TaxTMI 
TaxTMI 
2018 (4) TMI 390
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....nd 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 amounting to Rs. 17,41,54,636/-, which is claimed to be not taxab....
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....lly 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 and the obligation to conform to the requirements of the domain registry in order to retain the right to use a domain name. Furthermore, the admini....
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....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 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) ....
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....ation 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, the same squarely falls under the definition of royalty under the provisions of the Act and the Double Taxation Avoidance Agreement. Besides, both the services/facilities i.e. web hosting and domain name registration flow from the same server, it is only because of the peculiar nature of the two i.e. web hosting and domain name registratio....
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....xplained 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 name registration. In short, following services are rendered by the appellant and ICANN under domain name registration : * Checking the availability of desired domain name; * Facilitating registration of the domain name of the users; * Assigning unique IP address for the domain name; and * Maintaining a record of all the domain names and their IP address." 6. He further stated that....
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....el/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) (ITA Nos.3961/Del/2009 & 4087/Del/2009). 8. We have carefully considered the arguments of both the sides and perused relevant material placed before us. The limited question before us is whether the domain registration fee received by the assessee can be termed as royalty. At the outset, we clarify that the appellant himself has mentioned that since it is not a tax resident of USA, therefore, it is not claiming any benefit under the provisions of Ind....
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.... 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, commercial or scientific knowledge, experience or skill; [(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of ....
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....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) has also examined the identical question and held as under :- "6. In Yahoo Inc! Vs Akash Arora 1999 PTC 201 while granting an injunction restraining the defendants from using Yahoo either as a part of its domain name or as a trademark, learned Single Judge of this Court applied the law relating to trademark to a dispute regarding Internet. It was further held that considering the vast import of Internet and its user, several Internet users are not sophisticated enough to distinguish between the domain names of the parties. It was also held that with the ease of access from all corn....
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....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 were they positioned over Indian airspace. However, the footprint area (the area of earth's surface over which a signal is relayed from satellite) of those satellites covered the territory of India. The assessee entered into an agreement with TV channels, communication companies or other companies who desired to utilize the transponder capacity available on its satellite to relay their signals. The customers had their own relaying facilities, which were not situated in India. From those facilities, the signals were beamed into space where they were received by a transponder located in the assessee's satellite. The role....
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....cisions 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 reject ground No.2 of the assessee's appeal. 13. Ground Nos.3 & 4 of the assessee's appeal, which read as under, were not pressed by the assessee at the time of hearing :- "3. That on the facts and circumstances of the case and in law, the AO/DRP has erred in holding that the web hosting services provided/rendered by the Appellant qualify as fees for included services as per Article 12(4)(a) of the India-USA Tax Treaty as well as under Section 9(1)(vii) of the Act. 4. That on the facts and circumstances of the case and in law, the AO/DRP has erred in not appreciating that the Appellant has characterized income fro....