2018 (4) TMI 390 - AT - Income Tax

Receipts from domain name registration - whether should be charged to tax as royalty as per the provisions of section 9(1)(vi) read with section 115A of the Act? - Held that - Hon ble Apex Court in the case of Satyam Infoway Ltd. (2004 (5) TMI 529 - SUPREME COURT OF INDIA) has held that the domain name is a valuable commercial 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. The rendering of services for domain 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 respect of domain name is royalty within the meaning of Clause (vi) read with Clause (iii) of Explanation 2 to Section 9(1) of Income-tax Act. In view of the above, we uphold the orders of the lower authorities on this point and reject ground of the assessee s appeal.

Issues Involved:
1. Taxability of receipts from domain name registration as royalty.
2. Classification of web hosting services income.
3. Initiation of penalty proceedings under Section 271(1)(c).
4. Charging of interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Taxability of Receipts from Domain Name Registration as Royalty:
The primary issue is whether the receipts from domain name registration amounting to INR 17,41,54,636 should be taxed as royalty under Section 9(1)(vi) read with Section 115A of the Income-tax Act. The assessee, a US-based company, argued that domain name registration fees should not be taxed in India as royalty, stating that domain name registration is a separate service from web hosting and does not involve human intervention. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) linked domain name registration with web hosting services, treating the fees as royalty. The Tribunal upheld this view, referencing the definition of royalty under Section 9(1)(vi) and Article 12(3)(a) of the India-US Double Taxation Avoidance Agreement. The Tribunal cited precedents from the Supreme Court and High Courts, affirming that domain names have characteristics similar to trademarks and are thus subject to legal norms applicable to intellectual property, concluding that the fees for domain name registration are indeed royalty.

2. Classification of Web Hosting Services Income:
The assessee had offered income from web hosting services as royalty, but the AO classified it as fees for technical services (FTS). The DRP upheld this classification. Although the assessee raised grounds against this classification, these were not pressed during the hearing. The Tribunal noted that since the tax rate for royalty and FTS is the same, the assessee did not contest this issue further, making it academic. Consequently, the Tribunal rejected these grounds.

3. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee contested the initiation of penalty proceedings under Section 271(1)(c) of the Income-tax Act. The Tribunal deemed this ground premature at this stage and rejected it accordingly.

4. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee also contested the charging of interest under Sections 234A, 234B, and 234C. The Tribunal noted that this issue is consequential to the main grounds. Since no relief was granted on the primary issues, there would be no variation in the quantum of interest, leading to the rejection of this ground as well.

Conclusion:
The appeal by the assessee was dismissed in its entirety. The Tribunal upheld the AO and DRP's findings, confirming that the receipts from domain name registration are taxable as royalty and rejecting the other grounds as either academic or premature. The decision was pronounced in the open Court on 03.04.2018.

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