Treaty royalty scope limits taxability of domain registration and web hosting receipts under the India-UAE DTAA.

Receipts from domain name registration and web hosting services were analysed under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-UAE DTAA. The tribunal applied the narrower treaty definition of royalty and held that domestic enlarging explanations could not override the treaty. Domain registration receipts were treated as outside royalty because that service had already been settled by precedent. Web hosting receipts were also outside royalty because the arrangement did not confer possession, control, or a right to use equipment or the underlying platform. The additions were deleted on the basis that neither stream was taxable as royalty under the applicable DTAA.

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Issues: (i) Whether receipts from domain name registration services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-UAE DTAA; (ii) whether receipts from web hosting services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-UAE DTAA.

Issue (i): Whether receipts from domain name registration services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-UAE DTAA.

Analysis: The receipts from domain registration were treated as already settled by binding precedent. The nature of the service did not amount to royalty in view of the treaty position, and the tribunal followed the settled view that such consideration is outside the scope of royalty taxation in India under the applicable DTAA.

Conclusion: The issue was decided in favour of the assessee. The domain name registration receipts were held not taxable as royalty.

Issue (ii): Whether receipts from web hosting services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-UAE DTAA.

Analysis: The web hosting arrangement did not confer possession, control, or a right to use equipment or the underlying technology platform in a manner that would constitute royalty under the treaty. The tribunal followed the view that the wider domestic expansion of royalty in the Act could not override the narrower treaty language, and that the two service streams were independent.

Conclusion: The issue was decided in favour of the assessee. The web hosting receipts were held not taxable as royalty.

Final Conclusion: The additions were deleted because neither the domain registration receipts nor the web hosting receipts were liable to be assessed as royalty under the applicable treaty framework.

Ratio Decidendi: Where the applicable DTAA uses a narrower definition of royalty, domestic enlarging explanations to section 9(1)(vi) of the Income-tax Act, 1961 do not by themselves expand treaty royalty, and services lacking any right to use or control equipment or platform do not constitute royalty.

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