2019 (10) TMI 310 - HC - Income Tax

Income accrued in India - Maintainability of the present writ petition on the ground of alternative efficacious remedy being available under the scheme of the Act - directions issued by the first Respondent - DRP under Section 144C(5) - receipts on account of domain name registration charges as royalty under Section 9(1)(vi) - India-UAE DTAA - HELD THAT - Pertinently, the alternate efficacious remedy that has been cited by the revenue is by way of an appeal before ITAT, which is not available as yet, because no assessment order has yet been passed by the Assessing officer. The only submission of the Petitioner is that the DRP has not even taken into consideration Petitioner s plea that it is a tax resident of UAE, and under the India UAE DTAA, the Assessing Officer could not have proposed to treat the income from domain name Registration as Royalty. If this plea of the Petitioner is not even looked at/ examined by the DRP, it would tantamount to a jurisdictional error. To relegate the Petitioner to the appellate remedies, where he would have to join the queue, in order to obtain an order of remand to DRP, would be unjustified. Significantly, no prejudice would be caused to the Revenue, as the Petitioner is only seeking correction of a jurisdictional error. Thus, if the Petitioner was to succeed in the present petition, it would only result in an order remitting the matter to DRP to decide afresh; in which eventuality, DRP would be entitled to deal with the objections in accordance with law. Whether the writ petition raises an issue that would invite the exercise of jurisdiction by the Court at this stage? - HELD THAT - The DRP has, instead, blindly followed the decision of GoDaddy.com LLC 2018 (4) TMI 390 - ITAT DELHI and 2018 (7) TMI 1809 - ITAT DELHI and held that the Web Hosting Services are interlinked with domain registration and are ancillary and subsidiary to the application or enjoyment of the right for which payment is received as royalty. Since the payment so received is considered as royalty, the payments received for Web Hosting Services are also considered as Royalty under Section 9(1)(vi) of the Income Tax Act, 1961. It is starkly noticeable that the main contention, or to say the basic argument, raised by the Petitioner with respect to the non-taxability of its income under India-UAE DTAA has not been noticed or discuss, much less adjudicated upon. he case of the Petitioner is essentially that the definition of Royalty under the Act is wider than that provided in the Treaty. Petitioner s contention is that under the Act transfer of rights in property similar to trademark is also covered, whereas under the Treaty, only the transfer of right to use trademark is covered and not similar rights or rights in property similar to trademark . This Court, at this stage, is not expressing any view on the merits of the aforesaid objection as it is for Respondent No. 1 to consider, evaluate and analyse the same, while exercising the power under Section 144C of the Act. Writ petition is allowed and the impugned order is set aside. Consequently, the matter is remitted back to the first respondent for considering the objections raised by the petitioner in detail, and for passing a fresh order on merits and in accordance with law by giving reasons and findings. It is made clear, once again that this Court is not expressing any view on the merits of the claim/objections made by the Petitioner, or the findings rendered by the Transfer Pricing Officer, as it is for the first respondent to consider and decide these aspects.

Summary

Issues Involved:
1. Maintainability of the writ petition.
2. Taxability of income from Domain Name Registration Services and Web Hosting Services under the India-UAE Double Taxation Avoidance Agreement (DTAA).

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petition:

The primary contention from the Revenue was the objection to the maintainability of the writ petition on the grounds of an alternative efficacious remedy being available under the statute. The Revenue argued that the petitioner should have approached the Income Tax Appellate Tribunal (ITAT) under Section 253(1)(d) of the Income Tax Act, 1961, instead of filing a writ petition. The Revenue relied on the Doctrine of Election, suggesting that the petitioner, having chosen the Dispute Resolution Panel (DRP) route, cannot bypass the statutory mechanism by approaching the High Court. The Revenue also cited the judgment of the Supreme Court in Mumbai International Airport Ltd. v. Golden Chariot Airport to support its stance.

The Court, however, noted that the jurisdiction under Article 226 of the Constitution of India is broad but discretionary. It is generally not exercised if an alternate statutory remedy is available unless there are exceptional circumstances such as a fundamental error in the exercise of jurisdiction by the statutory authority. The Court referred to several precedents, including CIT v. Chhabil Das Aggarwal, which highlighted exceptions to the rule of alternative remedy, such as when the statutory authority has not acted in accordance with the law or has violated the principles of natural justice.

In this case, the Court found that the DRP had failed to consider the petitioner’s plea regarding the non-taxability of income under the India-UAE DTAA, which constituted a jurisdictional error. Therefore, the writ petition was deemed maintainable as the petitioner was seeking correction of a jurisdictional error, and no assessment order had yet been passed by the Assessing Officer.

2. Taxability of Income from Domain Name Registration Services and Web Hosting Services:

The petitioner, a tax resident of UAE, challenged the draft assessment order passed by the Assistant Commissioner of Income Tax, which treated the income from Domain Name Registration Services and Web Hosting Services as taxable under the Income Tax Act, 1961, and the India-UAE DTAA. The petitioner argued that its income from these services should not be treated as royalty under the India-UAE DTAA.

The DRP, in its order, relied on the decision of the ITAT in the case of GoDaddy.com LLC, which treated domain name registration charges as royalty under Section 9(1)(vi) of the Act. The DRP held that web-hosting services were interlinked with domain registration and were ancillary and subsidiary to the application or enjoyment of the right for which payment was received as royalty. Consequently, the payments received for web-hosting services were also considered as royalty.

The Court observed that the DRP had not adjudicated upon the petitioner’s objection regarding the non-taxability of income under the India-UAE DTAA and had instead blindly followed the decision in GoDaddy.com LLC without considering the petitioner’s specific arguments. The Court noted that the definition of royalty under the Act is broader than that under the Treaty, and the DRP had failed to address this distinction.

The Court held that the DRP’s failure to consider the petitioner’s objections and its reliance on the GoDaddy.com LLC decision without proper reasoning constituted a failure to exercise jurisdiction. The Court emphasized that the DRP should have evaluated the petitioner’s submissions and provided reasons for its conclusions.

Conclusion:

The writ petition was allowed, and the impugned order of the DRP was set aside. The matter was remitted back to the DRP for fresh consideration of the petitioner’s objections and for passing a reasoned order on merits in accordance with law. The DRP was directed to hear the petitioner and pass the order within eight weeks. The Court clarified that it was not expressing any view on the merits of the petitioner’s claims or the findings of the Transfer Pricing Officer. The petitioner was given the liberty to avail of further remedies if still aggrieved by the fresh order. No costs were imposed, and the pending application was disposed of.