Godaddy.com LLC, Gurgaon V. DCIT, Circle- 1(3)(1), International Taxation, New Delhi

ITA 7123/DEL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6607 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 27-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Double taxation relief; Advance ruling
• Section: 143(3); 142(1); 234B; 11

Judgement Text

1 ITA NO. 7123/DEL/201 7 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 7123/DEL/2 017 (A.Y 2014-15) GODADDY.COM LLC C/O. DELOITTE HASKINS & SELLS, BUILDING NO. 10B, 7 TH FLOOR, DLF CYBER CITY, PHASE-2, GURGAON HARYANA AAECG7133K (APPELLANT) VS DCIT CIRCLE-1(3)(1), INTERNATIONAL TAXATION, ROOM NO. 410, 4 TH FLOOR, BLOCK- E2, CIVIC CENTRE, J. L. N. MARG, NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE AS SESSMENT ORDER DATED 26.10.2017 PASSED BY THE DCIT, CIRCLE-(1)(3)(1), NE W DELHI FOR ASSESSMENT YEAR 2014-15. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- APPEAL AGAINST THE ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME- TAX ACT, 1961 ('THE ACT') DATED 26 OCTOBER 2017 FOR THE ASSESSMENT YEAR APPELLANT BY SH. S. P. SINGH, AR, SH. MANONEET DALAL, AR, SMT. PRACHI BHTIA, AR RESPONDENT BY SH. G. K. DHALL, CIT DR DATE OF HEARING 18.07.2018 DATE OF PRONOUNCEMENT 24.07.2018 2 ITA NO. 7123/DEL/201 7 2014-15 PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(3)(1), INTL. TAXATION, NEW DELHI ('AO') PURSUANT TO THE DIRECTIO NS OF DISPUTE RESOLUTION PANEL-I ('DRP') 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE AO PURSU ANT TO THE DIRECTIONS OF THE DRP IS ERRONEOUS AND BAD IN LAW AS WELL AS IN F ACTS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP HAS WRONGLY ALLEGED THAT RECEIPTS FROM DOMAI N NAME REGISTRATION AMOUNTING TO INR 437,761,396 SHOULD BE CHARGED TO T AX AS ROYALTY AS PER THE PROVISIONS OF SECTION 9(L)(VI) READ WITH SECTION 11 5A OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D 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(L)(VII) O F THE ACT. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE AO/DRP HAS ERRED IN NOT APPRECIATING THAT THE APPELLANT HA S 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 11 5A OF THE ACT. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE A.O/DRP HAS ERRED IN HOLDING THAT THE APPELLANT HAS CONCEAL ED ITS PARTICULARS OF INCOME OR HAS NOT DISCLOSED ACCURATE PARTICULARS OF INCOME AN D HAS SEPARATELY INITIATED PENALTY PROCEEDINGS U/S 271 (1)(C) 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE AO/DRP HAS ERRED IN CHARGING INTEREST UNDER SECTION 234B AND 2 34C OF THE ACT TO THE APPELLANT. 3. THE ASSESSEE, M/S GODADDY.COM LLC HAS FILED A RE TURN OF INCOME FOR A.Y. 2014-15 ON 30.09.2014 DECLARING INCOME OF RS. 41,19,81,166/- AS ROYALTY AND FTS FOR WEB HOSTING SERVICES/ON DEMAND SALE AND WEB DESIGNING/SSL CERTIFICATION SERVICES RESPECTIVELY. THE CASE WAS S ELECTED FOR SCRUTINY. NOTICE 3 ITA NO. 7123/DEL/201 7 U/S 143(2) OF THE ACT WAS ISSUED DATED 01.09.2015 A ND SERVED UPON THE ASSESSEE. SUBSEQUENTLY, NOTICE UNDER SECTION 142(1) ISSUED ON 12.04.2016 AND SERVED UPON THE ASSESSEE. THE ASSESSEE THROUGH CAS ATTENDED THE PROCEEDINGS AND FILED VARIOUS DETAILS WHICH WERE EXAMINED BY TH E ASSESSING OFFICER. THUS, THE DRAFT ASSESSMENT ORDER WAS PASSED ON 14.12.2016 AGAINST WHICH THE OBJECTIONS WERE FILED BY THE ASSESSEE BEFORE THE DR P. THE DRP VIDE DIRECTIONS DATED 22.09.2017 DIRECTED THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT AS PER THE DIRECTIONS GIVEN THEREIN. THE ASSESSING OFF ICER VIDE ORDER DATED 26.10.2017 HELD THAT THE PAYMENT FOR DOMAIN NAME R EGISTRATION IS FOR USE OF SERVER OF THE ASSESSEE AND HENCE AMOUNTS TO ROYALTY AS PER SECTION 9(1)(VI) OF THE INCOME TAX ACT, 1961 AS WELL AS ARTICLE 12(3)(A ) OF THE INDIA-US TAX TREATY. THIS VIEW WAS ALSO TAKEN FOR EARLIER ASSESSMENT YEA R 2013-14 BY THE ASSESSING OFFICER. BEING AGGRIEVED BY THE SAME THE ASSESSEE F ILED APPEAL BEFORE US. DURING THE HEARING THE LD. DR POINTED OUT THAT FOR A.Y. 2013-14, THE TRIBUNAL VIDE ORDER DATED 03.04.2018 HELD THIS ISSUE AGAINST THE ASSESSEE BEING ITA NO. 1878/DEL/2017. 4. THE LD. AR PUT UP HIS WRITTEN SUBMISSION AND TH E SAME ARE AS UNDER:- BACKGROUND 1. THE APPELLANT, A DELAWARE LIMITED LIABILITY COMPANY , (LOCATED IN ARIZONA, USA), IS THE WORLD'S LARGEST ICANN (INTERNET CORPOR ATION FOR ASSIGNED NAMES AND NUMBERS) ACCREDITED DOMAIN NAME REGISTRAR. DURI NG THE CAPTIONED YEAR, THE APPELLANT EARNED REVENUES FROM THE FOLLOWING SE RVICES RENDERED TO INDIAN CUSTOMERS [REFER PARA 3.2 FINAL ASSESSMENT ORDER AT PAGE 81 O F APPEAL SET]: PARTICULARS AMOUNT (INR) OFFERED TO TAX (INR) WEB HOSTING SERVICES/ON-DEMAND 411,981,166 411,981,166 4 ITA NO. 7123/DEL/201 7 SALE WEB DESIGNING/SSL CERTIFICATION SERVICES 437,761,396/- DOMAIN REGISTRATION MEANING OF DOMAIN NAME 2. A WEBSITE IS A COMBINATION OF FILES, IMAGES, TEXT, MUSIC ETC. AS THERE ARE MORE THAN A BILLION WEBSITES ON THE INTERNET, IT IS IMPORTANT FOR EACH WEBSITE TO HAVE A UNIQUE IDENTITY WHICH COULD BE USED TO CONNE CT TO THAT PARTICULAR WEBSITE. THIS IDENTITY OF A WEBSITE IS ITS IP ADDRE SS (INTERNET PROTOCOL ADDRESS). ANY PERSON WITH INTERNET ACCESS CAN TYPE IN THE WEBSITE'S IP ADDRESS THAT HE WISHES TO BROWSE ON HIS DEVICE AND HE WILL LAND ON THAT WEBSITE. IP ADDRESS IS A SERIES OF NUMBERS, WHICH I S UNIQUE TO EACH WEBSITE. FOR INSTANCE, THE IP ADDRESS OF THE WEBSITE OF THE HON'BLE DELHI HIGH COURT IS '164.100.60.183'. 3. OBVIOUSLY, IT IS NOT PRACTICAL TO REMEMBER EACH WE BSITE'S IP ADDRESS. TO SOLVE THIS PROBLEM, DOMAIN NAME SYSTEM WAS INTRODUC ED IN THE EARLY 1980S. UNDER THIS SYSTEM, A WEBSITE'S IP ADDRESS CAN BE AS SIGNED A DOMAIN NAME, A NAME WHICH CAN CONSIST OF ALPHABETS AND NUMBERS. NO W, INSTEAD OF TYPING THE IP ADDRESS, A USER CAN TYPE THE DOMAIN NAME WHI CH IS ASSIGNED TO THAT IP ADDRESS AND REACH THE WEBSITE. FOR INSTANCE, THE DO MAIN NAME OF THE WEBSITE OF THE HON'BLE DELHI HIGH COURT IS 'DELHIHIGHCOURT. NIC.IN'. DOMAIN NAME REGISTRATION PROCESS 4. THE INTERNET BEGAN AS A PROGRAM CALLED ARPANET IN THE EARLY 1970S. AS THE INTERNET BEGAN TO EXPAND, A PROCESS EVOLVED TO ESTABLISH A NEW ORGANIZATION WHICH WOULD ORGANIZE AND CO-ORDINATE A DATABASE OF THE DOMAIN NAMES IN ADDITION TO PERFORMING OTHER IMPORTANT FUN CTIONS IN RESPECT OF INTERNET. INTERNET CORPORATION FOR ASSIGNED NAMES A ND NUMBERS (ICANN) WAS ESTABLISHED IN 1998 AS A 'NOT FOR PROFIT ORGANIZATI ON' AND SELECTED TO PERFORM 5 ITA NO. 7123/DEL/201 7 THIS ROLE. 5. WITH RESPECT TO DOMAIN NAME REGISTRATION, ICANN FO RMULATES POLICIES AND INTER-AIIA HELPS IN COORDINATING AND SUPPORTING THE REGISTRATI ON AND MAINTENANCE OF DOMAIN NAMES. 