TaxTMI 
TaxTMI 
2018 (4) TMI 390
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.... "That on the facts and in the circumstances of the case and in law, the AO/DRP has wrongly alleged that receipts from domain name registration amounting to INR 174,154,636 should be charged to tax as royalty as per the provisions of section 9(1)(vi) read with section 115A of the Act." 4. The facts of the case are that the assessee is a limited liability company located in the USA. It is engaged in the business as accredited domain name registrar authorized by Internet Corporation for Assigned Names and Numbers (in short 'ICANN'). For the year under consideration, the assessee filed return declaring income of Rs. 20,42,77,864/- being the receipt from web hosting services/on demand sale. The assessee offered the same as income from royalty. However, the Assessing Officer assessed the same as fees for technical services which is affirmed by learned DRP. Though the assessee has raised ground Nos.3 & 4 against the action of the Assessing Officer assessing the income from web hosting services as FTS, as against royalty income declared by the assessee, such grounds are not pressed at the time of hearing. In addition to above, the assessee had income from domain registration fees am....
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....te other publicly accessible Internet resources or run web sites. The registration of these domain names is usually administered by domain name registrars who sell their services to the public. A fully qualified domain name (FQDN) is a domain name that is completely specified in the hierarchy of the DNS, having no parts omitted. Labels in the Domain Name System are case-insensitive and may therefore be written in any desired capitalization method, but most commonly domain names are written in lowercase in technical contexts. Technical requirements and process In the process of registering a domain name and maintaining authority over the new name space created, registrars use several key pieces of information connected with a domain : Administrative contact. A registrant usually designates an administrative contact to manage the domain name. The administrative contact usually has the highest level of control over a domain. Management functions delegated to the administrative contacts may include management of all business information, such as name of record, postal address, and contact information of the official registrant of the domain ....
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....o need these services and provide the services to its customers. And ICANN is the central organisation who appoints such registrar like Godaddy US and charge fee from Godaddy under a fixed predetermined formula. The clients all over the worlds apply for services as per Proforma given by the assessee and pay fees for the same. One part of the fees is allegedly received by the Godaddy for web-hosting which is being offered for tax under royalty by the assessee and the other part is taken for domain name registration. A fixed percentage of the latter is given by the assessee to the ICANN. 6.4 Taxability as Royalty As per the section 9(1)(vi) of the act : Explanation 2. - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for - (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the work....
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....ame, as domain name registration is a tool which equips the customer with the right to use the server of Godaddy and web hosting charges are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment of domain registration fee is received. Accordingly, the domain registration charges are royalty as per Section 9(1)(vi) the act as well as Article 12(3)(a) of the tax treaty. It can be seen that domain registration is an integral part of the services which are offered by the assessee. The assessee in its submissions has not distinguished how domain registration charges are different from web hosting charges, the latter being duly admitted by the assessee itself as royalty which is duly reflected in its return of income. Domain registration partakes the character of web hosting charges since without domain registration being in place, web hosting is not possible. As domain registration charges have been essentially charged for granting right to use the servers of the assessee, domain registration being the precondition to web hosting etc, and same being highly technical process and because of its inherent quality....
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....sier to remember and use in URLs to identify particular web pages. The domain name allows others to access user's website directly with an easy to memorize address instead of using a numeric IP address. Registering a domain name secures that specific internet address. In this regard, he referred to the sample domain name registration agreement. He further explained the process of registration of domain name which is as below :- "a) A user makes a request to the appellant online through its website (www.godaddy.com). b) When a user requests for a particular domain name registration, the appellant checks availability of the domain name with ICANN. c) Subsequently, ICANN confirms the availability of the desired domain name and assigns a unique IP address to the domain name. d) Based on the confirmation from ICANN, the appellant facilitates in registering the domain name for the user. The appellant is not involved in actual purchase and sale of domain names (i.e., parking of domain names for subsequent sale to the users). It is important to note that above process is automated and no human intervention is involved for the purpose of domain n....
