2018 (7) TMI 1809 - 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 - As decided in assessee s own case 2018 (4) TMI 390 - ITAT DELHI 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. Legality of the assessment order.
2. Taxability of receipts from domain name registration as royalty.
3. Classification of web hosting services as fees for included services.
4. Characterization of income from web hosting services as royalty.
5. Allegation of concealment of income and initiation of penalty proceedings.
6. Charging of interest under sections 234B and 234C.

Detailed Analysis:

1. Legality of the Assessment Order:
The appellant challenged the assessment order dated 26.10.2017, claiming it was erroneous and bad in law. However, the Tribunal upheld the assessment order, finding no merit in the appellant's arguments.

2. Taxability of Receipts from Domain Name Registration as Royalty:
The primary issue was whether receipts from domain name registration should be taxed as royalty under Section 9(1)(vi) of the Income Tax Act and Article 12(3)(a) of the India-US Tax Treaty. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) held that these receipts were for the use of the server and thus constituted royalty. The Tribunal referred to its earlier decision for AY 2013-14, where it was held that domain names are similar to trademarks and the services provided by the appellant were in connection with the use of trademarks, thus constituting 'royalty.' The Tribunal reiterated that domain names are intangible assets similar to trademarks, and the charges for domain name registration services fall within the definition of royalty.

3. Classification of Web Hosting Services as Fees for Included Services:
The AO/DRP classified web hosting services as fees for included services under Article 12(4)(a) of the India-USA Tax Treaty and Section 9(1)(vii) of the Act. The appellant argued that the income from web hosting services was already characterized as royalty and offered to tax accordingly. However, the Tribunal upheld the AO/DRP's classification, emphasizing that the nature of the services provided qualified as fees for included services.

4. Characterization of Income from Web Hosting Services as Royalty:
The appellant had already offered income from web hosting services as royalty. The Tribunal noted that since the rate of tax for royalty and fees for technical services (FTS) is the same, the appellant did not contest this point further. Consequently, the Tribunal rejected the grounds related to this issue as academic.

5. Allegation of Concealment of Income and Initiation of Penalty Proceedings:
The AO/DRP alleged that the appellant concealed particulars of income and initiated penalty proceedings under Section 271(1)(c). The Tribunal found this ground premature and rejected it at this stage.

6. Charging of Interest Under Sections 234B and 234C:
The AO/DRP charged interest under sections 234B and 234C. The Tribunal noted that this issue was consequential and, since no relief was granted on other points, there would be no variation in the quantum of interest. Thus, this ground was also rejected.

Conclusion:
The Tribunal dismissed the appeal, upholding the assessment order and the AO/DRP's findings on all issues. The Tribunal reaffirmed its earlier decision that domain name registration fees constitute royalty and that web hosting services qualify as fees for included services. The initiation of penalty proceedings and the charging of interest were also upheld. The Tribunal's decision was pronounced in the open court on 24th July 2018.

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