6. FOR THIS PURPOSE, ICANN ENTERS INTO AGREEMENTS WIT H 'REGISTRIES', WHOSE FUNCTION IS TO KEEP THE MASTER DATABASE OF ALL THE REGISTERED DOMAIN NAMES. ICANN HAS ALSO ACCREDITED AROUND 2500 COMPANIES TO BE 'REGISTRARS' (THE APPELLANT IS ONE OF THEM). THEIR FUNCTION IS TO REG ISTER THE DOMAIN NAMES OF THE CUSTOMERS, I.E. THE 'REGISTRANTS' AND FACILITATE TH E ENTIRE DOMAIN NAME REGISTRATION PROCESS. 7. IN A TYPICAL DOMAIN NAME REGISTRATION, A 'REGISTRAN T' (I.E. THE CUSTOMER), DESIROUS OF REGISTERING A DOMAIN NAME, APPROACHES T HE 'REGISTRAR' (THE APPELLANT). THE 'REGISTRAR' THEN ASKS THE 'REGISTRY ' WHETHER THE PROPOSED DOMAIN NAME IS AVAILABLE. THE 'REGISTRY' CHECKS ITS DATABASE AND INFORMS THE 'REGISTRAR' ACCORDINGLY. IF THE DOMAIN NAME IS AVAI LABLE, I.E., IT IS NOT REGISTERED IN THE NAME OF ANYONE ELSE, THE 'REGISTR ANT' CAN PAY A FEES AND GET THE NAME REGISTERED WITH THE HELP OF THE 'REGISTRAR '. IN ORDER TO KEEP THE DOMAIN NAME, THE 'REGISTRANT' HAS TO PAY A PERIODIC AL FEE TO THE 'REGISTRAR' I. E. THE FEE FOR DOMAIN NAME REGISTRATION. ASSESSMENT HISTORY - AY 2013-14 8. ASSESSING OFFICER ('AO') WHILE PASSING THE ASSESSME NT ORDER FOR AY 2013- 14 HELD THAT THE PAYMENT FOR DOMAIN NAME REGISTRATI ON IS FOR USE OF SERVER OF THE APPELLANT AND HENCE AMOUNTS TO ROYALTY AS PER S ECTION 9(L)(VI) OF THE INCOME-TAX ACT, 1961 ('ACT') AS WELL AS ARTICLE 12( 3)(A) OF THE INDIA-US TAX TREATY. [REFER PARA 3 OF THE ASSESSMENT ORDER AT PAGE 134 O F THE PAPER BOOK] 9. HON'BLE BENCH VIDE ORDER DATED APRIL 13, 2018 HELD THAT THE DOMAIN 6 ITA NO. 7123/DEL/201 7 NAMES WERE SIMILAR TO TRADEMARKS AND THE SERVICES P ROVIDED BY THE APPELLANT WERE IN CONNECTION WITH THE USE OF THE TRADEMARKS A ND THE INCOME THEREFROM CONSTITUTES 'ROYALTY' WITHIN THE MEANING OF CLAUSE (VI) READ WITH CLAUSE (III) OF CONSTITUTES 'ROYALTY' WITHIN THE MEANING OF CLAUSE (VI) READ WITH CLAUSE (III) OF EXPLANATION 2 TO SECTION 9(1) OF THE ACT. [REFER PARA 12 OF THE ITAT ORDER AT PAGE 208 OF THE PAPER BOOK] 10. HON'BLE ITAT WHILE PASSING ORDER FOR AY 2013-14 HA S NOT APPRECIATED AN IMPORTANT FACT THAT THE OWNER OF DOMAIN NAME IS THE ULTIMATE CUSTOMER AND NOT THE APPELLANT. CONSEQUENTLY, CLAUSE (III) OF EX PLANATION 2 TO SECTION 9(L)(VI) OF THE ACT WILL NOT APPLY SINCE THE APPELLANT WASN' T COMPETENT TO GRANT THE RIGHT TO USE IN THE SAID PROPERTY WHICH WAS OWNED B Y THE ULTIMATE CUSTOMERS. HENCE, CLAUSE (VI) OF EXPLANATION 2 TO SECTION 9(L) (VI) OF THE ACT WILL NOT APPLY. 11. THE APPELLANT IS IN THE PROCESS OF FILING AN APPEA L BEFORE THE HON'BLE DELHI HIGH COURT AGAIN THE SAID ORDER. ASSESSING OFFICER'S CONTENTIONS FOR THE AY 2014-15 1. THE AO PASSED THE ASSESSMENT ORDER ALLEGING THAT I NCOME FROM DOMAIN NAME REGISTRATION AMOUNTING TO INR 437,761,396 SHOU LD BE CHARGED TO TAX AS ROYALTY AS PER THE PROVISIONS OF SECTION 9(L)(VI) O F THE ACT. [REFER PARA 6.5 OF THE FINAL ASSESSMENT ORDER AT PAGE 95 OF APPEAL SET ]. THE CONTENTIONS OF THE AO WHILE PASSING THE ORDER FOR CAPTIONED AY IS SIMILAR TO AY 2013-14. 2. THE LD. AO/DRP HAVE LINKED WEB HOSTING SERVICES WI TH DOMAIN NAME REGISTRATION SERVICES. 3. THE AO WHILE PASSING THE ORDER HAS ALLEGED THAT TH E PAYMENT FOR DOMAIN NAME REGISTRATION IS FOR USE OF SERVER OF THE APPEL LANT AND HENCE AMOUNTS TO ROYALTY. RELEVANT EXTRACTS OF THE AO'S ORDER AT PAGE 94 OF THE APPEAL SET ARE AS BELOW: 7 ITA NO. 7123/DEL/201 7 QUOTE 'DOMAIN REGISTRATION PARTAKES THE CHARACTER OF WEB HOSTING CHARGES SINCE WITHOUT DOMAIN REGISTRATION BEING IN PLACE, WEB HOS TING IS NOT POSSIBLE. AS DOMAIN REGISTRATION CHARGES HAVE BEEN ESSENTIALLY C HARGED FOR GRANTING RIGHT TO USE THE SERVERS OF THE ASSESSEE, DOMAIN REGISTRA TION BEING THE PRECONDITION TO WEB HOSTING ETC AND THE SAME BEING HIGHLY TECHNI CAL PROCESS AND BECAUSE OF ITS INHERENT QUALITY, THE SAME SQUARELY FALLS UN DER THE DEFINITION OF ROYALTY UNDER THE PROVISIONS OF THE ACT AND DOUBLE TAXATION AVOIDANCE AGREEMENT.' UNQUOTE 4. THE AO ALSO ALLEGED THAT WEB HOSTING SERVICES PROV IDED/ RENDERED BY THE APPELLANT QUALIFY AS FEE FOR TECHNICAL SERVICES ('F TS') AS PER ARTICLE 12(4)(A) OF THE INDIA-USA TAX TREATY AS WELL AS UNDER SECTION 9 (L)(VII) OF THE ACT. OF INCOME AS ROYALTY U/S 9(L)(VI) OF THE ACT. [REFER PAGE 85 OF THE APPEAL SET] 5. THE APPELLANT FILED AN APPEAL BEFORE DISPUTE RESOL UTION PANEL ('DRP') WHICH UPHELD THE ORDER OF THE AO. THE AO FRAMED FIN AL ASSESSMENT ORDER DATED 26 OCTOBER, 2017 MAINTAINING THE AFORESAID PO SITION. 6. BEING AGGRIEVED BY THE FINAL ASSESSMENT ORDER PASS ED BY LD. AO, THE APPELLANT FILED AN APPEAL BEFORE HON'BLE ITAT. APPELLANT'S CONTENTIONS WITH RESPECT TO TAXABILITY OF DOMAIN NAME REGISTRATION SERVICES 1. AT THE OUTSET THE APPELLANT WISHES TO SUBMIT THA T FACTS INVOLVED IN AY 2013-14 ARE SIMILAR TO THE AY 2014-15 (I.E. THE PRE SENT AY). 2. THE AO WHILE PASSING ORDERS FOR BOTH AYS 2013-14 (PRIOR YEAR) AND 2014- 15 (YEAR IN APPEAL) HAS ASSESSED INCOME FROM DOMAIN NAME REGISTRATION SERVICES AS 'ROYALTY' UNDER SECTION 9(L)(VI) OF THE ACT BY HOLDING THAT THE INCOME WAS RECEIVED BY THE APPELLANT ON ACCOUNT OF GRANTING TO THE 8 ITA NO. 7123/DEL/201 7 CUSTOMERS, THE RIGHT TO USE ITS SERVER AND THUS IS IN THE NATURE OF RIGHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. 3. THE HON'BLE BENCH WHILE PASSING ITS ORDER FOR AY 2013-14 HELD THAT THE DOMAIN NAMES WERE SIMILAR TO TRADEMARKS. THE SERVIC ES PROVIDED BY THE APPELLANT WERE IN CONNECTION WITH THE USE OF THE TR ADEMARKS AND THE INCOME THEREFROM CONSTITUTES 'ROYALTY' WITHIN THE MEANING OF CLAUSE (VI) READ WITH CLAUSE (III) OF EXPLANATION 2 TO SECTION 9(1) OF TH E ACT. 4. IT IS RELEVANT TO NOTE THAT THE HON'BLE BENCH WH ILE PASSING ITS ORDER FOR AY 2013-14 CONSIDERED THE ORDER AND FINDINGS OF THE AO . HOWEVER, THE BENCH HAS UPHELD THAT THE INCOME IS TAXABLE AS ROYALTY BY HOLDING THAT THE SAME IS IN CONNECTION WITH THE USE OF TRADEMARK AND NOT ON ACCOUNT OF THE FACT THAT IT IS FOR THE GRANTING TO THE CUSTOMERS, THE RIGHT TO USE SERVER (AS CONTENTED BY THE AO). ACCORDINGLY, THE CONTENTION OF THE AO, THA T INCOME FROM DOMAIN NAME REGISTRATION SERVICE IS FOR GRANTING A RIGHT TO USE SERVER, NO LONGER HOLDS GOOD. 5. THE APPELLANT IN THE FOREGOING PARAGRAPHS HAS ME NTIONED ITS CONTENTIONS AGAINST THE FINDINGS AND DECISION OF THE HON'BLE IT AT FOR AY 2013-14 SINCE THE FACTS INVOLVED IN THE AY 2014-15 ARE SIMILAR TO THE FACTS FOR AY 2013-14. CONTENTIONS WITH RESPECT TO THE ORDER PASSED BV HON 'BLE ITAT FOR AY 2013-14 6. THE HON'BLE ITAT HAS HELD THAT THE DOMAIN NAME R EGISTRATION SERVICES WERE 'SERVICES RENDERED IN RESPECT OF