Godaddy.com LLC, Gurgaon V. ACIT (International Taxation), New Delhi

ITA 1878/DEL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5397 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 15-06-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 29-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Assessee Lawyers: S P SINGH; G CHANDRA SHEKHAR; MANONEET DALAL ARS; SHRADHA KHANDELWAL CAS
• Keywords: Deemed to accrue or arise in india; Advance ruling
• Section: 234B; 27; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, G.D. AGRAWAL, G.D. AGRAWAL, G.D. AGRAWAL, PRESIDENT PRESIDENT PRESIDENT PRESIDENT AND AND AND AND MS. SUCHITRA KAMBLE MS. SUCHITRA KAMBLE MS. SUCHITRA KAMBLE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA ITAITA ITA NO NONO NO . .. . 1878/DEL/2017 1878/DEL/2017 1878/DEL/2017 1878/DEL/2017 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2013 2013 2013 2013 - -- - 14 1414 14 M/S GODADDY.COM LLC, M/S GODADDY.COM LLC, M/S GODADDY.COM LLC, M/S GODADDY.COM LLC, C/O GODADDY INDIA DOMAINS C/O GODADDY INDIA DOMAINS C/O GODADDY INDIA DOMAINS C/O GODADDY INDIA DOMAINS & HOSTING SER & HOSTING SER & HOSTING SER & HOSTING SERVICES PVT.LTD., VICES PVT.LTD., VICES PVT.LTD., VICES PVT.LTD., UNIT 003, TOWER 4A, UNIT 003, TOWER 4A, UNIT 003, TOWER 4A, UNIT 003, TOWER 4A, DLF CORPORATE PARK, DLF CORPORATE PARK, DLF CORPORATE PARK, DLF CORPORATE PARK, M.G. ROAD, M.G. ROAD, M.G. ROAD, M.G. ROAD, GURGAON GURGAON GURGAON GURGAON 122 002. 122 002. 122 002. 122 002. PAN : AAECG7133K. PAN : AAECG7133K. PAN : AAECG7133K. PAN : AAECG7133K. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INCOME TAX, CIRCLE INCOME TAX, CIRCLE INCOME TAX, CIRCLE- -- -1(3)(1), 1(3)(1), 1(3)(1), 1(3)(1), INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.P. SINGH & SHRI MANONEET DALAL, ARS AND SHRI G. CHANDRA SHEKHAR & MS. SHRADHA KHANDELWAL, CAS. RESPONDENT BY : SHRI G.K. DHALL, CIT - DR. DATE OF HEARING : 31.01.2018 31.01.2018 31.01.2018 31.01.2018 DATE OF PRONOUNCEMENT : 03.04.2018 03.04.2018 03.04.2018 03.04.2018 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, PER G.D. AGRAWAL, PER G.D. AGRAWAL, PER G.D. AGRAWAL, P PP PRESIDENT RESIDENT RESIDENT RESIDENT : :: :- -- - THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEA R 2013-14 IS DIRECTED AGAINST THE ORDER OF LEARNED DISPUTE RESOL UTION PANEL-1, NEW DELHI DATED 23 RD DECEMBER, 2016. 2. GROUND NO.1 OF THE ASSESSEES APPEAL, WHICH READ S AS UNDER, IS OF GENERAL NATURE AND NEEDS NO SEPARATE ADJUDICATIO N :- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE AO PURSUANT TO THE DIRECTIONS OF THE DRP IS ERR ONEOUS AND BAD IN LAW AS WELL AS IN FACTS. ITA-1878/DEL/2017 2 3. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER :- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP HAS WRONGLY ALLEGED THAT REC EIPTS 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 11 5A 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 B USINESS AS ACCREDITED DOMAIN NAME REGISTRAR AUTHORIZED BY INTE RNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS (IN SHORT ICANN). FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN DECL ARING INCOME OF `20,42,77,864/- BEING THE RECEIPT FROM WEB HOSTING SERVICES/ON DEMAND SALE. THE ASSESSEE OFFERED THE SAME AS INCO ME 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 A SSESSING OFFICER ASSESSING THE INCOME FROM WEB HOSTING SERVICES AS F TS, AS AGAINST ROYALTY INCOME DECLARED BY THE ASSESSEE, SUCH GROUN DS ARE NOT PRESSED AT THE TIME OF HEARING. IN ADDITION TO ABO VE, THE ASSESSEE HAD INCOME FROM DOMAIN REGISTRATION FEES AMOUNTING TO ` 17,41,54,636/-, WHICH IS CLAIMED TO BE NOT TAXABLE IN INDIA. THE A SSESSING OFFICER ASSESSED THE SAME AS INCOME FROM ROYALTY. THE RELE VANT FINDING IN THIS REGARD IN PARAGRAPH NOS.6 TO 6.5 OF HIS ORDER READS AS UNDER :- 6. DOMAIN NAME REGISTRATION AS ROYALTY 6.1 WHAT IS DOMAIN NAME THE DOMAIN NAME IS MUCH LIKE AN ENTRY IN A PHONE BO OK. COMPUTERS COMMUNICATE BY USING NUMBERS, CALLED IP ADDRESSES, TO CONTACT EACH OTHER, MUCH LIKE WE USE A PHONE NUMBER TO DIAL A SPECIFIC PERSONS PHONE. IF WE WANT PEOPLE TO FIND OUR BUSINESSS PHONE NUMBER, WE WANT TO BE LISTED IN A PHONE BOOK. THE PHONE BOOK TELLS PEOPL E LOOKING FOR OUR PHONE NUMBER COMPANY AS PHONE ITA-1878/DEL/2017 3 NUMBER IS XXX-XXX-XXXX JUST AS A DOMAIN TELLS PEOP LE (I.E. THEIR COMPUTERS) DOMAINA.COM IS HOSTED ON THE SERV ER XXX.XXX.XXX.XXX WITHOUT THE DOMAIN, WE WOULD HAVE TO TELL OUR CUSTOMERS HEY MY SITE IS LOCATED AT 123.456.789.123/~MYSITE/ INSTEAD OF MYSITE.COM W E CAN SEE HOW, WITHOUT A DOMAIN, HAVING A SITE OR HOS TING IS IMPRACTICAL. 