2023 (5) TMI 1219 - AT - Income Tax

Penalty u/s 271(1)(c) - debatable issue arises - partial income not offered to tax - assessee earned revenues from two streams i.e. web hosting and domain registration charges and offered revenue from web hosting services only to tax in the return filed - assessee did not offer to tax its income from domain registration services for the reason that it was under a bonafide belief that this income is not chargeable to tax under the provisions of the Act - HELD THAT - As said income has been held to be taxable as royalty by the appellate authorities including the Tribunal in the quantum appeal of the assessee before the Hon ble Delhi High Court, the Hon ble Court has framed a substantial question of law - We are, therefore, of the view that the issue involved in the present appeals is a debatable issue and the position in law is not yet settled. The impugned penalty in both the AYs is therefore not exigible. CIT(A) has rightly deleted the penalty. Accordingly, we reject the appeals of the Revenue.

Summary

Issues Involved:
1. Whether the income from domain registration services constitutes "royalty" under the Income Tax Act, 1961.
2. Whether the penalty under section 271(1)(c) for concealment of income and furnishing inaccurate particulars was justified.

Summary:

Issue 1: Income from Domain Registration Services as "Royalty"
The Revenue contended that the income from domain registration services should be treated as "royalty" under section 9(1)(vi) of the Income Tax Act, 1961, and Article 12 of the India-USA DTAA. The assessee, a domain name registrar, had not offered this income to tax, believing it was not chargeable under the Act. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) assessed it as "royalty," which was upheld by the Tribunal. The Tribunal held that domain registration services amount to rendering services in connection with the use of intangible property similar to a trademark.

Issue 2: Penalty under Section 271(1)(c)
The AO initiated penalty proceedings under section 271(1)(c) for concealment of income and furnishing inaccurate particulars. The CIT(A) deleted the penalty, noting that the issue of taxability of domain registration services is debatable and not settled. The CIT(A) emphasized that the mere making of a claim, which is not sustainable in law, does not amount to furnishing inaccurate particulars. The CIT(A) found the assessee's explanation to be bona fide and acceptable, stating that the AO had not demonstrated that the claim was false.

Tribunal's Decision:
The Tribunal agreed with the CIT(A), noting that the Delhi High Court had admitted the assessee's appeal on the issue, framing a substantial question of law. The Tribunal held that the issue is debatable and the penalty is not exigible. The Tribunal also referred to the Delhi High Court decision in Liquid Investment Trading Co., which held that a debatable issue does not justify penalty under section 271(1)(c). Consequently, the Tribunal dismissed the Revenue's appeals for both assessment years.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty, concluding that the issue of taxability of domain registration services is debatable and the penalty under section 271(1)(c) is not justified. The appeals of the Revenue for AY 2013-14 and 2014-15 were dismissed.