DOMAIN NAME' AND THE CHARGES FOR SUCH SERVICES WERE ROYALTY WITHIN THE MEANING OF CLAUSE (VI) READ WITH CLAUSE (III) OF EXPLANATION 2 TO SECTION 9(1) OF THE ACT. 7. IT MAY BE CLARIFIED THAT THE REGISTRANT OR CUSTO MER IS THE OWNER OF DOMAIN NAME. THE APPELLANT IS NEITHER THE OWNER, NOR DOES IT HAVE THE RIGHT TO USE THE DOMAIN NAMES, WHICH ARE REGISTERED BY THE CUSTOMERS . THE APPELLANT IS AUTHORIZED BY THE INTERNATIONAL REGULATORY BODY-ICA NN ONLY TO TAKE DOMAIN 9 ITA NO. 7123/DEL/201 7 NAME REQUESTS FROM CUSTOMERS, FORWARD IT TO THE REG ISTRY OPERATORS, AND UPON ITS ACCEPTANCE BY SUCH REGISTRY OPERATORS, FACILITA TE THE REGISTRATION OF SUCH DOMAIN NAMES. FURTHER, THE FACT THAT A DOMAIN NAME IS OWNED BY THE REGISTRANTS (I.E. THE CUSTOMERS) IS ALSO RECOGNIZED BY HON'BLE SUPREME COURT IN CASE OF SATYAM INFOWAY (2004) (2 SCR 465) AND HO N'BLE BOMBAY HIGH COURT IN THE CASE OF REDIFF COMMUNICATIONS (AIR 200 0 BNOMBAY 27) (I.E. THE DECISIONS RELIED UPON BY THE HON'BLE BENCH). THE SA ME HAVE BEEN SUMMARIZED IN PARAS BELOW. 8. IT IS SUBMITTED THAT WITHOUT THE OWNERSHIP OF AN INTELLECTUAL PROPERTY RIGHT ('IPR) LIKE TRADEMARK, THERE CANNOT BE ANY LICENSING AND THERE CANNOT BE ANY ROYALTY. PARA 8.1 OF THE OECD'S COMMENTARY ON 'MODEL TAX CONVENTION ON INCOME AND ON CAPITAL 2014 ' PROVIDES: 'THE DEFINITION DOES NOT, HOWEVER, APPLY TO PAYMENTS THA T, WHILST BASED ON THE NUMBER OF TIMES A RIGHT BELONGING TO SOMEONE IS USE D, ARE MADE TO SOMEONE ELSE WHO DOES NOT HIMSELF OWN THE RIGHT OR THE RIGH T TO USE IT.' THE HON'BLE CALCUTTA HIGH COURT HAS ALSO GIVEN A SIMILAR FINDIN G IN THE CASE OF CIT VS. DAVY ASHMORE INDIA LTD. (1991)(190 ITR 626). 9. THE HON'BLE AAR IN THE CASE OF CUSHMAN & WAKEFIE LD (S) PTE. LTD. (305 ITR 208)(2008)(AAR) HELD: 'WHEN THE ABOVE DEFINITION OF TRADEMARK IS PLACED AGAINST THE DEFINITION OF ROYALTY ARISING OUT OF TH E USE OF 'TRADEMARK', AS CONTAINED IN CLAUSES OF EXPLANATION 2 TO SECTION 9( L)(VI) OF THE ACT, IT EMERGES THAT THE RECIPIENT OF THE CONSIDERATION, SHOULD BE EITHER THE OWNER OF THE 'TRADEMARK' OR REGISTERED HOLDER OF THE 'TRADEMARK' . THERE SHOULD ALSO EXIST A CONNECTION IN COURSE OF TRADE BETWEEN THE PAYER AND THE RECIPIENT.' 10. THE DOMAIN NAMES REQUESTED BY THE CUSTOMERS (IF NOT ALREADY REGISTERED) ARE NOT OWNED BY ANYONE FOR THAT MATTER , THEY SIMPLY DO NOT EXIST. IT IS THE CUSTOMER WHO BECOMES THE OWNER OF SUCH DO MAIN NAMES UPON REGISTRATION, AND CAN LICENSE IT TO A THIRD PARTY I F IT SO DESIRES. IT IS PERHAPS THIS SUBSEQUENT LICENSING BY A REGISTERED OWNER OF A DOMAIN NAME WHICH 10 ITA NO. 7123/DEL/20 17 COULD BE EXAMINED FOR ROYALTY CHARACTERIZATION. 11. THE HON'BLE BENCH WHILE PASSING ITS ORDER RELI ED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SATYAM INF OWAY LTD. V. SIFFYNET SOLUTIONS PVT. LTD. (2004)(2 SCR 465), HON'BLE DELH I HIGH COURT IN THE CASE OF TATA SONS LTD. V. MR. MANU KISHORI & ORS. 90(2001) DLT 659 AND HON'BLE MUMBAI HIGH COURT IN THE CASE OF REDIFF COMMUNICATI ONS LTD. VS. CYBERBOOTH (AIR 2000 BOMBAY 27). THE FINDINGS IN THE SAID DECI SIONS ARE SUMMARIZED BELOW: IN THE DECISION OF SATYAM INFOWAY LTD. V. SIFFYNET SOLUTIONS PVT. LTD. (SUPRA), THE PLAINTIFF, SATYAM INFOWAY LTD. HAD REG ISTERED A DOMAIN NAMES WITH THE WORD 'SIFY' WITH ICANN IN THE YEAR 1999. S UBSEQUENTLY, IN THE YEAR 2001, THE RESPONDENT, SIFFYNET SOLUTIONS PVT. LTD. REGISTERED DOMAIN NAMES WITH THE WORD 'SIFFY' WITH ICANN. THE PLAINTIFF ALL EGED THAT THE RESPONDENT WAS 'PASSING OFF' ITS SERVICES AS THOSE BELONGING T O THE PETITIONER BY USING A DECEPTIVELY SIMILAR WORD AS PART OF ITS DOMAIN NAME . THE DECISION WAS ONLY IN THE CONTEXT OF GRANTING A TRADE MARK PROTECTION TO A DOMAIN NAME IN LIGHT OF FRAUDULENTLY 'PASSING OFF' OF DOMAIN NAMES. SIMILARLY, IN THE CASE OF TATA SONS LTD. (SUPRA), IT WAS HELD THAT THE RESPONDENT'S USE OF DOMAIN NAMES WAS VIOLATIVE OF T HE PLAINTIFF'S TRADEMARK AND THAT INTERNET SITES HAVE ALSO TO BE RECOGNIZED AND ACCEPTED AND GIVEN PROTECTION FROM PASSING OFF. IN THE CASE OF REDIFF COMMUNICATIONS LTD. (SUPRA) AS WELL, THE USER OF THE DOMAIN NAME 'WWW.RADIFF.COM' WAS INJUNCTED AS IT WA S HELD DECEPTIVELY SIMILAR TO THE PLAINTIFF'S WEBSITE WWW.REDIFF.COM. IT WAS HELD THAT DOMAIN NAME IS ENTITLED TO PROTECTION EQUAL TO A TRADE MAR K. 12. IN FACT, THE HON'BLE SUPREME COURT IN THE CASE OF SATVAM INFOWAV (SUPRA) HAS OBSERVED THAT IT IS THE REGISTRANT (I.E . CUSTOMER! WHICH OWNS THE DOMAIN NAME AND CAN PROTECT THE SAME AGAINST USE BY A SUBSEQUENT 11 ITA NO. 7123/DEL/20 17 REGISTRANT. THE SAID DECISION ACCORDINGLY IS IN FAV OUR OF THE APPELLANT'S CONTENTION. RELEVANT EXTRACTS MENTIONED BELOW: ' THEREFORE, THE DOMAIN NAME NOT ONLY SERVES AS AN ADDRESS FOR INTERNET COMMUNICATION BUT ALSO IDENTIFIES THE SPECIFIC INTE RNET SITE. IN THE COMMERCIAL FIELD, EACH DOMAIN NAME OWNER PROVIDES INFORMATION/ SERVICES WHICH ARE ASSOCIATED WITH SUCH DOMAIN NAME ' 'THE OUTCOME OF CONSULTATION BETWEEN ICANN AND WIPO HAS RESULTED IN THE SETTING UP NOT ONLY OF A SYSTEM OF REGISTRATION OF DOMAIN NAMES WITH ACCREDITED REGISTRARS BUT ALSO THE REVOLUTION OF TH E UNIFORM DOMAIN NAME DISPUTES RESOLUTION POLICY (UDNDR POLICY) BY ICANN ON 24TH OCTOBER 1999. AS FAR AS REGISTRATION IS CONCERNED, IT IS PROVIDED ON A FIRST COME FIRST SERVE BASIS .' WHILE REGISTRATION WITH SUCH REGISTRARS MAY NOT HAV E THE SAME CONSEQUENCES AS REGISTRATION UNDER THE TRADEMARK ACT, 1999 NEVER THELESS IT AT LEAST EVIDENCES RECOGNISED USER OF A MARK. BESIDES THE UDNDR POLICY IS INSTRUCTIVE AS TO THE KIND OF RIGHTS WHICH A DOMAIN NAME OWNER MAY HAVE UPON REGISTRATION WITH ICANN ACCREDITED REGIST RARS. IN RULE 2 OF THE POLICY, PRIOR TO APPLICATION FOR REGISTRATION OF A DOMAIN N AME, THE APPLICANT IS REQUIRED TO DETERMINE WHETHER THE DOMA IN NAME FOR WHICH REGISTRATION IS SOUGHT 'INFRINGES OR VIOLATES SOMEONE ELSE'S RIGHTS ........... THESE RULES INDICATE THAT THE DISPUTES MAY BE BROAD LY CATEGORISED AS : (A) DISPUTES BETWEEN TRADEMARK OWNERS AND DOMAIN NAME O WNERS AND (B) BETWEEN DOMAIN NAME OWNERS INTER SE. WHAT IS IMPORT ANT FOR THE PURPOSES OF THE PRESENT APPEAL IS THE PROTECTION GIVEN TO INTEL LECTUAL PROPERTY IN DOMAIN NAMES. A PRIOR REGISTRANT CAN PROTECT ITS DOMAIN NA ME AGAINST SUBSEQUENT REGISTRANTS. CONFUSING SIMILARITY IN DOMAIN NAMES M AY BE A GROUND FOR COMPLAINT AND SIMILARITY IS TO BE DECIDED ON THE PO SSIBILITY OF DECEPTION 12 ITA NO. 7123/DEL/20 17 AMONGST POTENTIAL CUSTOMERS. THE DEFENCES AVAILABLE TO A COMPLIANT ARE ALSO SUBSTANTIALLY SIMILAR TO THOSE AVAILABLE TO AN ACTI ON FOR PASSING OFF UNDER TRADEMARK LAW.' 13. SIMILARLY, BOMBAY HIGH COURT IN THE CASE OF