6.2 WHAT IS THE PROCEDURE FOR REGISTERING A DOMAIN NAME A DOMAIN NAME IS AN IDENTIFICATION STRING THAT DEFINES A REALM OF ADMINISTRATIVE AUTONOMY, AUTHORITY OR CONT ROL WITHIN THE INTERNET . DOMAIN NAMES ARE FORMED BY THE RULES AND PROCEDURES OF THE DOMAIN NAME SYSTEM (DNS). ANY NAME REGISTERED IN THE DNS IS A DOMAIN NAME. DOMAI N NAMES CAN ALSO BE THOUGHT OF AS A LOCATION WHERE CE RTAIN INFORMATION OR ACTIVITIES CAN BE FOUND. DOMAIN NAMES ARE USED IN VARIOUS NETWORKING CONTEXT S AND APPLICATION-SPECIFIC NAMING AND ADDRESSING PURP OSES. IN GENERAL, A DOMAIN NAME REPRESENTS AN INTERNET PR OTOCOL (IP) RESOURCE, SUCH AS A PERSONAL COMPUTER USED TO ACCESS THE INTERNET, A SERVER COMPUTER HOSTING A WEB SITE, THE WEB SITE ITSELF OR ANY OTHER SERVICE COMMUNICATED VIA T HE INTERNET. DOMAIN NAMES ARE ORGANIZED IN SUBORDINATE LEVELS (S UB DOMAINS) OF THE DNS ROOT DOMAIN, WHICH IS NAMELESS. THE FIRST-LEVEL SET OF DOMAIN NAMES ARE THE TOP-LEVEL D OMAINS (TLDS), INCLUDING THE GENERIC TOP-LEVEL DOMAINS (GT LDS), SUCH AS THE PROMINENT DOMAINS COM, INFO, NET, EDU, AND ORG, AND THE COUNTRY CODE TOP-LEVEL DOMAINS (CCTLDS ). BELOW THESE TOP-LEVEL DOMAINS IN THE DNS HIERARCHY ARE THE SECOND-LEVEL AND THIRD-LEVEL DOMAIN NAMES THAT ARE TYPICALLY OPEN FOR RESERVATION BY END-USERS WHO WIS H TO CONNECT LOCAL AREA NETWORKS TO THE INTERNET, CREATE OTHER PUBLICLY ACCESSIBLE INTERNET RESOURCES OR RUN WEB S ITES. THE REGISTRATION OF THESE DOMAIN NAMES IS USUALLY ADMINISTERED BY DOMAIN NAME REGISTRARS WHO SELL THE IR SERVICES TO THE PUBLIC. A FULLY QUALIFIED DOMAIN NAME (FQDN) IS A DOMAIN NA ME THAT IS COMPLETELY SPECIFIED IN THE HIERARCHY OF TH E DNS, HAVING NO PARTS OMITTED. LABELS IN THE DOMAIN NAME SYSTEM ARE CASE-INSENSITI VE AND MAY THEREFORE BE WRITTEN IN ANY DESIRED CAPITAL IZATION ITA-1878/DEL/2017 4 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 CREAT ED, REGISTRARS USE SEVERAL KEY PIECES OF INFORMATION CO NNECTED WITH A DOMAIN : ADMINISTRATIVE CONTACT. A REGISTRANT USUALLY DESIG NATES AN ADMINISTRATIVE CONTACT TO MANAGE THE DOMAIN NAME. THE ADMINISTRATIVE CONTACT USUALLY HAS THE HIGHEST LEVE L OF CONTROL OVER A DOMAIN. MANAGEMENT FUNCTIONS DELEGA TED TO THE ADMINISTRATIVE CONTACTS MAY INCLUDE MANAGEME NT OF ALL BUSINESS INFORMATION, SUCH AS NAME OF RECORD, P OSTAL ADDRESS, AND CONTACT INFORMATION OF THE OFFICIAL RE GISTRANT OF THE DOMAIN AND THE OBLIGATION TO CONFORM TO THE REQUIREMENTS OF THE DOMAIN REGISTRY IN ORDER TO RET AIN THE RIGHT TO USE A DOMAIN NAME. FURTHERMORE, THE ADMINISTRATIVE CONTACT INSTALLS ADDITIONAL CONTACT INFORMATION FOR TECHNICAL AND BILLING FUNCTIONS. TECHNICAL CONTACT. THE TECHNICAL CONTACT MANAGES T HE NAME SERVERS OF A DOMAIN NAME. THE FUNCTIONS OF A TECHNICAL CONTACT INCLUDE ASSURING CONFORMANCE OF T HE CONFIGURATIONS OF THE DOMAIN NAME WITH THE REQUIREM ENTS OF THE DOMAIN REGISTRY, MAINTAINING THE DOMAIN ZONE RECORDS, AND PROVIDING CONTINUOUS FUNCTIONALITY OF THE NAME SERVERS (THAT LEADS TO THE ACCESSIBILITY OF TH E DOMAIN NAME). BILLING CONTACT. THE PARTY RESPONSIBLE FOR RECEIVI NG BILLING INVOICES FROM THE DOMAIN NAME REGISTRAR AND PAYING APPLICABLE FEES. NAME SERVERS. MOST REGISTRARS PROVIDE TWO OR MORE NAME SERVERS AS PART OF THE REGISTRATION SERVICE. HOWEV ER, A REGISTRANT MAY SPECIFY ITS OWN AUTHORITATIVE NAME S ERVERS TO HOST A DOMAINS RESOURCE RECORDS. THE REGISTRAR S POLICIES GOVERN THE NUMBER OF SERVERS AND THE TYPE OF SERVER INFORMATION REQUIRED. SOME PROVIDERS REQUIR E A HOSTNAME AND THE CORRESPONDING IP ADDRESS OR JUST T HE HOSTNAME, WHICH MUST BE RESOLVABLE EITHER IN THE NE W DOMAIN, OR EXIST ELSEWHERE. BASED ON TRADITIONAL REQUIREMENTS (RFC 1034), TYPICALLY A MINIMUM OF TWO SERVERS IS REQUIRED. ITA-1878/DEL/2017 5 DOMAIN NAMES MAY BE FORMED FROM THE SET OF ALPHANUMERIC ASCII CHARACTERS (A-Z, A-Z, 0-9), BUT CHARACTERS ARE CASE-INSENSITIVE. IN ADDITION THE H YPHEN IS PERMITTED IF IT IS SURROUNDED BY CHARACTERS, DIGITS OR HYPHENS, ALTHOUGH IT IS NOT TO START OR END A LABEL . LABELS ARE ALWAYS SEPARATED BY THE FULL STOP (PERIOD) CHAR ACTER IN THE TEXTUAL NAME REPRESENTATION. 