Domain name registration fees are not royalty when the registrar only provides facilitation services without proprietary rights.

A registrar that only facilitates domain name registration, without any proprietary interest, exclusive ownership, or right to transfer or license the domain name, receives consideration for services and not for the use of, or right to use, property. The court distinguished passing off jurisprudence on protection of domain names from the tax characterisation issue, and held that those principles concern the rights of the registrant or owner, not the registrar. Accordingly, the registration receipts did not constitute royalty under Section 9(1)(vi) of the Income-tax Act, 1961, and the addition treating them as royalty was unsustainable.

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Issues: Whether the consideration received by the assessee for providing domain name registration services constituted "royalty" under Section 9(1)(vi) of the Income-tax Act, 1961.

Analysis: The assessee acted only as a registrar accredited by ICANN and facilitated registration of domain names for its customers. The arrangement showed that the registrar had no proprietary interest in the domain name, no exclusive ownership over the registered name, and no right to transfer or license any right in the domain name to customers. The court distinguished the jurisprudence on domain names as capable of protection in passing off actions from the present question of tax characterization, holding that those principles concern the rights of the registrant or owner, not the registrar. Since the fee was received merely for registration services and not for the use of, or the right to use, any domain name or trademark, the payment could not be treated as royalty.

Conclusion: The question of law was answered in favour of the assessee and against the Revenue, and the addition treating the registration receipts as royalty was unsustainable.

Ratio Decidendi: A registrar that only facilitates domain name registration and has no proprietary rights in, or right to exploit, the domain name does not receive consideration for the use of, or right to use, property so as to attract the royalty definition under Section 9(1)(vi) of the Income-tax Act, 1961.

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