RED IFF COMMUNICATIONS LTD. (SUPRA) RECOGNIZED THE FACT THAT THE REGISTRAN T IS THE OWNER OF DOMAIN NAME AND DOMAIN NAME REGISTRARS MERELY PERFORMS THE FUNCTION OF REGISTERING A DOMAIN NAME. THE DOMAIN NAME REGISTRAR DOES NOT D ETERMINE THE LEGALITY OF DOMAIN NAMES. RELEVANT EXTRACTS REPRODUCED: 'INTERNET DOMAIN NAMES ARE SIMILAR TO TELEPHONE NUM BER MNEMONICS, BUT THEY ARE OF GREATER IMPORTANCE, SINCE THERE IS NO SATISF ACTORY INTERNET EQUIVALENT TO A TELEPHONE COMPANY WHITE PAGES OR DIRECTORY ASSIST ANCE, AND DOMAIN NAMES MAY BE A VALUABLE CORPORATE ASSET, AS IT FACILITATE S COMMUNICATION WITH A CUSTOMER BASE. THE UNIQUENESS OF INTERNET ADDRESSES IS ENSURED BY THE REGISTRATION SERVICES OF THE INTERNET NETWORK INFOR MATION CENTER ('INTERNIC'), A COLLABORATIVE PROJECT ESTABLISHED BY THE NATIONAL S CIENCE FOUNDATION. I MAY HASTEN TO ADD THAT IT IS THE NSI WHICH PROVIDES REG ISTRATION SERVICES OF DOMAIN NAMES UNDER THE NAME INTERNET NETWORK INFORMATION C ENTER ('INTERNIC'). NSI REGISTERS NAMES FREE ON THE BASIS OF 'FIRST COME FI RST SERVED'. NSI DOES NOT DETERMINE THE LEGALITY OF THE DOMAIN NAME REGISTRAT ION, OR OTHERWISE EVALUATE WHETHER THAT REGISTRATION OR USE MAY INFRINGE UPON THE RIGHTS OF A THIRD PARTY. ANYONE CAN APPLY FOR THE REGISTRATION OF A DOMAIN N AME AND IF THE NAME IS AVAILABLE, IT IS ALLOTTED TO THE APPLICANT. ' 14. IT IS ALSO SUBMITTED THAT ONCE A CUSTOMER IS R EGISTERED WITH A PARTICULAR REGISTRAR, THE CUSTOMER HAS THE OPTION O F SWITCHING TO ANY OTHER REGISTRAR FOR THE VERY SAME DOMAIN NAME AT ITS WILL . IF THE REGISTRAR, IN FACT, HAD THE RIGHT TO LICENSE AND ASSIGN A DOMAIN NAME, IT WOULD HAVE BEEN AT THE DISCRETION OF THE REGISTRAR TO TRANSFER THE DOMAIN NAME TO ANY CUSTOMER AND NOT AT THE DISCRETION OF THE CUSTOMER TO DISCONTINU E THE SERVICES OF THE REGISTRAR WHICH HAD REGISTERED ITS DOMAIN NAME TO B EGIN WITH. CUSTOMERS ARE 13 ITA NO. 7123/DEL/20 17 ALLOWED TO AND AS A MATTER OF FACT DO SHIFT FROM ON E REGISTRAR TO ANOTHER. IT COULD NOT BE SAID THAT THE RIGHT TO USE AN IPR IS G IVEN BY ONE ENTITY IN ONE YEAR AND BY ANOTHER ENTITY IN ANOTHER YEAR. REFERENCE MA Y BE DRAWN TO CLAUSE 4 OF DOMAIN NAME REGISTRATION AGREEMENT BETWEEN THE A PPELLANT AND THE CUSTOMERS. (REFER CLAUSE 4 OF THE DOMAIN NAME REGISTRATION AGR EEMENT AT PAGE 58 OF THE PAPER BOOK) 15. APPELLANT WISHES TO HIGHLIGHT CLAUSE 3.5 OF TH E REGISTRAR ACCREDITATION AGREEMENT BETWEEN GODADDY AND ICANN W HICH INDICATES THAT THE APPELLANT DOES NOT ANY RIGHT IN THE DOMAIN NAME S 'RIGHTS IN DATA. REGISTRAR DISCLAIMS ALL RIGHTS TO EXCLUSIVE OWNERSH IP 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 DATABA SE FOR, OR SPONSORED BY REGISTRAR IN, EACH GTLD FOR WHICH IT IS ACCREDITED. ' 16. IT IS SUBMITTED THAT THE SERVICES PROVIDED BY THE APPELLANT ARE SIMILAR TO SERVICES PROVIDED BY PROFESSIONALS WHO H ELP IN REGISTERING A COMPANY'S NAME WITH THE REGISTRAR OF COMPANIES (ROC ). 17. SIMPLY PROVIDING SERVICES IN CONNECTION WITH A TRADE MARK IS NOT SUFFICIENT TO INVITE THE APPLICATION OF CLAUSE (VI) . THE SAID CLAUSE SHALL APPLY WHEN THE SERVICES ARE IN CONNECTION WITH 'THE ACTIV ITIES' REFERRED TO IN THAT SECTION. IT MAY BE NOTED THAT THE ACTIVITY REFERRED TO IN CLAUSE (III) IS 'THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMUL A OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY;'. ACCORDINGLY, AN ENTITY WHICH LICENSES ITS TRADE MARK AND ALSO PROVIDES SERVICES IN CONNECTION WITH THE ACTIV ITY OF LICENSING WILL BE COVERED IN CLAUSE (III) FOR THE FIRST SET OF SERVIC ES AND IN CLAUSE (VI) FOR THE SECOND SET OF SERVICES. 18. IF SIMPLY PROVIDING SERVICES IN CONNECTION WIT H TRADEMARK, PATENT ETC. IS TAKEN TO BE COVERED WITHIN THE DEFINITION O F 'ROYALTY' (WITHOUT THERE ADDITIONALLY BEING THE GRANT OF A LICENSE THERETO), THE CONSEQUENCES WOULD BE 14 ITA NO. 7123/DEL/20 17 ABSURD. IN SUCH A SITUATION, EVEN AN ADVOCATE DRAFT ING AN INTELLECTUAL PROPERTY RIGHT ('IPR') TRANSFER AGREEMENT WILL BE RECEIVING 'ROYALTY' FOR HIS SERVICES AS THEY WILL BE IN CONNECTION WITH THE IPR. 19. FOR THE SERVICE FEE TO BE CHARACTERIZED AS ROY ALTY, THE ENTITY WHICH PROVIDES SERVICES IN CONNECTION WITH THE RIGHT TO U SE AN IPR MUST ALSO BE IN A POSITION TO GRANT THE LICENSE TO USE SUCH IPR. CLAU SE (VI) CAN NEVER APPLY INDEPENDENTLY. IN VIEW OF FACTS AND LAW DISCUSSED ABOVE, THE APPEL LANT, MOST RESPECTFULLY WISHES TO SUBMIT THAT INCOME FROM DOMAIN NAME REGISTRATION SERVICES IS NOT IN THE NATURE OF ROYALTY AND IS NOT TAXABLE UNDER THE PROVISIONS OF INCOME-TAX ACT 5. THE LD. DR SUBMITTED AS UNDER:- 1. EITHER THE CLIENT ENTERS INTO A WHA WITH APPELLANT OR GIVES THE DETAILS OF DOMAIN SETTINGS OF ITS WEB HOST. IN CASE OF GODADDY CUSTOMER WHO HAS ALREADY SET UP ITS CUSTOMER PROFILE, DESIGNATING TH E ITS DOMAIN NAME SETTINGS FOR NEW DOMAIN NAME REGISTRATION, IT NEED NOT COMP LETE THIS STEP AGAIN. (CL. 10 OF DRA, P.43 OF PB) 2. APPELLANT IS THE DEFAULT WEB HOST (CL. 10 OF DRA, P.44 OF PB) 3. IN CASE THE DETAILS OF DOMAIN SETTINGS OF THE WEB H OST IS NOT GIVEN, THE DOMAINNAME IS DIRECTED TO A PARKED PAGE AND THE C LIENT CANT CUSTOMISE IT AS PER ITS NEEDS AND CANT MODIFY THE CONTENT DISPL AYED IN IT.(CI.10 OF DRA, P.44 OF PB) 4. THE CONTENT, ADVERTISEMENT AND REVENUE FROM THE WE BSITES IN THE PARKED PAGE ARE PROVIDED BY THE APPELLANT WHO USES THEM T O GENERATE REVENUE. (CL. 10 OF DRA, P.44 OF PB) OUESTION-1 15 ITA NO. 7123/DEL/20 17 WHETHER DNR AND WHA ARE INTER-RELATED OR INDEPENDEN T PROCESSES: CLAIM OF THE APPELLANT THAT THE TRANSACTIONS DESCRIBED IN STAGES 5 & 8 (I. E. DRA & WHA) ARE PROCESSES INDEPENDENT OF EACH OTHER AND THE TAXABIL TY OF THE AMOUNTS RECEIVED BY IT IN LIEU OF THESE HAVE TO EXAMINED SE PARATELY. CLAIM OF REVENUE THE TRANSACTIONS ARE NOT PROCESSES INDEPENDENT OF EACH OTHER BUT RATHER ARE DIRECTLY ASSOCIATED OR INEXTRICABLY CONNECTED TO EA CH OTHER AND NEED TO BE TREATED AS PARTS OF ONE SINGLE AND INTEGRATED PROCE SS. DNR CAN'T BE COMPLETED AND REGISTERED DOMAIN NAMES CAN'T BE CUSTOMISED AN D USED FOR THE BENEFIT OF THE CLIENT WITHOUT ENTERING WHA (IRRESPECTIVE OF WHETHER WITH THE APPELLANT OR ANY OTHER AGENCY) AND SPECIFY ING THE DETAILS OF DOMAIN NAME SETTINGS AND NAME SERVERS. (REF. CL. 10 OF DRA , P.43-44 OF PB AS DISCUSSED ABOVE) OUESTION-2 TAXABILITY OF THE RECEIPTS IN LIEU OF DNR AND WHA: CLAIM OF THE APPELLANT > AMOUNT RECEIVED FOR WEB-HOSTING (WHA) IS TAXABLE I N INDIA AND OFFERED TO TAX AS ROYALTY; > AMOUNT RECEIVED FOR DOMAIN NAME REGISTRATION (DNR) IS NOT TAXABLE IN INDIA BECAUSE- O IT IS NOT IN THE NATURE OF FTS AS IT DOESN'T INVO LVE ANY HUMAN INTERVENTION (REF. SUBMISSIONS