6.3 WHAT ARE THE FUNCTIONS PERFORMED BY ICANN AND WHAT ARE THE FUNCTIONS PERFORMED BY GO DADDY IN THE PROCEDURE AS A TECHNICAL COORDINATING BODY, ICANN (INTERNET CORPORATION FOR ASSIGNED NAMES AND NUMBERS) PERFORM S A VARIETY OF FUNCTIONS RELATED TO THE INTERNETS UNIQ UE IDENTIFIERS. THESE INCLUDE OPERATIONAL FUNCTIONS, COLLABORATION, COORDINATION AND ENGAGEMENT. IN THIS CASE, CLIENTS DESIROUS OF SERVICES APPLY TO ASSESSEE WHO IN TURN ENQUIRES FROM ICANN AVAILABILITY OF DOM AIN NAME. ON CONFIRMATION, ASSESSEE REGISTERS THE CLIE NTS FOR FEES AND FOR CONDITIONS AS IMPOSED BY ICANN. AS ALREADY MENTIONED, GODADDY US IS A REGISTRAR OF THE CUSTOMERS WHO NEED THESE SERVICES AND PROVIDE THE SERVICES TO ITS CUSTOMERS. AND ICANN IS THE CENTRA L ORGANISATION WHO APPOINTS SUCH REGISTRAR LIKE GODAD DY US AND CHARGE FEE FROM GODADDY UNDER A FIXED PREDETERM INED 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 G ODADDY FOR WEB-HOSTING WHICH IS BEING OFFERED FOR TAX UNDE R ROYALTY BY THE ASSESSEE AND THE OTHER PART IS TAKEN FOR DOM AIN NAME REGISTRATION. A FIXED PERCENTAGE OF THE LATTE R 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 ITA-1878/DEL/2017 6 (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVE NTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE M ARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MOD EL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE, EXPERIENCE OR SKILL; (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMME RCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND (V). AS PER ARTICLE 12 OF INDIA US DOUBLE TAXATION AVOID ANCE AGREEMENT. 3. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATIO N FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OR A LITERARY, ARTISTIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRA PH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION F OR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING , ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET F ORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIA L, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAIN S DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PR OPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, CO MMERCIAL, OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVE D BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (S HIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PAR AGRAPH 2(C) OR 3 OF ARTICLE 8. ITA-1878/DEL/2017 7 THE DEFINITION OF ROYALTY UNDER THE ACT IS SIMILAR TO TAX TREATY WHEREIN THE USE OF OR RIGHT TO USE OF ANY IN DUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUIPMENT OR SIMILAR PROP ERTY SHOULD BE TREATED AS ROYALTY. HERE, CERTAIN TERMS NEED TO BE CLARIFIED IN TODAYS INFORMATION TECHNOLOGY ATMO SPHERE: EQUIPMENT : SUPPLIES OR TOOLS NEEDED FOR A SPECIAL PURPOSE OR THE ACT OF EQUIPPING SOMEONE OR SOMETHING SCIENTIFIC : OF OR RELATING TO SCIENCE OR DONE IN A N ORGANIZED WAY THAT AGREES WITH THE METHODS AND PRINCIPLES OF SCIENCE. IN THE INSTANT CASE, THE CUSTOMERS OF GODADDY ARE U SING THE SERVER OF THE ASSESSEE AND PAYING THE FEES FOR THE SAME, AS DOMAIN NAME REGISTRATION IS A TOOL WHICH E QUIPS THE CUSTOMER WITH THE RIGHT TO USE THE SERVER OF GO DADDY AND WEB HOSTING CHARGES ARE ANCILLARY AND SUBSIDIAR Y TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT OF DOMAIN REGISTRAT ION FEE IS RECEIVED. ACCORDINGLY, THE DOMAIN REGISTRATION CHARGES ARE RO YALTY 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 INTEG RAL PART OF THE SERVICES WHICH ARE OFFERED BY THE ASSESSEE. THE ASSESSEE IN ITS SUBMISSIONS HAS NOT DISTINGUISHED H OW DOMAIN REGISTRATION CHARGES ARE DIFFERENT FROM WEB HOSTING CHARGES, THE LATTER BEING DULY ADMITTED BY THE ASSE SSEE ITSELF AS ROYALTY WHICH IS DULY REFLECTED IN ITS RE TURN OF INCOME. DOMAIN REGISTRATION PARTAKES THE CHARACTER OF WEB HOSTING CHARGES SINCE WITHOUT DOMAIN REGISTRATI ON BEING IN PLACE, WEB HOSTING IS NOT POSSIBLE. AS DO MAIN 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 A CT AND THE DOUBLE TAXATION AVOIDANCE AGREEMENT. BESIDES, BOTH THE SERVICES/FACILITIES I.E. WEB HOSTING AND DOMAIN NAM E 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 