TaxTMI 
TaxTMI 
2023 (2) TMI 496
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....e AO/DRP has wrongly alleged that receipts from domain name registration amounting to INR 745,066,973 should be charged to tax as royalty as per the provisions of section 9(l)(vi) read with section 115A of the Act. 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 are taxable as Fee for Technical services under Section 9(l)(vii) of the Act as well as Article 12(4)(a) of the India-USA Tax Treaty as it is ancillary and subsidiary to the application or enjoyment of domain registration. 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 from web hosting services as royalty and already offered the same to tax as per the provisions of section 9(l)(vi) read with section 115A of the Act. 5. That on the facts and circumstances of the case and in law, the AO/DRP has erred in holding that the Appellant has concealed its particulars of income and has filed inaccurate particulars of income and has therefore separately initiated penalty proceedings u/s 271(l)(c) of ....
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....ltimately convinced with the submission of the assessee that the fee received towards domain name registration cannot be regarded as FTS, however, he concluded that the amount received was in the nature of royalty as per Section 9(1)(vi) read with Section 115A of the Act. In the above line, he proposed a draft assessment order. Against the draft assessment order, the assessee filed objections before learned DRP. Primarily relying upon its own decision for assessment year 2014-15, learned DRP upheld the decision of the Assessing Officer in treating the amount received from domain name registration as royalty. 6. Before us, learned counsel appearing for the assessee submitted that royalty has been defined under Explanation 2 to Section 9(1)(vi) of the Act. Drawing our attention to the definition of 'royalty', he submitted, any payment would be in the nature of royalty if it is received from imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience, skill or from rendering any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v) of Explanation2. He submitted, in case of the assessee the ....
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....r Accreditation Agreement between the assessee and ICANN he emphasized that the assessee does not have any right in the domain name. He submitted, there is a significant difference between licensing of IPR and facilitating the process of registering the IPR. He submitted, though, the consideration for licensing of IPR may give rise to royalty but the act of facilitating the registration of IPR cannot be characterized as royalty. He submitted, the assessee simply helps the customers in the process of registration of domain name and does not engage itself in the business of licensing of such domain name. He submitted, there are more than 2500 ICANN accredited Registrars in the world. A registrant/ customer desirous of registering a domain name can approach any one of these Registrars including the assessee to register its domain name. Therefore, it may be unreasonable to say that all these Registrars own all the domain names of the world. He submitted, once a customer is registered with Registrar, like the assessee, the customer has the option of switching to any other Registrar for the very same domain name at its own will. He submitted, had it been a case of right to license and as....
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....t the decisions of the Tribunal in earlier years are pending for adjudication before the Hon'ble High Court. Rebutting assessee's claim that the Accreditation Agreement between assessee and the ICANN was not brought to the notice of the Tribunal in assessment years 2013-14 and 2014-15, learned Departmental Representative submitted, the Tribunal having examined the agreement between assessee and ICANN has decided the issue. In this context, she drew our attention to the decisions of the Tribunal. 12. We have considered rival submissions in the light of the decisions relied upon and perused the material on record. Before we proceed to decide the issue on merit, we must make it clear that learned counsel appearing for the assessee has categorically submitted before us that the assessee is not claiming any benefit under the India-USA Tax Treaty as regards the disputed issue. In view of the aforesaid submission of learned counsel appearing for the assessee, we confine ourselves to examine the issue, as to whether, the amount received by the assessee from registration of domain name amounts to royalty under section 9(1)(vi) of the Act. 13. As far as activities of the assessee are c....
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....d for the use of any patent, invention, model, design, secret formula or process or trade mark or similar property, can also be regarded as royalty. Undoubtedly, the assessee registers domain names of the customers who approach the assessee for registering a particular domain name for them. The Revenue's case while treating the amount received by the assessee as royalty is, domain name is an intangible asset similar to trade mark and while registering the domain name in favour of a customer the assessee transfers the right to use the trade mark. Therefore, it is in the nature of royalty under section 9(1)(vi) of the Act. Identical issue came up for consideration before the Coordinate Bench in assessee's own case in assessment year 2013-14. The Tribunal, while deciding the issue in ITA no. 1878/Del/2017 vide order dated 03.04.2018, has held as under: "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 r....
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....tion 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, 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 ....
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....ers themselves. These decisions namely Red iff 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 (Dei), 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. 1/. Shai/esh 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 SonsLimited (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....
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.... 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 SatelliteTelecommunications 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 transpon....
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....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 reject ground no. 2 of the assessee's appeal." 15. A careful analysis of the aforesaid observations of the Coordinate Bench would reveal that after analyzing the entire gamut of factual position including the terms of agreement between the assessee and ICANN, the Tribunal has recorded a conclusive finding that....
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....ng, learned counsel appearing for the assessee fairly submitted that domain name is in the nature of a trade mark under the Trade Mark Act, 1999. Therefore, based on the decision of the Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. v. Endurance Domains Technology LLP & Ors. (supra), the decisions of the Coordinate Benches in assessee's own case for assessment years 2013-14 and 2014-15 cannot be declared as per incuriam, more so, when the Hon'ble Jurisdictional High Court is seized of the matter by admitting the substantial question of law on the issue in these assessment years. Thus, the issue in dispute as off now, stands concluded against the assessee by virtue of the decisions of the Tribunal in its own case in assessment years 2013-14 and 2014-1, as discussed earlier. Therefore, in absence of any material difference in factual position in the impugned assessment year and having regard to judicial discipline and propriety, we do not find any valid reason not to follow the earlier decisions of the Tribunal in assessment years 2013-14 and 2014-15. Thus, respectfully following the consistent view of the Coordinate Benches in assessee's own case, as discussed abov....