BEFORE AO, DRP & ITAT IN PAGES- 6 2 OF PAPERBOOK); 16 ITA NO. 7123/DEL/20 17 O IT IS NOT IN THE NATURE OF ROYALTY AS THE APPELLA NT DOES NOT OWN COPYRIGHT IN THE DOMAIN NAMES(REF. SUBMISSIONS BEFORE AO, DRP & ITAT IN PAGES- 62 OF PAPER BOOK); O NO ACTIVITY IS CARRIED OUT IN INDIA AND ALL THE SERVICES ARE RENDERED OUTSIDE INDIA . HENCE, NO PART OF THE PAYMENT FOR SUCH SERVICES W OULD BE DEEMED TO ACCRUE IN INDIA EVEN IF THE AGREEMENT GIV ES RISE TO A BUSINESS CONNECTION . CLAIM OF REVENUE A. DOMAIN NAME REGISTRATION- > AMOUNT RECEIVED FOR DNR IS A PART OF A SINGLE AND COMPOSITE PROCESS AND CAN'T BE TREATED ON A SEPARATE FOOTING FROM THAT OF WEB HOSTING. > THE DRA GIVES RISE TO A BUSINESS CONNECTION - A FA CT ACCEPTED BY THE APPELLANT. > AMOUNT RECEIVED FOR DOMAIN NAME REGISTRATION (DNR) IS TAXABLE IN INDIA AS ROYALTY BECAUSE-'DOMAIN NAME' IS AN INTANGIBLE ASSE T IN THE NATURE OF TRADEMARK AS HELD IN THE FOLLOWING DECISIONS: SATYAM INFOWAY LTD. VS. SIFFYNET SOLUTIONS PVT. LTD . (SC) 2004 SUPP (2) SCR 465 IN THAT CASE, THE PRINCIPAL QUESTION RAISED WAS WHE THER INTERNET DOMAIN NAMES ARE SUBJECT TO THE LEGAL NORMS APPLICABLE TO OTHER INTELLECTUAL PROPERTIES SUCH AS TRADEMARKS. IT WAS CONTENDED BY THE RESPOND ENTS BEFORE HON'BLE SC ' THAT REGISTRATION OF A DOMAIN NAMEWITH ICANNDID NOT CONFER ANY INTELLECTUAL PROPERTY RIGHT: THAT IT IS A CONTRACT WITH A REGIST RATION AUTHORITY ALLOWING COMMUNICATION TO REACH OWNERS COMPUTERVIA INTERNET LINKS CHANNELLED THROUGH THE REGISTRATION AUTHORITYS SERVER AND THAT IT IS AKIN TO REGISTRATION OF A 17 ITA NO. 7123/DEL/20 17 COMPANY NAME WHICH IS A UNIQUE IDENTIFIER O F A COMPANY BUT O F ITSELF CON FERS NO INTELLECTUAL PROPERTY RIGHTS .' THE HON'BLE SC IN ITS ORDER OBSERVED THAT 'THE ORIG INAL ROLE OF A DOMAIN NAME WAS NO DOUBT TO PROVIDE AN ADDRESS FOR COMPUTERS ON THE INTERNET. BUT THE INTERNET HAS DEVELOPMENT FROM A MERE MEANS OF COMMU NICATION TO A MODE OF CARRYING ON COMMERCIAL ACTIVITY. WITH THE INCREASE OF COMMERCIAL ACTIVITY ON THE INTERNET, A DOMAIN NAME IS ALSO USED AS BUSINES S IDENTIFIER. THEREFORE, THE DOMAIN NAME NOT ONLY SERVES AS AN ADDRESS FOR INTER NET COMMUNICATION BUT ALSO IDENTIFIES THE SPECIFIC INTERNET SITE. IN THE COMMERCIAL FIELD, EACH DOMAIN NAME OWNER PROVIDES INFORMATION/SERVICES WHICH ARE ASSOCIATED WITH SUCH DOMAIN NAME. THUS DOMAIN NAME MAY PERTAIN TO PROVISION OF SERVICES WITHIN THE MEANING OF SECTION 2(ZL A DOMAIN NAME IS EASY TO REMEMBER AND USE, AND IS CHOSEN AS AN INSTRUMENT OF COMMERCIAL ENTERPRISE NOT ONLY BECAUSE IT FACILITATES THE ABILITY OF CONSUMERS TO NAVIGATE THE INTERNET TO FIND WEBSITE S THEY ARE LOOKING FOR, BUT ALSO AT THE SAME TIME, SERVICES TO IDENTIFY AND DISTINGUISH THE BUSINESS ITSELF, OR ITS GOODS OR SERVICES, AND TO SPECIFY ITS CORRESPONDING ONLINE INTERNET LOCATION. CONSEQUENTLY A DOMAIN NAME AS AN ADDRESS MUST, OF NECESSARY, BE PECULIAR AND UNIQUE AND WHERE A DOMAIN NAME IS USED IN CONNECTION WITH A BUSINESS, THE VALUE OF MAINTAINING AN EXCLUSIVE IDENTITY BECOMES CRITICAL. 'AS MORE AND MORE COMMERCIAL ENTERPRISES TRADE OR ADVERTISE THEIR PRESENCE ON THE WEB, DOMAIN NAMES HAVE BECOME MORE AND MORE VALUABLE AND THE POTENTIAL FOR DISPUTE IS HIGH. WHEREAS LARGE NUMBER OF TRADEMARKS CONTAINING THE SAME NAME CAN COMFORTABLY CO-EXIST BECAUSE THEY ARE ASSOCIATED WITH DIFFERENT PRODUCTS, BELONG TO BUSI NESS IN DIFFERENT JURISDICTIONS ETC.. THE DISTINCTIVE NATURE OF THE DOMAIN NAME PROVIDING GLOBAL EXCLUSIVITY IS MUCH SOUGHT AFTER. THE FACT T HAT MANY CONSUMERS SEARCHING OF A PARTICULAR SITE ARE LIKELY, IN THE F IRST PLACE, TO TRY AND GUESS ITS DOMAIN NAME HAS FURTHER ENHANCED THIS VALUE ' 18 ITA NO. 7123/DEL/20 17 THE HONBLE SC, AFTER RECAPITULATING THE PROVISIONS OF THE INDIAN TRADE MARKS ACTL999 (SECTIONS 2(L)(M) TO 2(ZB)), REJECTED THE S UBMISSIONS OF THE RESPONDENTS BY CONCLUDING THAT A DOMAIN NAME IS A SIGN WHICH CA N HAVE A DISTINGUISHING FUNCTION INDICATING THE SOURCE OF A GOOD OR OF A SE RVICE AND THAT IT THUS HAS THE USUAL FEATURES OF A TRADEMARK. AFTER PUTTING DOMAIN NAMES IN THE SAME CATEGORY AS TRADEMARKS, THE COURT DID NOT FOCUS ON DOMAIN NAMES ANYMORE, SINCE THERE IS NO USE OF THE PHRASES DOMAIN NAME' O R 'DOMAIN NAMES. IT THEN SHIFTS ITS FOCUS TO PASSING-OFF ACTIONS IN TRADEMAR K LAW AND HELD THAT '... ALTHOUGH THE OPERATION OH THE TRADEMARKS ACT. 1999 ITSELF IS NOT EXTRA TERRITORIAL AND MAY NOT ALLOW FOR ADEQUATE PROTECTI ON OF DOMAIN NAMES, THIS DOES NOT MEAN THAT DOMAIN NAMES ARE NOT TO BE LEGAL LY PROTECTED TO THE EXTENT POSSIBLE UNDER THE LAWS RELATING TO PASSING OFF. IN THAT CASE PERMANENT INJUNCTION WAS SOUGHT AGAINS T THE DEFENDANTS FROM USING THE TRADEMARK/DOMAIN NAME WWW.TATAINFOTECH.IN OR ANY OTHER MARK/DOMAIN NAME WHICH IS IDENTICAL WITH OR DECEPTI VELY SIMILAR TO THE PLAINTIFFS TRADEMARKS TATA/TATA INFOTECH. THE HON'B LE DELHI HIGH COURT HELD THAT '... DOMAIN NAMES OR INTERNET SITES ARE E NTITLED TO PROTECTION AS A TRADEMARK BECAUSE THEY ARE MORE THAN A ADDRESS. THE RENDERING OF INTERNET SERVICESIS ALSO ENTITLED TOPROTECTION IN THE SAMEWA V AS GOODS AND SERVICES ARE, AND TRADE MARK LAW APPLIES TO ACTIVITIES ON IN TERNET.' THE HON'BLE HIGH COURT ALSO REAFFIRMED THE DECISION OF THE HON'BLE MUMBAI HIGH COURT IN THE CASE OF REDIFF COMMUNICATION LTD. VS CYBERBOOTH (2000) WHEREIN IT WAS HELD THAT '.. THE INTERNET DOMAIN NAMES ARE OF IMPORTANCE AND CAN BE A VALUABLE CORPORATE ASSET AND SUCH DOMAIN NAME IS MORE THAN AN INTERNET ADDRESS AND IS ENTITLES TO PROTECTION EQUAL TO A TRADEMARK. ' GARY KREMEN VS. STEPHEN MICHAEL COHEN ET AL. US COU RT OF APPEAL. NINTH CIRCUIT (2003) 337 F.3D 1024 19 ITA NO. 7123/DEL/20 17 PERHAPS THE BEST DEPICTION OF THE NATURE OF THE DOM AIN NAMES AND THE RIGHT THEY ENSHRINE UPON THE REGISTRANT HAS BEEN MADE IN THE ABOVE CASE. IN THIS CASE, THE QUESTION BEFORE THE HON'BLE COURT WAS WHE THER REGISTRANTS HAVE PROPERTY RIGHTS IN THEIR DOMAIN NAMES. THE HON'BLE COURT REVERSED THE JUDGEMENT OF THE DISTRICT COURT BY APPLYING A THREE - PART TEST TO DETERMINE WHETHER A PROPERTY RIGHT EXISTS I.E. 