ITA-1878/DEL/2017 8 MAKE AVAILABLE CONDITION IS FULFILLED AS DISCUSSED EARLIER) AND LATTER UNDER ROYALTY (BECAUSE OF THE RIGHT IT C ONFERS AND THE EQUIPMENT IT PROVIDES AS DISCUSSED EARLIER). H ERE, IT IS LIKELY THAT THE ASSESSEE IS NOT OFFERING RECEIPTS F ROM DOMAIN REGISTRATION BECAUSE IT HAS TO PAY CERTAIN F IXED PERCENTAGE TO ICANN WHICH IS NOT BEING PAID BY THE US GOVERNMENT. HOWEVER, IT IS THE RELATIONSHIP OF ASS ESSEE AND ICANN WHICH SHOULD NOT AFFECT THE INDIAN REVENU E IN ANY WAY. IN CASE, THE ASSESSEE FEELS THE BURDEN OF TAXATION BECAUSE OF ICANN PAYMENTS, THE ASSESSEE SH OULD RECOVER THE SAME (TAX) PAYABLE TO INDIA FROM ICANN. THE FEASIBILITY OF SECTION 201 OF THE ACT, CAN ALSO BE SEEN IN THE HANDS OF THE ASSESSEE IN VIEW OF NON-DEDUCTION OF TDS WHILE MAKING PAYMENT TO ICANN. 6.5 IN VIEW OF THE ABOVE, IT IS CONCLUDED THAT THE RECEIPTS FROM DOMAIN REGISTRATION FEE RS.17,41,54,636/- OF I S CHARGED TO TAX AS ROYALTY AS PER THE PROVISIONS OF SECTION 9(1)(VI) READ WITH SECTION 115A OF THE I.T.ACT. 5. ON APPEAL, LEARNED DRP UPHELD THE FINDING OF THE ASSESSING OFFICER. HENCE, THIS APPEAL BY THE ASSESSEE. AT T HE TIME OF HEARING BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET, STATED THAT THE APPELLANT IS NOT A TAX RESIDENT OF USA AND, THE REFORE, DOES NOT CLAIM ANY BENEFIT UNDER THE PROVISIONS OF INDIA-USA TAX TREATY. HE STATED THAT TAXABILITY OF THE RECEIPT FROM DOMAIN R EGISTRATION FEES NEEDS TO BE EXAMINED UNDER THE PROVISIONS OF THE IN COME-TAX ACT, 1961. HE STATED THAT THE LEARNED ASSESSING OFFICER /DRP HAVE INCORRECTLY LINKED WEB HOSTING SERVICES WITH DOMAIN NAME REGISTRATION SERVICES. HE STATED THAT THESE TWO SERVICES HAVE I NDEPENDENT EXISTENCE. IN SUPPORT OF HIS CONTENTION, HE REFERR ED TO A SAMPLE WEB HOSTING AGREEMENT BETWEEN THE ASSESSEE AND THE CUST OMER. HE FURTHER SUBMITTED THAT DOMAIN NAME REGISTRATION IS THE PROCESS OF REGISTERING A DOMAIN NAME WHICH IDENTIFIES ONE OR M ORE IP ADDRESS WITH A NAME THAT IS EASIER TO REMEMBER AND USE IN U RLS TO IDENTIFY PARTICULAR WEB PAGES. THE DOMAIN NAME ALLOWS OTHER S TO ACCESS USERS WEBSITE DIRECTLY WITH AN EASY TO MEMORIZE ADDRESS I NSTEAD OF USING A NUMERIC IP ADDRESS. REGISTERING A DOMAIN NAME SECU RES THAT SPECIFIC ITA-1878/DEL/2017 9 INTERNET ADDRESS. IN THIS REGARD, HE REFERRED TO T HE 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 NAM E 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 APPELL ANT FACILITATES IN REGISTERING THE DOMAIN NAME FOR THE USER. THE APPELLANT IS NOT INVOLVED IN ACTUAL PURCHASE AN D 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 INTERVENTIO N IS INVOLVED FOR THE PURPOSE OF DOMAIN NAME REGISTRATIO N. IN SHORT, FOLLOWING SERVICES ARE RENDERED BY THE AP PELLANT 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; AN D MAINTAINING A RECORD OF ALL THE DOMAIN NAMES AND TH EIR IP ADDRESS. 6. HE FURTHER STATED THAT FOR PROVIDING DOMAIN REGI STRATION SERVICE, NONE OF THE EMPLOYEES OF THE APPELLANT VISITED INDI A AND ALL SERVICES ARE PROVIDED FROM OUTSIDE INDIA. THE APPELLANT DOE S NOT HAVE ANY FIXED BUSINESS PRESENCE IN INDIA IN THE FORM OF ANY BRANCH/LIAISON OFFICE AND THE BUSINESS OPERATIONS ARE UNDERTAKEN FROM OUT SIDE INDIA. HE ALSO STATED THAT THE APPELLANT MERELY FACILITATES I N GETTING DOMAIN REGISTERED IN THE NAME OF THE CUSTOMER WHO PAYS A P RICE FOR AVAILING SUCH SERVICES. HENCE, THE RECEIPT IN RESPECT OF DO MAIN NAME REGISTRATION IS NOT IN THE NATURE OF ROYALTY UNDER EXPLANATION 2 OF ITA-1878/DEL/2017 10 SECTION 9(1)(VI) OF THE INCOME-TAX ACT. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COUR T IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO.LTD. VS. DIT [201 1] 197 TAXMAN 263 (DELHI HIGH COURT) AND OF AUTHORITY FOR ADVANCE RUL INGS IN THE CASE OF DELL INTERNATIONAL SERVICES (INDIA) PRIVATE LIMITED [2008] 218 CTR 209 (AAR). IN VIEW OF THE ABOVE, IT IS CONTENDED BY TH E LEARNED COUNSEL THAT THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DOMAIN REGISTRATION FEE AMOUNTING TO `17,41,54,636/- TREAT ING THE SAME AS ROYALTY MAY BE DELETED. 