TaxTMI 
TaxTMI 
2025 (1) TMI 449
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....2 2017-18 - Do - - Do - 1560/Del/2022 2018-19 - Do - 143(3) r.w.s. 144C(13) 1561/Del/2022 2019-20 - Do - - Do - 3027/Del/2023 2021-22 ACIT, Circle International Taxation 1(3)(1), New Delhi, dated 31st August, 2023 - Do - 2. The facts in brief are that Godaddy.com, LLC, a Delaware limited liability company, is one of the world's largest Internet Corporation for Assigned Names and Numbers ("ICANN") accredited domain name registrars and provides other web services to its customers across the world. The Appellant, through its website (Godaddy.com) is engaged in the business of providing facilitation of domain name registration, web hosting, web designing, SSL certification and other services. The nature of the services provided by the Appellant are outlined in the submissions of the appellant, as below:- a) Domain name registration and transfer services: GD LLC registers and transfers both generic top-level domains, including the prominent domains such as .com, .net, .org, and .info, as well as country code top level domains including, .us, .ca, .mx, .fr, .it, .de, and .es. Any user desirous of obtaining particular domain can acc....
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....le an SSL certificate is not really necessary to secure a data, a certificate ensures that the certificate holder is really who he claims to be. Without a trusted signed certificate, while the data may be encrypted, the party with whom the communication is being undertaken may not be the one who is the intended recipient of the communication. 3. During the years under consideration, the Appellant had rendered the aforementioned services to its Indian customers from outside India. As for convenient reference the facts of AY 2016-17, are referred to and cited. The details of revenue earned by the Appellant from various streams during the AY 2016-17 are set out below: Particulars Amount (INR) Income from domain name registration services 96,56,25,598 Income from web hosting services, web designing, SSL certification services and sale of on-demand products (together "non-domain services") 93,23,40,477 Total 1,89,79,66,075 3.1 For the year under consideration, the assessee had filed its return of income under section 139(1) of the Act on September 29, 2016, offering its income from web hosting, web designing, SSL certification and sale of on demand products....
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....condition for rendering web hosting etc. services, (iii) it is a highly technical process and (iv) because of its inherent quality. b. Income non-domain services -The Appellant's receipts from provision of non-domain services such as web hosting, web-designing services etc. are taxable as fees for technical services ("FTS") as per section 9(1)(vii) of the Act as well as Article 12(4)(a) of India-USADTAA as (i) they are ancillary and subsidiary to the application or enjoyment of domain registration, (ii) involve high-technique, and (iii) fulfill the make available criteria as provided under Article 12(4)(b) of India-USA DTAA. c. Denial of the benefit of the India-USA tax treaty- The Appellant is not entitled to benefits under the India-USA tax treaty as only persons or entities that are 'liable to tax' under the laws of that country are considered to be residents for the purpose of tax treaties and since LLCs are fiscally transparent entities according to tax laws of the USA, their income is not 'subject to tax' in their own hands in the USA and should not qualify as 'residents' of USA in terms of Article 4 of India-USA DTAA. 5. Assessee approached the Dispute R....
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....fee for technical services and in doing so has failed to appreciate: (1) that the receipts are not taxable under section 9(1)(vii) read with section 115A of the Act. (ii) that the receipts are not taxable under Article 12(4) of the India-USA DTAA (iii) that the charges received for web hosting services etc., is not ancillary and subsidiary to application or enjoyment of domain registration. LEVY OF INTEREST UNDER THE PROVISIONS OF THE ACT 5. On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234A of the Act. 6. On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. INITIATION OF PENALTY UNDER SECTION 274 READ WITH 271(1)(c) OF THE ACT 7. On the facts and circumstances of the case and in law, the Ld. AO erred in mechanically initiating proceedings under section 274 read with 271(1)(c) of the Act. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, alter, amend and / or modify any of the grounds of appeal at or be....
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....he Appellant and its customers, available at Page 57 of the paper book, was made. It was contended that in the absence of ownership over the domain names, the Appellant cannot confer the right to use or transfer the right to use such domain names to another person / entity. Therefore, the income earned by the Appellant from domain name registration services is not chargeable to tax in India as 'royalty' under the provisions of section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA DTAA. 8. We find that this view has also been affirmed by Hon'ble Delhi High Court in the Appellant's own case for AY 2013-14 to AY 2015-16 (ITA Nos. 891/2018, ITA 261/2019 and ITA 75/2023) wherein, vide order dated December 11, 2023, it has been held that the income earned by the Appellant from assisting customers in registration of domain names cannot be treated as 'royalty' under the provisions of section 9(1)(vi) of the Act itself. The relevant findings are reproduced hereunder: "15.2 A close perusal of the aforementioned clause would show that what is agreed between the appellant/assessee and its customers is that mere registration of a domain name does not create any propri....