'FIRST, THERE MUST BE AN INTEREST CAPABLE OF PRECISE DEFINITION: SECOND, IT MUST BE CAPABLE OF EXCLUSSIVE POSSESSION OR CONTROL: AND THIRD, THE PUTATIVE OWNER MUST HAVE ESTABLISHED A LEGITIMATE CLAIM TO EXCLUSIVITY.' IT WAS CONCLUDED BY THE HON'BLE COURT THAT 'DOMAIN NAMES SATISFY EACH CRITERION. LIKE A SHARE OF A CORPORATE STOCK OR A PLOT O F LAND, A DOMAIN NAME IS A WELL-DEFINED INTEREST. SOMEONE WHO REGISTERS A DOMAIN NAME DECIDES WHERE ON THE INTERNET THOSE WHO INVOKE THAT PARTICULAR NAME- WHETHER BV TYPING IT INTO THEIR WEB BROWSERS, BY FOLLOWING A HYPERLINK, OR BY OTHER MEANS - ARE SENT. OWNERSHIP IS EXCLUSIVE IN THAT THE REGISTRANT ALONE MAKES THAT DECISION. MOREOVER, LIKE OTHER FORMS OF PROPERTY, DOMAIN NAMES ARE VALUED, BOUGHT AND SOLD, OFTEN FOR MILLIO NS OF DOLLARS....FINALLY, REGISTRANTS HAVE A LEGITIMATE CLAIM TO EXCLUSIVITY. REGISTERING A DOMAIN NAME IS LIKE STAKING A CLAIM TO A PLOT OF LAND AT THE TITLE OFFICE. IT INFORMS OTHERS THAT THE DOMAIN NAME IS THE REGISTRANT'S AND NO ONE ELSES'S .' MAKEMYTRIP (INDIA) PVT. LTD. VS DV. CIT (2012)(LTA NOS. 3961/DEL/2009 & 4087 /DEL/2009) IN THIS CASE, THE ISSUE IN QUESTION WAS WHETHER WEB SITE DEVELOPMENT COST SHOULD BE TREATED AS 'SOFTWARE OR AS 'INTANGIBLE A SSET FOR THE PURPOSE OF CAPITALIZATION AND ALLOWANCE OF DEPRECIATION. THE H ON'BLE ITAT, DELHI, DISMISSED THE APPEAL AFFIRMING THE DECISION OF CIT( A) THAT IT IS IN THE NATURE OF AN 'INTANGIBLE ASSET. > THAT IN LIEU OF RECEIPT OF DOMAIN REGISTRATION CHA RGES, THE REGISTRAR APPELLANT HAS PERMITTED THE REGISTRANTTO USE ALL OR SOME RIGHTS IN THE SAID ASSET; 20 ITA NO. 7123/DEL/20 17 > THE CLAIM OF THE APPELLANT THAT IT IS ONLY A CHANN EL BETWEEN THE REGISTRANT AND THE REGISTREE CANT BE ACCEPTED ON ACCOUNT OF T HE FOLLOWING - A. THAT THE APPELANT HAS BEEN ACCREDATED BY ICAAN TO REGISTER DOMAIN NAMES AND AS PER THE ACCREDITION AGREEMENT BETWEEN THE APPELLANT AND ICAAN, THE RIGHTS TO REGISTER, ASSIGN AND TRANSFER AND MANAG ESPECIFIC DOMAIN NAMES LIES EXCLUSSIVELY WITH THE APPELLANT. B. THE APPELLANT ENJOYS ABSOLUTE AND EXCLUSSIVE RIGHT S TO ASSIGN DOMAIN NAMES UNDER SPECIFIC DOMAIN EXTENSIONS. NEITHER ICA AN NOR REGISTRY OPERATOR CAN ALLOCATE, ASSIGN, INSERT, TRANSFER, DE ACTIVATE THE DOMAIN NAMES. THE ICAAN OWNS DOMAIN EXTENSIONS BUT HAS GRANTED TH E REGISTRAR ALL THE RIGHTS AND RISKS RELATING TO THEASSIGNMENT, ALLOCAT ION, TRANSFER AND MANAGEMENT OF SPECIFIC DOMAIN NAMES WITHIN SUCH EXT ENSIONS TO VARIOUS REGISTRARS LIKE THE APPELLANT.(CLAUSE 2& 3 OF ACCRE DITATION AGREEMENT) C. WHAT THE APPELLANT REGISTRAR PAYS TO ICAAN IS THE ACCREDITATION FEE TO USE AND ENJOY AN ASSET IN THE FORM OF 'DOMAIN NAMES '. THE ACCREDITATION AGREEMENT TRANSFERS A BUNDLE OF RIGHTS TO THE REGIS TRAR THAT INCLUDE- I. RIGHT TO OWN DOMAIN NAMES FOR THE PURPOSE OF CONDUCTING ITS REGI STRAR SERVICES. (CL. 3.7.7 OF ACCREDITATION AGREEMENT, P. 93 OF PB) II. RIGHT TO ALLOCATE, REGISTER NEW DOMAIN NAMES AND TRANSFER EXISTING ONES AND INSERT SUCH NAMES INTO THE REGISTRY DATABA SE (CL.2.1 OF ACCREDITATION AGREEMENT, P.84 OF PB); III. RIGHT TO CANCEL/DE-ACTIVATE THE DOMAIN REGISTRATIONS/NAMES IN CERTAIN GIVEN SITUATIONS LIKE FALSE DECLARATION BY THE CLIE NT, NON-RENEWAL ETC. (CL. 3.7.5 OF ACCREDITATION AGREEMENT, P.91 OF PB & CL.2 & 10 OF DOMAIN REGISTRATION AGREEMENT) IV. RIGHT TO RENEW DOMAIN REGISTRATION WITHOUT EXPLICIT CONSENT OF THE REGISTRANT.(CL. 3.7.5.2 OF ACCREDITATION AGREEMENT, P.91 & CL.3(B) OF DOMAIN 21 ITA NO. 7123/DEL/20 17 REGISTRATION AGREEMENT, P. 36 OF PB) V. RIGHT TO SUSPEND AND PUT THE REGISTERED DOMAIN NAMES IN 'PARKED SITE UNDER CERTAIN GIVEN SITUATIONS ( CL.3(B) & 10 OF DO MAIN REGISTRATION AGREEMENT, P. 37 & 43 OF PB); VI. RIGHT TO AUCTION AND TRANSFER DOMAIN NAMES; VII. RIGHT TO EXPLOIT THE REGISTERED DOMAIN NAME TO GENERATE REVENUE IN C ASE OF DEFAULT BY DOMAIN OWNER, BEFORE THE DOMAIN RETUR NS TO ICAAN, RIGHT TO RETAIN THE SAME FOR A LIMITED TIME IN A PARKING SIT E AND USE IT TO EARN INCOME.(CL. 10 OF DOMAIN REGISTRATION AGREEMENT, P. 44 OF PB) VIII. RIGHT OF REFUSAL/EXCLUSION OF REGISTRANT FROM ACCE SSING THE REGISTERED DOMAIN AND CUSTOMISING IT OR ADVERTISING THERE IN IN CASE THE DOMAIN HAS BEEN PARKED. (CL. 10 OF DOMAIN REGISTRAT ION AGREEMENT, P. 44 OF PB) IX. RIGHT TO ISSUE CERTIFIED DOMAIN SEAL WHICH IS A TRA DEMARK AND IS PROTECTED BY COPYRIGHT, TRADEMARK AND OTHER INTELLECTUAL PROP ERTY LAWS. > THE APPELLANT REGISTRAR THUS, HAS RIGHT TO OWN, ASSIGN, ALLOCATE, TRANSFER, CANCEL, DEACTIVATE, SUSPEND, AUCTION, RENEW AND EXP LOIT DOMAIN NAMES UNDER ACCREDITATION AGREEMENT WITH ICA NN. > THE APPELLANT REGISTRAR IN TURN, TRANSFERS AND ALL OCATES ALL OR PART OF SUCH ASSIGNED RIGHTS TO THE REGISTRANT TO ENABLE IT TO U SE SUCH RIGHTS IN RESPECT OF SUCH PROPERTY I.E. DOMAIN NAMES. > DOMAIN REGISTRATION CHARGES WERE MADE TO THE APPEL LANT INSIDE INDIA: > ACCORDINGLY, AND IN VIEW OF THE ABOVE, THE AMOUNT RECEIVED BY THE APPELANT TOWARDS DOMAIN REGISTRATION CHRGES ARE IN THE NATURE OF 'ROYALTY' WITHIN THE MEANING OF SECTION 9(L)(VI) AND SHOULD B E TAXED ACCORDINGLY. 22 ITA NO. 7123/DEL/20 17 > PROVISIONS OF DTAA NOT APLICABLE AS THE APPELLANT HAS REQUESTED NOT TO BE CONSIDERED UNDER THE PROVISIONS OF INDIA-USA DTAA. > SINCE THE NATURE OF PAYMENT IS IN THE NATURE OF 'R OYALTY' WHICH WAS PAID/RECEIVED IN INDIA AND THERE IS BUSINESS CONNEC TION, THE ENIRE AMOUNT RECEIVED TOWARDS DOMAIN REGISTRATION CHRGES SHOULD BE TREATED AS ACCRUED OR ARISES OR AS DEEMED TO ACCRUE OR ARISE IN INDIA. > EVEN OTHERWISE, THE APPELLANT DOES NOT CHALLENGE T HE FACT THAT INCOME HAS ALREADY BEEN 'RECEIVED' WITHIN THE MEANING OF SECTI ON 5(2)(A) OF THE ACT. > MOREOVER, THE CLAIM OF THE APPELLANT THAT THERE IS NO HUMAN INTERVENTION INVOLVED IS ALSO NOT ACCEPTABLE BECAUSE OF THE FOLL OWING - A. IN CASE OF MANUAL RENEWAL, REGISTRANT MAY RENEW TH E DOMAIN BY CALLING THE CUSTOMER CARE . (CL. 3(B)(III) OF DOMAIN REGISTRATION AGREEMENT] B. WHEN THE DOMAIN NAME IS IN NON-RENEWAL STATUS, THE CLIENT CAN RENEW THE DOMAIN NAME ONLY BY CALLING GODADDY AND REQUESTING THAT THE DOMAIN NAME BE RENEWED. IT CANNOT RENEW THE DOMAIN NAME TH ROUGH YOUR ACCOUNT MANAGER. (CL. 3(B)(III) OF DOMAIN REGISTRATION AGRE EMENT) C. REGISTRAR SHALL EITHER VERIFY THE APPLICABLE CONTA CT INFORMATION MANUALLY OR SUSPEND THE REGISTRATION, UNTIL SUCH TIME AS RE GISTRAR HAS VERIFIED THE APPLICABLE CONTACT INFORMATION. IF REG ISTRAR DOES NOT RECEIVE AN AFFIRMATIVE RESPONSE FROM THE ACCOUNT HOLDER), REGI STRAR SHALL VERIFY THE APPLICABLE CONTACT INFORMATION MANUALLY, BUT IS NOT REQUIRED TO SUSPEND ANY REGISTRATION ACCREDATION AGREEMENT, P.120 OF PB) D. REGISTRAR SHALL VERIFY THE TELEPHONE NUMBER OF THE REGISTERED NAME HOLDER BY EITHER CALLING OR SENDING AN SMS (ACCREDATION AGREEMENT, P.119 OF PB) B. WEB HOSTING - 23 ITA NO. 7123/DEL/20 17 > AMOUNT RECEIVED FOR WEB-HOSTING (WHA) IS A PART OF A SINGLE AND COMPOSITE PROCESSAND CANT BE TREATED ON A SEPARATE FOOTING FROM THAT OF DOMAIN NAME REGISTRATION. THE APPELLANT HAS ALREADY OFFERED AND NEED TO BE T AXED ROYALTY/FTS; 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF REVENUE IN ASSESSEES OWN APPEAL AND THE CONTENTION S TAKEN HEREIN