7. LEARNED CIT-DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF THE ASSESSING OFFICER AS WELL AS LEARNED DRP AND FURTHE R STATED THAT THE TRANSACTION OF DOMAIN NAME REGISTRATION AND WEB HOS TING SERVICES ARE INTERRELATED PROCESSES. HE STATED THAT THESE ARE N OT INDEPENDENT PROCESSES OF EACH OTHER BUT ARE INEXTRICABLY LINKED /CONNECTED TO EACH OTHER. HE FURTHER STATED THAT EVEN OTHERWISE, THE AMOUNT RECEIVED FOR DOMAIN NAME REGISTRATION IS TAXABLE IN INDIA AS ROY ALTY WITHIN THE MEANING OF SECTION 9 OF THE INCOME-TAX ACT, 1961. HE STATED THAT DOMAIN NAME IS AN INTANGIBLE ASSET SIMILAR TO TRADE MARK. HE STATED THAT APPELLANT HAS BEEN ACCREDITED BY ICANN TO REGI STERED DOMAIN NAMES AND, AS PER AGREEMENT BETWEEN THE APPELLANT A ND ICANN, THE APPELLANT HAS THE RIGHT TO REGISTER, ASSIGN, TRANSF ER AND MANAGE SPECIFIC DOMAIN NAMES. THE APPELLANT ENJOYS ABSOLU TE AND EXCLUSIVE RIGHTS TO ASSIGN DOMAIN NAMES UNDER SPECIFIC DOMAIN EXTENSIONS. THE ICANN OWNS DOMAIN EXTENSIONS BUT HAS GRANTED THE RE GISTRAR ALL THE RIGHTS AND RISKS RELATING TO THE ASSIGNMENT, ALLOCA TION, 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 EXPL OIT DOMAIN NAMES UNDER ACCREDITATION AGREEMENT BETWEEN ICANN. THE D OMAIN NAME REGISTRATION CHARGES WERE PAID TO THE APPELLANT INS IDE INDIA. IN VIEW OF THE ABOVE, THE AMOUNT RECEIVED BY THE APPELLANT TOW ARDS DOMAIN ITA-1878/DEL/2017 11 NAME REGISTRATION FEE IS IN THE NATURE OF ROYALTY W ITHIN THE MEANING OF SECTION 9(1)(VI) OF THE INCOME-TAX ACT AND HAS RIG HTLY BEEN TAXED BY THE ASSESSING OFFICER AND UPHELD BY THE DRP. IN SU PPORT 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 BO TH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. TH E LIMITED QUESTION BEFORE US IS WHETHER THE DOMAIN REGISTRATION FEE RE CEIVED BY THE ASSESSEE CAN BE TERMED AS ROYALTY. AT THE OUTSET, WE CLARIFY THAT THE APPELLANT HIMSELF HAS MENTIONED THAT SINCE IT IS NO T A TAX RESIDENT OF USA, THEREFORE, IT IS NOT CLAIMING ANY BENEFIT UNDE R THE PROVISIONS OF INDIA-US TAX TREATY. ACCORDINGLY, WE HAVE TO EXAMI NE WITHIN THE MEANING OF INCOME-TAX ACT, MORE PARTICULARLY, SECTI ON 9(1)(VI) TO EXAMINE WHETHER THE RECEIPT BY THE ASSESSEE ON ACCO UNT OF DOMAIN REGISTRATION FEE CAN BE TERMED AS ROYALTY. SECTION 9(1)(VI) OF THE INCOME-TAX ACT READS AS UNDER :- 9. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA :- (VI) INCOME BY WAY OF ROYALTY PAYABLE BY (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE RO YALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INF ORMATION ITA-1878/DEL/2017 12 USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUS INESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM A NY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE ROYAL TY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORM ATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUS INESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FO R THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY S OURCE IN INDIA: PROVIDED PROVIDED PROVIDED PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHAL L APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM CONSIDERATION FOR THE TRANSFER OUTSIDE INDIA OF, OR THE IMPARTING OF INFORMATION OUTSIDE I NDIA IN RESPECT OF, ANY DATA, DOCUMENTATION, DRAWING OR SPECIFICATION RELATING TO ANY PATENT, INVENTION, MO DEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY, IF SUCH INCOME IS PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1 ST DAY OF APRIL, 1976, AND THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT : [PROVIDED FURTHER PROVIDED FURTHER PROVIDED FURTHER PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CLA USE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY O F ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RES PECT OF COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFACTURER ALONG WITH A COMPUTER OR COMPUTER-BASE D EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLIC Y ON COMPUTER SOFTWARE EXPORT, SOFTWARE DEVELOPMENT A ND 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 TH E GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVE NTION, ITA-1878/DEL/2017 13 MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE M ARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MOD EL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE, EXPERIENCE OR SKILL; [(IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB;] (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDE O TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDI NG CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBIT ION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO [(IV), (IVA) AND] (V). 