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....built up in connection with the name..." 16.2 From a perusal of the above, it is clear that the Court in Satyam Infotech was concerned only with the rights of the domain name owner and not the Registrar, while determining whether passing off action can be initiated in relation to domain names. Given this position, the Tribunal's reliance on this judgment is misconceived. 16.3 In this case, however, we need not travel down this path, as the appellant/assessee is only acting as a Registrar and thus offering its services to its customers for having their domain names registered. 16.4 The aforementioned principle may have been attracted if the appellant/assessee had granted rights in or transferred the right to use its domain name, i.e., Godaddy.com, to a third person. Therefore, the fee received by the appellant/assessee for registration of domain names of third parties, i.e., its customers, cannot be treated as royalty." 9. Ld. DR could not cite before us any new or different set of facts for the present years to claim that the clauses of the relevant agreements are not identical to the years for which the above mentioned order was passed by the Hon'....
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....ransparent entities are entitled to the benefits of the relevant DTAA where a valid TRC has been issued by the revenue authorities of the concerned jurisdiction. 11.2 Ld. Counsel has also pointed out that whilst deciding upon the taxability of income earned by the Appellant from provisions of non-domain services, the Ld. AO had repeatedly and deliberately referred to the India-USA DTAA and concluded that such income was taxable as FTS/FIS since it was ancillary and subsidiary to the application or enjoyment of domain registration and fulfilled the 'make available' criteria provided in Article 12(4)(b) of India- USA DTAA. The relevant extract of the assessment order is reproduced hereunder:- ".....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 registration fall under different categories i.e. the first under FTS (because it involved high technique and make available condition are fulfilled as discussed earlier) and latter under royalty (because of the right it confers and the equipment it provides as discussed earlier). [r....
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....provision of said services must be treated as FTS/FIS as per Article 12(4)(a) of the India-USA DTAA. He stressed that the income earned by the Appellant from domain name registration services has now been considered to be outside the purview of 'royalty' in light of the recent decision of Hon'ble Delhi High Court under the provisions of the Act itself. Accordingly, since the payments for domain name registration services cannot be considered as 'royalties', the payments received for providing web hosting, web designing services etc. cannot be said to be in the nature of FIS as per Article 12(4)(a) of the India-USA DTAA. 11.6 As far as the second limb of the above definition is concerned, the ld. Counsel submitted that in the assessment order passed for the year under consideration, the Ld. AO has held that the web hosting, web designing services etc. rendered by the Appellant fulfill the 'make available' criteria laid down under Article 12(4)(b) of the India-USA DTAA. He submitted that in order to understand that the meaning of the term "make available", it would be relevant to draw reference to Memorandum of Understanding ("MOU") entered between India and the USA. The MOU enter....
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....unsel has submitted that in the instant case, it is relevant to note that the Appellant offers various packages to its customers for, hosting their websites on its servers, procure various tools for designing their web pages and avail other web services. Such services remain active for a fixed time period. Upon expiry of such fixed period, the service package is required to be renewed and the users are not permitted to continue using such services on their own. Furthermore, the users are not equipped to apply or deploy such services on their own independently without resorting back to the Appellant. Accordingly, rendition of such services in no manner 'makes available' any technical knowledge, experience, skill, know-how, or processes or involves development or transfer of any technical plan or technical design to the users. 11.9 As with regard to the above, our attention is drawn towards the following judicial precedents wherein it has been opined that the consideration received from provision of web hosting services is not subject to tax as FTS / FIS:- * Decision of the coordinate bench of this Tribunal in the case of Millennium Infocom Technologies Ltd. [2009] 117 IT....
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.... Tax authorities below. 13. After taking into consideration all submissions and the material on record we find that ld. AO has erred in giving a findings that being a LLP the assessee is not eligible for treaty benefits. The law in this regard is quite settled as it is now settled that the term, 'liability to taxation' has to be distinguished from actual payment of taxation. 'Liability to taxation' indicates the powers of taxing an income though the incidence of taxation and actual payment may be different. The reliance of the ld. counsel on the decision of the coordinate bench in the case of Wild West Domains, LLC (supra) certainly takes care of the issue wherein relying the decision of the Mumbai Bench of the Tribunal in the case Linklaters LLP vs. ITO (Int. Taxation) 40 SOT 51 and Herbert Smith Freebills LLP vs. ACIT (TS 822-ITAT-202 (Del Trib.) the coordinate bench has given benefit of DTAA, irrespective of the fact that the assessee in that case was fiscally transparent entity in USA, like the present assessee. Accordingly, ground No.2 is sustained in favour of the appellant. 14. Next we have no hesitation to accept the proposition set up by the ld. Counsel that once gro....
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....ect the Indian Revenue in any way. In case, the assessee feels the burden of taxation because of ICANN payments, the assessee should recover the same (tax) payable to India from ICANN." 14.2 The aforesaid findings of ld. AO show a lack of understanding of the nature of non-domain services. Though domain names and web hosting are often purchased together, they are actually two different things. A domain name is the permanent address of a website on the Internet. It's what people type into their web browsers to find a particular website. Purchasing, registering, and using a domain name for a website, will make it much easier for site visitors to remember the entity connected to the domain name. When they enter domain name in their browsers, their computer sends a request to a cluster of servers called the Domain Name System (DNS). We don't really need to know what goes on behind-the-scenes here. The important thing to remember is that the DNS then responds with the IP address of that website's hosting server, which is how people are able to use domain name to reach a website of a particular entity or individual. 14.3 Web hosting is where website files are stored. Hosting is the....