AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 718
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....019, the question of law was framed on 29.07.2019. Similarly, the question of law in ITA No. 75/2023 was framed on 10.02.2023. 3. The common question of law which arises for consideration, thus, reads as follows: "Whether on the facts of the case and in law, the Income Tax Appellate Tribunal [in short, "Tribunal"] erred in holding that the income received by the appellant as a consideration for providing domain name registration services amounted to 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961 [in short, "Act"]? Background 4. To adjudicate the above-captioned appeals, we will refer to the facts obtaining in ITA No. 891/2018. 5. The record discloses that a draft assessment order was passed on 31.03.2016 by the Assessing Officer (AO) under Section 144C(1) read with Section 143(3) of the Act. The draft assessment order proposed an addition concerning the income of the appellant/assessee received against domain name registration services offered to its customers by construing the same as royalty. 5.1 In this context, the draft assessment order alluded to Section 9(1)(vi) of the Act. Being aggrieved, the appellant/assessee preferred objections qua the s....
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....The appellant/assessee provides services such as domain name registration, website design, and web hosting. (iii) The appellant/assessee is one of several ICANN registrars. The appellant/assessee charges a fee from its customers for facilitating domain name registration, which is shared, three ways. While a part of the fee received from the customers is kept by the appellant/assessee, a portion of the fee is shared with ICANN and the registry. The domain name's owner is the customer who seeks domain name registration. The customer can, at his option, dissolve his engagement with the appellant/assessee and move to another registrar, having a back-to-back arrangement with ICANN and the registry appointed by it. The customer would not have been able to engage with another Registrar had the appellant/assessee been the domain name's owner. (iv) The Tribunal has erred in concluding that a domain name is like a trademark. This view is based on a misappreciation of the ratio of the judgment rendered by the Supreme Court in Satyam Infoway Ltd. and the judgment of this court in Tata Sons. (v) The appellant/assessee does not transfer any right to use the dom....
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....ot be registered as a trademark. That said, registering tata.com as a domain name could open the registrant to the risk of being sued for passing off and injunction actions. Both the domain name registrant and the trademark owner would be required to show that goodwill has been acquired, as the institution of an action by either would have to be founded on goodwill, not registration. The decision of the Supreme Court in Satyam Infoway is based on this fundamental premise. (x) The services offered by the appellant/assessee are similar to those provided by company secretaries and lawyers to their respective clients who seek registration of a company's name with the registrar of companies or registration of patents and trademarks with the concerned registrars appointed under the relevant statute. (xi) The Tribunal's reliance on Clause (vi) of Explanation 2 appended to Section 9(1) is misconceived. Clause (vi) of Explanation 2 alludes to the consideration received for rendering services in connection with activities referred to in sub-clauses (i) to (iv), (iva) and (v) of the very same Explanation. Thus, only those services are covered in Clause (vi) of Explan....
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....ts, which are not in dispute, are required to be noticed. (i) The appellant/assessee is based in the United States of America (US). (ii) It does not have a permanent establishment or a fixed place of business in India. (iii) The appellant/assessee is in the business of providing domain name registration services, web designing and web hosting. (iv) In the period in issue, it earned an income of Rs. 20,42,77,864/- for providing web hosting and web designing services. Although the appellant/assessee had shown the income received towards web hosting as income from royalty, it was characterised by the AO as FTS and accordingly brought to tax @ 10%. The appellant/assessee did not assail the AO's recharacterization of web hosting services as, according to it, it would not have impacted the rate at which tax was imposed on the said service. (v) The AO brought to tax the fee received by the appellant/assessee for providing domain registration services as right to use or the use of servers maintained by the appellant/assessee in the country. Thus, according to the AO, the consideration received could be categorized as royalty under Section 9(1)(vi) on....
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.... registered by another person/entity. The registration request is declined if the requested domain name is already registered. If the registry confirms that the requested domain name is available for registration, the appellant/assessee enters into an agreement with its customers/registrant against payment of the prescribed fee. 14.2. With the domain name's registration, a unique internet protocol address (IP address) is created in favour of the appellant/assessee's customer/registrant. As indicated above, the fee received for this service by the appellant/assessee is shared three ways. After the appellant/assessee has kept its share out of the registration fee paid by the customer/registrant, the rest is remitted to ICANN and the Registry. 14.3. The database concerning domain names and IP addresses is maintained in the servers owned by the appellant/assessee. 14.4. In effect, what a domain name does for the customer is to provide an easy-to-remember/identify IP address. Typically, an IP address that does not have a domain name registration consists of a series of numbers unique to each website. For example, the numeric IP address for the Supreme Court would be 164....
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.... refers to the top-level domain(s) of the DNS delegated by ICANN pursuant to a registry agreement that is in full force and effect, other than any country code TLD (ccTLD) or internationalized domain name (IDN) country code TLD." 14.9 The fact that there may be a change in sponsorship of any registered name and thus, in a sense, lending credence to the assertion of the appellant/assessee that it is not the owner of the domain name comes through by perusing the following part of Clause 3.5: "3.5 Rights in Data. "Registrar" disclaims all rights to exclusive ownership or use of the data elements listed in Subsections 3.2.1.1 through 3.2.1.3 for all Registered Names submitted by Registrar to the Registry Database for, or sponsored by Registrar in, each gTLD for which it is Accredited. Registrar does not disclaim rights in the dtata elements listed in Subsections 3.2.1.4 through 3.2.1.6 and Subsections 3.3.1.3 through 3.3.1.8 concerning active Registered Names sponsored by it in each gTLD for which it is Accredited, and agrees to grant non-exclusive, irrevocable, royalty-free licenses to make use of and disclose the data elements listed in Subsections 3.2.1.4 through 3.2.1.6....
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....in name registration either in the appellant/assessee or the customers or even any other third party. 15.3 Therefore, the submission advanced on behalf of the appellant/assessee, i.e., that since it is not the domain name's owner, it cannot confer the right to use or transfer the right to use the domain name to another person/entity, deserves acceptance. 16. We are also of the view that passing off and injunction actions are entertained by the courts where domain name registrations are brought about in bad faith or to perpetuate fraud. The courts tend to grant injunctive relief where the defendant, in such actions, is seen to be feeding off the plaintiff's goodwill and causing confusion amongst its customers regarding the origin of the subject goods and services. Such reliefs are granted on the basis that the definition of the expression "mark" includes a "name", and in turn, the expression "trademark" so defined to include a mark, distinguishes the goods and services of one person from those of others. Therefore it is possible in a given situation that a domain name may have the attributes of a trademark. [See Section 2m read with Section 2zb of Trademarks Act, 1999^....