Tribunal upholds classification of domain name receipts as royalty & web hosting income as technical services

GoDaddy. Com LLC Versus Deputy Commissioner of Income-tax, Circle 1 (3) (1), Intl. Taxation, New Delhi.

GoDaddy. Com LLC Versus Deputy Commissioner of Income-tax, Circle 1 (3) (1), Intl. Taxation, New Delhi. - TMI Issues Involved:
1. Validity of the assessment order.
2. Taxability of receipts from domain name registration as royalty.
3. Taxability of web hosting services as Fee for Technical Services (FTS).
4. Characterization of income from web hosting services.
5. Concealment of income and initiation of penalty proceedings.
6. Charging of interest under Sections 234B and 234C.

Detailed Analysis:

1. Validity of the assessment order:
- The assessee contended that the assessment order framed by the AO pursuant to the directions of the DRP is erroneous and bad in law. However, this ground is general in nature and does not require specific adjudication.

2. Taxability of receipts from domain name registration as royalty:
- The main issue was whether the receipts from domain name registration should be classified as royalty under Section 9(1)(vi) of the Income-tax Act, 1961, and the India-USA Double Tax Avoidance Agreement (DTAA).
- The assessee, a non-resident entity, argued that the domain names, once registered, are owned by the registrants/customers, and the assessee merely facilitates the registration process. Therefore, the consideration received cannot be treated as royalty.
- The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the amount received for domain name registration is in the nature of royalty, as the domain name is akin to a trademark, and the assessee transfers the right to use the domain name to the customers.
- The Tribunal upheld the decision of the AO and DRP, relying on previous judgments, including the Supreme Court's decision in Satyam Infoway Ltd., which recognized domain names as intellectual property similar to trademarks. The Tribunal concluded that the consideration received for domain name registration is taxable as royalty under Section 9(1)(vi).

3. Taxability of web hosting services as Fee for Technical Services (FTS):
- The issue was whether the income from web hosting services should be treated as FTS under Section 9(1)(vii) of the Act and Article 12(4)(a) of the India-USA Tax Treaty.
- The assessee argued that web hosting services are provided through standard facilities without human intervention and should not be classified as FTS.
- The AO and DRP treated the web hosting services as FTS, reasoning that these services are ancillary and incidental to domain name registration services, which are considered royalty.
- The Tribunal agreed with the AO and DRP, stating that the web hosting services are ancillary to domain name registration services and should be treated as FTS. The Tribunal noted that the assessee had not contested this issue in previous assessment years, and the tax rate for royalty and FTS is similar, making the issue of academic interest.

4. Characterization of income from web hosting services:
- The assessee had characterized the income from web hosting services as royalty and offered it to tax accordingly.
- The AO and DRP re-characterized the income as FTS, which the Tribunal upheld, as discussed in the previous issue.

5. Concealment of income and initiation of penalty proceedings:
- The assessee contended that the AO and DRP erred in holding that the assessee had concealed particulars of income and filed inaccurate particulars, leading to the initiation of penalty proceedings under Section 271(1)(c) of the Act.
- This ground was consequential and did not require specific adjudication.

6. Charging of interest under Sections 234B and 234C:
- The assessee argued that the AO and DRP erred in charging interest under Sections 234B and 234C of the Act.
- This ground was also consequential and did not require specific adjudication.

Conclusion:
- The Tribunal dismissed the appeal, upholding the decisions of the AO and DRP on all grounds. The receipts from domain name registration were classified as royalty, and the income from web hosting services was treated as FTS. The Tribunal found no reason to interfere with the decisions of the departmental authorities.