA, royalty requires a real right to use specified intellectual property or equipment, and business profits are taxable in India only where the non-resident has a permanent establishment in India.

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