BY THE LD. AR THAT THE ISSUE OF OWNERSHIP WITH WHOM IT IS APPL ICABLE HAS ALSO BEEN DEALT WITH IN THE SAID ORDER THE TRIBUNAL HELD AS UNDER: - 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. THE LIMITED QU ESTION BEFORE US IS WHETHER THE DOMAIN REGISTRATION FEE RECEIVED BY THE ASSESSE E CAN BE TERMED AS ROYALTY. AT THE OUTSET, WE CLARIFY THAT THE APPELL ANT HIMSELF HAS MENTIONED THAT SINCE IT IS NOT A TAX RESIDENT OF USA, THEREFO RE, IT IS NOT CLAIMING ANY BENEFIT UNDER THE PROVISIONS OF INDIA-US TAX TREATY . ACCORDINGLY, WE HAVE TO EXAMINE WITHIN THE MEANING OF INCOME-TAX ACT, MORE PARTICULARLY, SECTION 9(1)(VI) TO EXAMINE WHETHER THE RECEIPT BY THE ASSE SSEE ON ACCOUNT 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 AC CRUE 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 INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR 24 ITA NO. 7123/DEL/20 17 (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE ROYAL TY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL 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 INDIA IN RESPECT OF, ANY DATA, DOCUMENTATION, DRAWING OR SPECIFICATION RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y, IF SUCH INCOME IS PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE TH E 1 ST DAY OF APRIL, 1976, AND THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT : [ PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FO R THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFACTURER AL ONG WITH A COMPUTER OR COMPUTER-BASED EQUIPMENT UNDER ANY SCHEME APPROV ED UNDER THE POLICY ON COMPUTER SOFTWARE EXPORT, SOFTWARE DEVELO PMENT AND 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 RECI PIENT 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, INVENTION, MODEL, DESIGN, SECR ET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; 25 ITA NO. 7123/DEL/20 17 (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E 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, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TE CHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL; [(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 SCI ENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISIO N OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDI NG CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION 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 NAME REGIST RATION AND THEREFORE, THE CHARGES RECEIVED BY THE ASSESSEE CLEARLY FALL WITHI N THE DEFINITION OF ROYALTY AS PROVIDED IN SECTION 9(1)(VI) OF THE INCOME-TAX A CT. WE FIND THAT HONBLE APEX COURT HAS CONSIDERED THE SIMILAR ASPECT IN THE CASE OF SATYAM INFOWAY LTD. (SUPRA). THE QUESTION BEFORE HONBLE APEX COU RT WAS WHETHER INTERNET DOMAIN NAMES ARE SUBJECT TO THE LEGAL NORMS APPLICA BLE TO OTHER INTELLECTUAL PROPERTIES SUCH AS TRADEMARKS. HONBLE APEX COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATION O F THEIR LORDSHIPS READS AS UNDER :- THE USE OF THE SAME OR SIMILAR DOMAIN NAME MAY LEA D TO A DIVERSION OF USERS WHICH COULD RESULT FROM SUCH USERS, MISTAKENL Y ACCESSING ONE DOMAIN NAME INSTEAD OF ANOTHER. THIS MAY OCCUR IN E-COMMERCE WITH ITS RAPID PROGRESS AND INSTANT (AND THEORETICALLY LIMIT LESS) ACCESSIBILITY TO USERS AND POTENTIAL CUSTOMERS AND PARTICULARLY SO I N AREAS OF SPECIFIC 26 ITA NO. 7123/DEL/20 17 OVERLAP. ORDINARY CONSUMERS/USERS SEEKING TO LOCAT E THE FUNCTIONS AVAILABLE UNDER ONE DOMAIN NAME MAY BE CONFUSED IF THEY ACCIDENTALLY ARRIVED AT A DIFFERENT BUT SIMILAR WEB SITE WHICH O FFERS NO SUCH SERVICES. SUCH USERS COULD WELL CONCLUDE THAT THE FIRST DOMAI N NAME OWNER HAD MIS- REPRESENTED ITS GOODS OR SERVICES THROUGH ITS PROMO TIONAL ACTIVITIES AND THE FIRST DOMAIN OWNER WOULD THEREBY LOSE THEIR CUSTOM. IT IS APPARENT THEREFORE THAT A DOMAIN NAME MAY HAVE ALL THE CHARA CTERISTICS 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 B EFORE DIFFERENT HIGH COURTS IN THIS COUNTRY. THE COURTS HAVE CONSISTENTLY APPL IED THE LAW RELATING TO PASSING OFF TO DOMAIN NAME DISPUTES. SOME DISPUTES WERE BETWEEN THE TRADEMARK HOLDERS AND DOMAIN NAME OWNERS. SOME WER E BETWEEN DOMAIN NAME OWNERS THEMSELVES. THESE DECISIONS NAM ELY REDIFF COMMUNICATION LTD. V. CYBERBOOTH AND ANR., AIR (200 0) BOMBAY 27, YAHOO INC. V. AKASH ARORA, (1999) PTC 19 201, DR. R EDDYS LABORATORIES LTD. V. MANU KOSURI, (2001) PTC 859 (DEL.), TATA SO NS LTD. V. MANU KOSURI, (2001) PTC 432 (DEL.), ACQUA MINERALS LTD. V. PRAMO D BORSE & ANR., (2001) PTC 619 (DEL.), AND INFO EDGE (INDIA) PVT.LTD. & AN R. V. SHAILESH GUPTA & ANR., (2002) 24 PTC 355 (DEL.) CORRECTLY REFLECT TH E LAW AS ENUNCIATED BY US. NO DECISION OF ANY COURT IN INDIA HAS BEEN SHO WN TO US WHICH HAS TAKEN A CONTRARY VIEW. THE QUESTION FORMULATED AT THE OUTSET IS THEREFORE ANSWERED IN THE AFFIRMATIVE AND THE SUBMISSION OF T HE 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 FROM USING YA HOO EITHER AS A PART OF ITS DOMAIN NAME OR AS A TRADEMARK, LEARNED SINGLE J UDGE OF THIS COURT APPLIED THE LAW RELATING TO TRADEMARK TO A DISPUTE REGARDING INTERNET. IT WAS FURTHER HELD THAT CONSIDERING THE VAST IMPORT O F 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 CORNERS OF THE WORLD, COURTS SHOULD TAKE A STRICT VIEW OF COPYING AS THE POTENTIALITY OF THE HARM IS FAR GREA TER BECAUSE OF THE EASY 27 ITA NO. 7123/DEL/20 17 ACCESS AND REACH BY ANY ONE FROM EVERY CORNER OF TH E GLOBE. THE COURT ALSO HELD 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 N AMES OF THIRD PARTY TRADEMARKS OF WELL-KNOWN NAMES, THERE WAS JURISDICT ION TO GRANT INJUNCTIVE RELIEF WHEN THE DEFENDANT WAS EQUIPPED W ITH OR WAS INTENDING TO EQUIP ANOTHER WITH AN INSTRUMENT OF FRAUD. IT W AS ALSO HELD THAT A NAME WHICH WOULD BY REASON OF SIMILARLY TO THE NAME OF A NOTHER, INHERENTLY LEAD TO PASSING OFF, WAS SUCH AN INSTRUMENT. IT WAS HEL D THAT IN CASE IT WOULD NOT INHERENTLY LEAD TO PASSING OFF BUT THE COURT CO NCLUDED 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 PASS ING OFF AND, IF USED, WAS LIKELY TO BE USED FRAUDULENTLY, AN INJUNCTION W OULD BE APPROPRIATE. 