10. THE CONTENTION OF THE REVENUE IS THAT THE DOMAI N NAME IS AN INTANGIBLE ASSET WHICH IS SIMILAR TO TRADEMARK. TH E ASSESSEE IS RENDERING SERVICES IN CONNECTION WITH SUCH DOMAIN N AME REGISTRATION AND THEREFORE, THE CHARGES RECEIVED BY THE ASSESSEE CLEARLY FALL WITHIN THE DEFINITION OF ROYALTY AS PROVIDED IN SECTION 9( 1)(VI) OF THE INCOME- TAX ACT. WE FIND THAT HONBLE APEX COURT HAS CONSI DERED THE SIMILAR ASPECT IN THE CASE OF SATYAM INFOWAY LTD. (SUPRA). THE QUESTION BEFORE HONBLE APEX COURT WAS WHETHER INTERNET DOMAIN NAME S ARE SUBJECT TO THE LEGAL NORMS APPLICABLE TO OTHER INTELLECTUAL PR OPERTIES SUCH AS TRADEMARKS. HONBLE APEX COURT DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATION OF THEIR LORDSH IPS READS AS UNDER :- ITA-1878/DEL/2017 14 THE USE OF THE SAME OR SIMILAR DOMAIN NAME MAY LEA D TO A DIVERSION OF USERS WHICH COULD RESULT FROM SUCH U SERS, MISTAKENLY ACCESSING ONE DOMAIN NAME INSTEAD OF ANO THER. THIS MAY OCCUR IN E-COMMERCE WITH ITS RAPID PROGRES S AND INSTANT (AND THEORETICALLY LIMITLESS) ACCESSIBILITY TO USERS AND POTENTIAL CUSTOMERS AND PARTICULARLY SO IN AREA S OF SPECIFIC OVERLAP. ORDINARY CONSUMERS/USERS SEEKING TO LOCATE THE FUNCTIONS AVAILABLE UNDER ONE DOMAIN NAM E MAY BE CONFUSED IF THEY ACCIDENTALLY ARRIVED AT A DIFFE RENT BUT SIMILAR WEB SITE WHICH OFFERS NO SUCH SERVICES. SU CH USERS COULD WELL CONCLUDE THAT THE FIRST DOMAIN NAME OWNE R HAD MIS-REPRESENTED ITS GOODS OR SERVICES THROUGH ITS PROMOTIONAL ACTIVITIES AND THE FIRST DOMAIN OWNER W OULD THEREBY LOSE THEIR CUSTOM. IT IS APPARENT THEREFOR E THAT A DOMAIN NAME MAY HAVE ALL THE CHARACTERISTICS OF A TRADEMARK AND COULD FOUND AN ACTION FOR PASSING OFF . OVER THE LAST FEW YEARS THE INCREASED USER OF THE I NTERNET 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 PASSI NG OFF TO DOMAIN NAME DISPUTES. SOME DISPUTES WERE BETWEEN T HE TRADEMARK HOLDERS AND DOMAIN NAME OWNERS. SOME WER E BETWEEN DOMAIN NAME OWNERS THEMSELVES. THESE DECISIONS NAMELY REDIFF COMMUNICATION LTD. V. CYBER BOOTH AND ANR., AIR (2000) BOMBAY 27, YAHOO INC. V. AKASH ARORA, (1999) PTC 19 201, DR. REDDYS LABORATORIES LTD. V. MANU KOSURI, (2001) PTC 859 (DEL.), TATA SONS LTD. V. MA NU KOSURI, (2001) PTC 432 (DEL.), ACQUA MINERALS LTD. V. PRAMOD BORSE & ANR., (2001) PTC 619 (DEL.), AND INF O EDGE (INDIA) PVT.LTD. & ANR. V. SHAILESH GUPTA & ANR., ( 2002) 24 PTC 355 (DEL.) CORRECTLY REFLECT THE LAW AS ENUNCIA TED BY US. NO DECISION OF ANY COURT IN INDIA HAS BEEN SHO WN TO US WHICH HAS TAKEN A CONTRARY VIEW. THE QUESTION FORM ULATED AT THE OUTSET IS THEREFORE ANSWERED IN THE AFFIRMAT IVE AND THE SUBMISSION OF THE RESPONDENT IS REJECTED. (EMPHASIS BY UNDERLINING SUPPLIED BY US) 11. THAT HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF TATA SONS LIMITED (SUPRA) HAS ALSO EXAMINED THE IDENTICAL QUE STION AND HELD AS UNDER :- 6. IN YAHOO INC! VS AKASH ARORA 1999 PTC 201 WHILE GRANTING AN INJUNCTION RESTRAINING THE DEFENDANTS F ROM ITA-1878/DEL/2017 15 USING YAHOO EITHER AS A PART OF ITS DOMAIN NAME OR AS A TRADEMARK, LEARNED SINGLE JUDGE OF THIS COURT APPLI ED THE LAW RELATING TO TRADEMARK TO A DISPUTE REGARDING IN TERNET. IT WAS FURTHER HELD THAT CONSIDERING THE VAST IMPOR T OF INTERNET AND ITS USER, SEVERAL INTERNET USERS ARE N OT SOPHISTICATED ENOUGH TO DISTINGUISH BETWEEN THE DOM AIN NAMES OF THE PARTIES. IT WAS ALSO HELD THAT WITH T HE EASE OF ACCESS FROM ALL CORNERS OF THE WORLD, COURTS SHOULD TAKE A STRICT VIEW OF COPYING AS THE POTENTIALITY OF THE H ARM IS FAR GREATER BECAUSE OF THE EASY ACCESS AND REACH BY ANY ONE FROM EVERY CORNER OF THE GLOBE. THE COURT ALSO HEL D AFTER ANALYZING SECTION 27 AND SECTION 29 OF THE TRADE & MERCHANDISE MARKS ACT, THAT PASSING OFF ACTION CAN BE MAINTAINED IN RESPECT OF SERVICES AS WELL AS GOODS. 