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....sfer and manage specific domain names. The appellant enjoys absolute and exclusive rights to assign domain names under specific domain extensions. The ICANN owns domain extensions but has granted the registrar all the rights and risks relating to the assignment, allocation, transfer and management of specific domain names within specific extensions. The appellant registrar has thus right to own, allocate, register, transfer, cancel/deactivate, renew, suspend, auction and exploit domain names under accreditation agreement between ICANN. The domain name registration charges were paid to the appellant inside India. In view of the above, the amount received by the appellant towards domain name registration fee is in the nature of royalty within the meaning of Section 9(1)(vi) of the Income-tax Act and has rightly been taxed by the Assessing Officer and upheld by the DRP. In support of his contention, he relied upon the following decisions :- (i) Satyam Infoway Ltd. Vs. Siffynet Solutions Pvt.Ltd. - [2004] Supp (2) SCR 465 (SC). (ii) Tata Sons Limited Vs. Mr. Manu Kishori & Ors. - 90 (2001) DLT 659 (Delhi). (iii) Makemytrip (India) Pvt.Ltd. Vs. DCIT - (2012) (....
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....espect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.]." 9. Explanation 2 after the sub-section defines the word "royalty", which reads as under :- "Explanation 2. - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for - (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, comme....
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.... last few years the increased user of the internet has led to a proliferation of disputes resulting in litigation before different High Courts in this country. The Courts have consistently applied the law relating to passing off to domain name disputes. Some disputes were between the trademark holders and domain name owners. Some were between domain name owners themselves. These decisions namely Rediff Communication Ltd. v. Cyberbooth and Anr., AIR (2000) Bombay 27, Yahoo Inc. v. Akash Arora, (1999) PTC 19 201, Dr. Reddy's Laboratories Ltd. v. Manu Kosuri, (2001) PTC 859 (Del.), Tata Sons Ltd. v. Manu Kosuri, (2001) PTC 432 (Del.), Acqua Minerals Ltd. v. Pramod Borse & Anr., (2001) PTC 619 (Del.), and Info Edge (India) Pvt.Ltd. & Anr. V. Shailesh Gupta & Anr., (2002) 24 PTC 355 (Del.) correctly reflect the law as enunciated by us. No decision of any court in India has been shown to us which has taken a contrary view. The question formulated at the outset is therefore answered in the affirmative and the submission of the respondent is rejected." (emphasis by underlining supplied by us) 11. That Hon'ble Jurisdictional High Court in the case of Tata Sons Limited (supra) ha....
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.... off. 9. In view of the above decisions, I am satisfied that it is now settled law that with the advent of modern technology particularly that relating to cyberspace, domain names or Internet sites are entitled to protection as a trade mark because they are more than a mere address. The rendering of Internet services is also entitled to protection in the same way as goods and services are, and trade mark law applies to activities on Internet." (emphasis by underlining supplied by us) 12. Learned counsel for the assessee has also relied upon the decision of Hon'ble Jurisdictional High Court in the case of Asia Satellite Telecommunications Co.Ltd. (supra). However, we find that the facts in that case were altogether different. In the said case, the assessee company carried on the business of private satellite communications and broadcasting facilities. During the relevant assessment year, it was the lessee of a satellite, called Asia-Sat 1 and was the owner of a satellite, called Asia Sat 2. Those satellites were launched by the assessee and were placed in a geostationary orbit in the orbital slots. Those satellites neither used the Indian orbital slots nor w....
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....has all the characteristics of a trademark and accordingly, it was held that the domain names are subject to legal norms applicable to trademark. Hon'ble Bombay High Court in the case of Rediff Communications Ltd. (supra) held that domain names are of importance and can be a valuable corporate asset and such domain name is more than an internet address and is entitled to protection equal to a trademark. Hon'ble Jurisdictional High Court in the case of Tata Sons Limited (supra) held that domain names are entitled to protection as a trademark because they are more than an address. Respectfully following the above decisions of Hon'ble Apex Court, Hon'ble Bombay High Court and Hon'ble Jurisdictional High Court, we hold that the rendering of services for domain registration is rendering of services in connection with the use of an intangible property which is similar to trademark. Therefore, the charges received by the assessee for services rendered in respect of domain name is royalty within the meaning of Clause (vi) read with Clause (iii) of Explanation 2 to Section 9(1) of Income-tax Act. In view of the above, we uphold the orders of the lower authorities on this point and r....