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2023 (2) TMI 496 - AT - Income TaxIncome deemed to accrue or arise in India - Chargeability of receipt from domain name registration as royalty under the domestic law as well as India-USA Double Tax Avoidance Agreement (DTAA) - HELD THAT - We are of the humble opinion that the ratio laid down in the aforesaid decision cannot be made applicable to the facts of assessee s case as the inter-se dispute between the parties is with regard to registration of certain domain names. While deciding the dispute between the parties the Hon ble Court has observed that the domain names are typically never owned. However, we are confronted with a situation of chargeability of consideration received as royalty in terms of Section 9(1)(vi) of the Act. Section 9(1)(vi) defines royalty and as per the said definition, right to use of trade mark also qualifies as royalty. In the case of Hindustan Unilever Ltd. v. Endurance Domains Technology LLP Ors. 2020 (6) TMI 818 - BOMBAY HIGH COURT the Hon ble Court never had an occasion to examine the issue qua the definition of royalty as per Section 9(1)(vi) of the Act. On a query from the Bench in course of hearing, learned counsel appearing for the assessee fairly submitted that domain name is in the nature of a trade mark under the Trade Mark Act, 1999. Therefore, based on the decision in the case of Hindustan Unilever Ltd. v. Endurance Domains Technology LLP Ors. 2020 (6) TMI 818 - BOMBAY HIGH COURT the decisions of the Coordinate Benches in assessee s own case for assessment years 2013-14 and 2014-15 cannot be declared as per incuriam, more so, when the Hon ble Jurisdictional High Court is seized of the matter by admitting the substantial question of law on the issue in these assessment years. Thus, the issue in dispute as off now, stands concluded against the assessee by virtue of the decisions of the Tribunal in its own case in assessment years 2013-14 and 2014-15 as discussed earlier. Therefore, in absence of any material difference in factual position in the impugned assessment year and having regard to judicial discipline and propriety, we do not find any valid reason not to follow the earlier decisions of the Tribunal in assessment years 2013-14 and 2014-15. Thus, in assessee s own case 2018 (4) TMI 390 - ITAT DELHI And 2018 (7) TMI 1809 - ITAT DELHI we hold that the consideration received by the assessee from registration of domain names is in the nature of royalty under section 9(1)(vi) of the Act and is taxable as such. Ground is dismissed. Treating the income from web hosting services as FTS under section 9(1)(vii) of the Act as well as Article 12(4)(a) of the India-USA Tax Treaty - HELD THAT - AO has treated it as FTS/FIS under section 9(1)(vii) read with Article 12(4)(a) of the Tax Treaty, on the reasoning that such services are ancillary and incidental to the domain name registration services rendered by the assessee, the consideration received from which is in the nature of royalty. It is observed, identical issue came up for consideration before the Coordinate Bench in assessee s own case in assessment year 2013-14. Since the issue did not have any tax implication, the ground was not pressed. Similar decision was taken in assessment year 2014-15 as well. We have held that the consideration received by the assessee from domain name registration services is in the nature of royalty. In our view, the amount received by the assessee from web hosting services is ancillary to domain name registration services. That being the position emerging on record, the amount received has to be treated as FTS. In any case, the assessee has not contested the issue in assessment year 2013-14 and 2014-15 as the issue is of mere academic interest considering that the tax rate of royalty and FTS under the Act is similar. The situation is no different in the impugned assessment year. Thus, we do not find any reason to interfere with the decision of the departmental authorities. The grounds are dismissed.
Issues Involved:
1. Validity of the assessment order. 2. Taxability of receipts from domain name registration as royalty. 3. Taxability of web hosting services as Fee for Technical Services (FTS). 4. Characterization of income from web hosting services. 5. Concealment of income and initiation of penalty proceedings. 6. Charging of interest under Sections 234B and 234C. Detailed Analysis: 1. Validity of the assessment order: - The assessee contended that the assessment order framed by the AO pursuant to the directions of the DRP is erroneous and bad in law. However, this ground is general in nature and does not require specific adjudication. 2. Taxability of receipts from domain name registration as royalty: - The main issue was whether the receipts from domain name registration should be classified as royalty under Section 9(1)(vi) of the Income-tax Act, 1961, and the India-USA Double Tax Avoidance Agreement (DTAA). - The assessee, a non-resident entity, argued that the domain names, once registered, are owned by the registrants/customers, and the assessee merely facilitates the registration process. Therefore, the consideration received cannot be treated as royalty. - The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the amount received for domain name registration is in the nature of royalty, as the domain name is akin to a trademark, and the assessee transfers the right to use the domain name to the customers. - The Tribunal upheld the decision of the AO and DRP, relying on previous judgments, including the Supreme Court's decision in Satyam Infoway Ltd., which recognized domain names as intellectual property similar to trademarks. The Tribunal concluded that the consideration received for domain name registration is taxable as royalty under Section 9(1)(vi). 3. Taxability of web hosting services as Fee for Technical Services (FTS): - The issue was whether the income from web hosting services should be treated as FTS under Section 9(1)(vii) of the Act and Article 12(4)(a) of the India-USA Tax Treaty. - The assessee argued that web hosting services are provided through standard facilities without human intervention and should not be classified as FTS. - The AO and DRP treated the web hosting services as FTS, reasoning that these services are ancillary and incidental to domain name registration services, which are considered royalty. - The Tribunal agreed with the AO and DRP, stating that the web hosting services are ancillary to domain name registration services and should be treated as FTS. The Tribunal noted that the assessee had not contested this issue in previous assessment years, and the tax rate for royalty and FTS is similar, making the issue of academic interest. 4. Characterization of income from web hosting services: - The assessee had characterized the income from web hosting services as royalty and offered it to tax accordingly. - The AO and DRP re-characterized the income as FTS, which the Tribunal upheld, as discussed in the previous issue. 5. Concealment of income and initiation of penalty proceedings: - The assessee contended that the AO and DRP erred in holding that the assessee had concealed particulars of income and filed inaccurate particulars, leading to the initiation of penalty proceedings under Section 271(1)(c) of the Act. - This ground was consequential and did not require specific adjudication. 6. Charging of interest under Sections 234B and 234C: - The assessee argued that the AO and DRP erred in charging interest under Sections 234B and 234C of the Act. - This ground was also consequential and did not require specific adjudication. Conclusion: - The Tribunal dismissed the appeal, upholding the decisions of the AO and DRP on all grounds. The receipts from domain name registration were classified as royalty, and the income from web hosting services was treated as FTS. The Tribunal found no reason to interfere with the decisions of the departmental authorities.
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