7. IN BRITISH TELECOM PLC. VS. ONE IN A MILLION 199 9 FSR 1 THE COURT HELD THAT IN THE CASE OF A REGISTRATION OF DOMAIN NAMES OF THIRD PARTY TRADEMARKS OF WELL-KNOWN NAMES , THERE WAS JURISDICTION TO GRANT INJUNCTIVE RELIEF W HEN THE DEFENDANT WAS EQUIPPED WITH OR WAS INTENDING TO EQU IP ANOTHER WITH AN INSTRUMENT OF FRAUD. IT WAS ALSO H ELD THAT A NAME WHICH WOULD BY REASON OF SIMILARLY TO THE NAME OF ANOTHER, INHERENTLY LEAD TO PASSING OFF, WAS SUCH A N INSTRUMENT. IT WAS HELD THAT IN CASE IT WOULD NOT INHERENTLY LEAD TO PASSING OFF BUT THE COURT CONCLUDED ON THE FACTS WITHOUT REGARD TO THE DEFENDANTS INTENTION THAT TH E NAME WAS PRODUCED TO ENABLE PASSING OFF, WAS ADAPTED TO BE USED FOR PASSING OFF AND, IF USED, WAS LIKELY TO BE USED FRAUDULENTLY, AN INJUNCTION WOULD BE APPROPRIATE. 8. IN REDIFF COMMUNICATIONS LTD. VS. CYBERBOOTH AIR 2000 BOMBAY 27 THE USER OF THE WEBSITE WWW.RADIFF. COM WAS INJUNCTED AS IT WAS HELD DECEPTIVELY SIMILAR TO THE PLAINTIFFS WEBSITE WWW.REDIFF.COM. IN THE ABOVE DECISION, THE COURT HELD THAT THE INTERNET DOMAIN N AMES ARE OF IMPORTANCE AND CAN BE A VALUABLE CORPORATE A SSET AND SUCH DOMAIN NAME IS MORE THAN AN INTERNET ADDRE SS AND IS ENTITLED TO PROTECTION EQUAL TO A TRADE MARK . IT WAS HELD THAT WITH THE ADVANCEMENT AND PROGRESS IN TECHNOLOGY THE SERVICES RENDERED BY AN INTERNET SIT E HAVE ALSO TO BE RECOGNIZED AND ACCEPTED AND ARE BEING GI VEN PROTECTION FROM PASSING OFF. 9. IN VIEW OF THE ABOVE DECISIONS, I AM SATISFIED T HAT IT IS NOW SETTLED LAW THAT WITH THE ADVENT OF MODERN TECH NOLOGY PARTICULARLY THAT RELATING TO CYBERSPACE, DOMAIN NA MES OR INTERNET SITES ARE ENTITLED TO PROTECTION AS A TRAD E MARK BECAUSE THEY ARE MORE THAN A MERE ADDRESS. THE ITA-1878/DEL/2017 16 RENDERING OF INTERNET SERVICES IS ALSO ENTITLED TO PROTECTION IN THE SAME WAY AS GOODS AND SERVICES ARE, AND TRAD E MARK LAW APPLIES TO ACTIVITIES ON INTERNET. (EMPHASIS BY UNDERLINING SUPPLIED BY US) 12. LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RELIE D UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO.LTD. (SUPRA). HOWEVER, WE FI ND THAT THE FACTS IN THAT CASE WERE ALTOGETHER DIFFERENT. IN THE SAI D CASE, THE ASSESSEE COMPANY CARRIED ON THE BUSINESS OF PRIVATE SATELLIT E COMMUNICATIONS AND BROADCASTING FACILITIES. DURING THE RELEVANT A SSESSMENT YEAR, IT WAS THE LESSEE OF A SATELLITE, CALLED ASIA-SAT 1 AN D WAS THE OWNER OF A SATELLITE, CALLED ASIA SAT 2. THOSE SATELLITES W ERE LAUNCHED BY THE ASSESSEE AND WERE PLACED IN A GEOSTATIONARY ORBIT I N THE ORBITAL SLOTS. THOSE SATELLITES NEITHER USED THE INDIAN ORBITAL SL OTS NOR WERE THEY POSITIONED OVER INDIAN AIRSPACE. HOWEVER, THE FOOT PRINT AREA (THE AREA OF EARTHS SURFACE OVER WHICH A SIGNAL IS RELAYED F ROM SATELLITE) OF THOSE SATELLITES COVERED THE TERRITORY OF INDIA. THE ASS ESSEE ENTERED INTO AN AGREEMENT WITH TV CHANNELS, COMMUNICATION COMPANIES OR OTHER COMPANIES WHO DESIRED TO UTILIZE THE TRANSPONDER CA PACITY AVAILABLE ON ITS SATELLITE TO RELAY THEIR SIGNALS. THE CUSTOMER S HAD THEIR OWN RELAYING FACILITIES, WHICH WERE NOT SITUATED IN IND IA. FROM THOSE FACILITIES, THE SIGNALS WERE BEAMED INTO SPACE WHER E THEY WERE RECEIVED BY A TRANSPONDER LOCATED IN THE ASSESSEES SATELLITE. THE ROLE OF THE ASSESSEE IN THIS CYCLE WAS THAT OF RECEIVING THE SIGNALS, AMPLIFYING THEM AND AFTER CHANGING FREQUENCY RELAYI NG THEM OVER THE ENTIRE FOOTPRINT AREA. FOR THAT SERVICE, THE TV CH ANNELS MADE PAYMENTS TO THE ASSESSEE. THE QUESTION BEFORE THE HONBLE HIGH COURT WAS WHETHER SUCH PAYMENTS CAN BE SAID TO BE ROYALTY CHARGEABLE TO TAX IN INDIA. HONBLE HIGH COURT ANSWERED THE QUES TION IN THE NEGATIVE. HOWEVER, THE FACTS IN THE ASSESSEES CAS E ARE CLEARLY DIFFERENT. IN THE CASE UNDER APPEAL BEFORE US, THE ISSUE IS WHETHER THE FEES RECEIVED BY THE ASSESSEE FOR RENDERING SERVICE S FOR DOMAIN REGISTRATION CAN BE SAID TO BE ROYALTY. THEREFORE, IN OUR OPINION, THE ITA-1878/DEL/2017 17 ABOVE DECISION OF HON'BLE DELHI HIGH COURT RELIED U PON BY THE LEARNED COUNSEL FOR THE ASSESSEE WOULD HAVE NO APPLICATION. THE LEARNED COUNSEL HAS ALSO RELIED UPON THE DECISION OF AUTHOR ITY FOR ADVANCE RULINGS IN THE CASE OF DELL INTERNATIONAL SERVICES (INDIA) PRIVATE LIMITED (SUPRA). IN THAT CASE ALSO, THE ISSUE BEFORE THE A UTHORITY FOR ADVANCE RULINGS WAS WHETHER THE PAYMENT FOR PROVIDING COMMU NICATION THROUGH TELECOM BANDWIDTH CAN BE TERMED AS ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE INCOME-TAX ACT. THUS, THE FACTS IN THE ABOVE CASE WERE ALSO DIFFERENT THAN THE FACTS U NDER APPEAL BEFORE US. ON THE OTHER HAND, THE ISSUE BEFORE HONBLE AP EX COURT IN THE CASE OF SATYAM INFOWAY