8. IN REDIFF COMMUNICATIONS LTD. VS. CYBERBOOTH AIR 2000 BOMBAY 27 THE USER OF THE WEBSITE WWW.RADIFF.COM WAS INJUNC TED AS IT WAS HELD DECEPTIVELY SIMILAR TO THE PLAINTIFFS WEBSITE WWW .REDIFF.COM. IN THE ABOVE DECISION, THE COURT HELD THAT THE INTERNET DO MAIN NAMES ARE OF IMPORTANCE AND CAN BE A VALUABLE CORPORATE ASSET AN D SUCH DOMAIN NAME IS MORE THAN AN INTERNET ADDRESS AND IS ENTITLED TO PROTECTION EQUAL TO A TRADE MARK. IT WAS HELD THAT WITH THE ADVANCEMENT AND PROGRES S IN TECHNOLOGY THE SERVICES RENDERED BY AN INTERNET SIT E HAVE ALSO TO BE RECOGNIZED AND ACCEPTED AND ARE BEING GIVEN PROTECT ION 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 TECHNOLOGY PARTI CULARLY THAT RELATING TO CYBERSPACE, DOMAIN NAMES OR INTERNET SITES ARE ENTI TLED TO PROTECTION AS A TRADE MARK BECAUSE THEY ARE MORE THAN A MERE ADDRES S. THE RENDERING OF INTERNET SERVICES IS ALSO ENTITLED TO PROTECTION IN THE SAME WAY AS GOODS AND SERVICES ARE, AND TRADE MARK LAW APPLIES TO ACT IVITIES 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 THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO.LTD. (SUPRA). HOWEVER, WE FI ND THAT THE FACTS IN THAT CASE WERE ALTOGETHER DIFFERENT. IN THE SAID CASE, THE ASSESSEE COMPANY CARRIED ON THE BUSINESS OF PRIVATE SATELLITE COMMUN ICATIONS AND BROADCASTING 28 ITA NO. 7123/DEL/20 17 FACILITIES. DURING THE RELEVANT ASSESSMENT YEAR, I T 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 SA TELLITES NEITHER USED THE INDIAN ORBITAL SLOTS NOR WERE THEY POSITIONED OVER INDIAN AIRSPACE. HOWEVER, THE FOOTPRINT AREA (THE AREA OF EARTHS SURFACE OVE R WHICH A SIGNAL IS RELAYED FROM SATELLITE) OF THOSE SATELLITES COVERED THE TER RITORY OF INDIA. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH TV CHANNELS, COMMUNI CATION COMPANIES OR OTHER COMPANIES WHO DESIRED TO UTILIZE THE TRANSPON DER CAPACITY AVAILABLE ON ITS SATELLITE TO RELAY THEIR SIGNALS. THE CUSTOMER S 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 ASSESSEES SATELLITE. THE ROLE OF THE ASSES SEE IN THIS CYCLE WAS THAT OF RECEIVING THE SIGNALS, AMPLIFYING THEM AND AFTER CH ANGING FREQUENCY RELAYING THEM OVER THE ENTIRE FOOTPRINT AREA. FOR THAT SERV ICE, THE TV CHANNELS MADE PAYMENTS TO THE ASSESSEE. THE QUESTION BEFORE THE HONBLE HIGH COURT WAS WHETHER SUCH PAYMENTS CAN BE SAID TO BE ROYALTY CHA RGEABLE TO TAX IN INDIA. HONBLE HIGH COURT ANSWERED THE QUESTION IN THE NEG ATIVE. HOWEVER, THE FACTS IN THE ASSESSEES CASE ARE CLEARLY DIFFERENT. IN THE CASE UNDER APPEAL BEFORE US, THE ISSUE IS WHETHER THE FEES RECEIVED B Y THE ASSESSEE FOR RENDERING SERVICES FOR DOMAIN REGISTRATION CAN BE SAID TO BE ROYALTY. THEREFORE, IN OUR OPINION, THE ABOVE DECISION OF HON'BLE DELHI HIGH C OURT RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE WOULD HAVE NO APPL ICATION. THE LEARNED COUNSEL HAS ALSO RELIED UPON THE DECISION OF AUTHOR ITY FOR ADVANCE RULINGS IN THE CASE OF DELL INTERNATIONAL SERVICES (INDIA) PRI VATE LIMITED (SUPRA). IN THAT CASE ALSO, THE ISSUE BEFORE THE AUTHORITY FOR ADVAN CE RULINGS WAS WHETHER THE PAYMENT FOR PROVIDING COMMUNICATION 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 DIFFERE NT THAN THE FACTS UNDER APPEAL BEFORE US. ON THE OTHER HAND, THE ISSUE BEF ORE HONBLE APEX COURT IN THE CASE OF SATYAM INFOWAY LTD. (SUPRA), HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF TATA SONS LIMITED (SUPRA) AND HONBLE B OMBAY HIGH COURT IN THE CASE OF REDIFF COMMUNICATIONS LTD. AIR 2000 BOMBA Y 27 WAS WHETHER THE DOMAIN NAMES CAN BE CONSIDERED AS INTELLECTUAL PROP ERTIES SUCH AS TRADEMARK. HONBLE APEX COURT IN THE CASE OF SATYA M INFOWAY LTD. (SUPRA) HAS HELD THAT THE DOMAIN NAME IS A VALUABLE COMMERC IAL RIGHT AND IT HAS ALL THE CHARACTERISTICS OF A TRADEMARK AND ACCORDINGLY, IT WAS HELD THAT THE DOMAIN NAMES ARE SUBJECT TO LEGAL NORMS APPLICABLE TO TRADEMARK. HONBLE BOMBAY HIGH COURT IN THE CASE OF REDIFF COMMUNICATI ONS LTD. (SUPRA) HELD THAT DOMAIN NAMES ARE OF IMPORTANCE AND CAN BE A VA LUABLE CORPORATE ASSET 29 ITA NO. 7123/DEL/20 17 AND SUCH DOMAIN NAME IS MORE THAN AN INTERNET ADDRE SS AND IS ENTITLED TO PROTECTION EQUAL TO A TRADEMARK. HON'BLE JURISDICT IONAL 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 ADDRES S. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF HONBLE APEX COURT , HONBLE BOMBAY HIGH COURT AND HON'BLE JURISDICTIONAL HIGH COURT, WE HOL D THAT THE RENDERING OF SERVICES FOR DOMAIN REGISTRATION IS RENDERING OF SE RVICES IN CONNECTION WITH THE USE OF AN INTANGIBLE PROPERTY WHICH IS SIMILAR TO T RADEMARK. THEREFORE, THE CHARGES RECEIVED BY THE ASSESSEE FOR SERVICES RENDE RED IN RESPECT OF DOMAIN NAME IS ROYALTY WITHIN THE MEANING OF CLAUSE (VI) R EAD WITH CLAUSE (III) OF EXPLANATION 2 TO SECTION 9(1) OF INCOME-TAX ACT. I N VIEW OF THE ABOVE, WE UPHOLD THE ORDERS OF THE LOWER AUTHORITIES 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 WEB HOSTING SE RVICES 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 APPEL LANT HAS CHARACTERIZED INCOME FROM WEB HOSTING SERVICES AS ROYALTY AND ALR EADY OFFERED THE SAME TO TAX AS PER THE PROVISIONS OF SECTION 9(1)(VI) RE AD WITH SECTION 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 HOSTING SERV ICES AS ROYALTY. THE ASSESSING OFFICER HAS ASSESSED THE SAME AS FEES FOR TECHNICAL SERVICES WHICH IS UPHELD BY THE DRP. HE STATED THAT SINCE THE RAT E OF TAX FOR ROYALTY AS WELL AS FOR FTS IS THE SAME, THE ASSESSEE WOULD NOT LIKE TO CONTEST GROUND NOS.3 & 4 BECAUSE SO FAR ACTUAL TAX LIABILITY IS CONCERNED, THESE GROUNDS ARE ONLY ACADEMIC. IN VIEW OF THE ABOVE, GROUND NOS.3 & 4 O F THE ASSESSEES APPEAL ARE REJECTED BEING NOT PRESSED. 30 ITA NO. 7123/DEL/20 17 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 ANY OTHER POINT IN THIS APPEAL, ACCORDINGLY, THERE WOUL D BE NO VARIATION IN THE QUANTUM OF INTEREST. THUS, GROUND NO.6 IS ALSO REJ ECTED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. THE LD. AR DURING THE COURSE OF THE HEARING SUBMIT TED THAT THE ITAT WHILE PASSING ORDER FOR AY 2013-14 HAS NOT APPRECIA TED THAT THE OWNER OF DOMAIN NAME IS THE ULTIMATE CUSTOMER AND NOT THE AS SESSEE AND CONSEQUENTLY, CLAUSE (III) OF EXPLANATION 2 TO SECTION 9(L)(VI) O F THE ACT WILL NOT APPLY SINCE THE ASSESSEE WASN'T COMPETENT TO GRANT THE RIGHT TO USE IN THE SAID PROPERTY WHICH WAS OWNED BY THE ULTIMATE CUSTOMERS. HENCE, CLAUSE (VI) OF EXPLANATION 2 TO SECTION 9(L)(VI) OF THE ACT WILL NOT APPLY AS PER T HE CONTENTIONS OF THE LD. AR. BUT THIS ASPECT WAS ALSO DEALT BY THE TRIBUNAL FOR A.Y. 2013-14. THUS, THIS ISSUE IS DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE AGAINST THE ASSESSEE. THEREFORE, THIS APPEAL IS DISMISSED. 7. IN RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH JULY, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 24/07/2018 R. NAHEED * 31 ITA NO. 7123/DEL/20 17 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 19.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 24.07.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 24.07.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24.07.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 32 ITA NO. 7123/DEL/20 17