LTD. (SUPRA), HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF TATA SONS LIMITED (SUPRA) AND HONBLE BOMBA Y HIGH COURT IN THE CASE OF REDIFF COMMUNICATIONS LTD. AIR 2000 B OMBAY 27 WAS WHETHER THE DOMAIN NAMES CAN BE CONSIDERED AS INTEL LECTUAL PROPERTIES SUCH AS TRADEMARK. HONBLE APEX COURT I N THE CASE OF SATYAM INFOWAY LTD. (SUPRA) HAS HELD THAT THE DOMAI N NAME IS A VALUABLE COMMERCIAL RIGHT AND IT HAS ALL THE CHARAC TERISTICS OF A TRADEMARK AND ACCORDINGLY, IT WAS HELD THAT THE DOM AIN NAMES ARE SUBJECT TO LEGAL NORMS APPLICABLE TO TRADEMARK. HO NBLE BOMBAY HIGH COURT IN THE CASE OF REDIFF COMMUNICATIONS LTD. (SU PRA) HELD THAT DOMAIN NAMES ARE OF IMPORTANCE AND CAN BE A VALUABL E CORPORATE ASSET AND SUCH DOMAIN NAME IS MORE THAN AN INTERNET ADDRESS AND IS ENTITLED TO PROTECTION EQUAL TO A TRADEMARK. HON'B LE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA SONS LIMITED (SUPRA) HELD THAT DOMAIN NAMES ARE ENTITLED TO PROTECTION AS A TRADEMARK BECAUSE T HEY ARE MORE THAN AN ADDRESS. RESPECTFULLY FOLLOWING THE ABOVE DECIS IONS OF HONBLE APEX COURT, HONBLE BOMBAY HIGH COURT AND HON'BLE J URISDICTIONAL HIGH COURT, WE HOLD THAT THE RENDERING OF SERVICES FOR D OMAIN 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 R ESPECT OF DOMAIN NAME IS ROYALTY WITHIN THE MEANING OF CLAUSE (VI) R EAD WITH CLAUSE (III) ITA-1878/DEL/2017 18 OF EXPLANATION 2 TO SECTION 9(1) OF INCOME-TAX ACT. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDERS OF THE LOWER AUTHORITIE S ON THIS POINT AND REJECT GROUND NO.2 OF THE ASSESSEES APPEAL. 13. GROUND NOS.3 & 4 OF THE ASSESSEES APPEAL, WHIC H READ AS UNDER, WERE NOT PRESSED BY THE ASSESSEE AT THE TIME OF HEA RING :- 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP HAS ERRED IN HOLDING THAT THE WE B HOSTING SERVICES PROVIDED/RENDERED BY THE APPELLANT QUALIFY AS FEES FOR INCLUDED SERVICES AS PER ARTICL E 12(4)(A) OF THE INDIA-USA TAX TREATY AS WELL AS UNDER SECTIO N 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 TH AT 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(1)(VI) READ WITH SE CTION 115A OF THE ACT. 14. AT THE TIME OF HEARING, THE LEARNED COUNSEL STA TED THAT THE ASSESSEE ITSELF HAS OFFERED THE INCOME FROM WEB HOS TING SERVICES AS ROYALTY. THE ASSESSING OFFICER HAS ASSESSED THE SA ME AS FEES FOR TECHNICAL SERVICES WHICH IS UPHELD BY THE DRP. HE STATED THAT SINCE THE RATE OF TAX FOR ROYALTY AS WELL AS FOR FTS IS THE S AME, THE ASSESSEE WOULD NOT LIKE TO CONTEST GROUND NOS.3 & 4 BECAUSE SO FAR ACTUAL TAX LIABILITY IS CONCERNED, THESE GROUNDS ARE ONLY ACAD EMIC. IN VIEW OF THE ABOVE, GROUND NOS.3 & 4 OF THE ASSESSEES APPEAL AR E REJECTED BEING NOT PRESSED. 15. GROUND NO.5 IS AGAINST INITIATION OF PENALTY PR OCEEDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AT THIS STAGE AND ACCORDINGLY, REJECTED AS SUCH. 16. GROUND NO.6 RELATING TO CHARGING OF INTEREST U/ S 234A, 234B AND 234C IS ADMITTED TO BE CONSEQUENTIAL AND SINCE NO R ELIEF IS ALLOWED ON ITA-1878/DEL/2017 19 ANY OTHER POINT IN THIS APPEAL, ACCORDINGLY, THERE WOULD BE NO VARIATION IN THE QUANTUM OF INTEREST. THUS, GROUND NO.6 IS A LSO REJECTED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 03.04.2018 . SD/- SD/- (SUCHITRA KAMBLE (SUCHITRA KAMBLE (SUCHITRA KAMBLE (SUCHITRA KAMBLE ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER PRESIDENT PRESIDENT PRESIDENT PRESIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : M/S GODADDY.COM LLC, M/S GODADDY.COM LLC, M/S GODADDY.COM LLC, M/S GODADDY.COM LLC, C/O GODADDY INDIA DOMAINS & C/O GODADDY INDIA DOMAINS & C/O GODADDY INDIA DOMAINS & C/O GODADDY INDIA DOMAINS & HOSTING SERVICES PVT.LTD., UNIT 003, TOWER 4A, HOSTING SERVICES PVT.LTD., UNIT 003, TOWER 4A, HOSTING SERVICES PVT.LTD., UNIT 003, TOWER 4A, HOSTING SERVICES PVT.LTD., UNIT 003, TOWER 4A, DLF CORPORATE PARK, M DLF CORPORATE PARK, M DLF CORPORATE PARK, M DLF CORPORATE PARK, M.G. ROAD, GURGAON .G. ROAD, GURGAON .G. ROAD, GURGAON .G. ROAD, GURGAON 122 002. 122 002. 122 002. 122 002. 2. RESPONDENT : ASSISTANT COMMISSIONER OF INCOME TA X, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(3)(1), INTERNATIONAL TAXATION, NEW DELHI. 1(3)(1), INTERNATIONAL TAXATION, NEW DELHI. 1(3)(1), INTERNATIONAL TAXATION, NEW DELHI. 1(3)(1), INTERNATIONAL TAXATION, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR