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TMI Blog2018 (7) TMI 1809X X X X Extracts X X X X X X X X Extracts X X X X ..... above, we uphold the orders of the lower authorities on this point and reject ground of the assessee’s appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... x Treaty. This view was also taken for earlier Assessment Year 2013-14 by the Assessing Officer. Being aggrieved by the same the Assessee filed appeal before us. During the hearing the Ld. DR pointed out that for A.Y. 2013-14, the Tribunal vide order dated 03.04.2018 held this issue against the assessee being ITA No. 1878/Del/2017. 4. The Ld. AR put up his written submission and the same are as under:- Background 1. The Appellant, a Delaware Limited Liability Company, (located in Arizona, USA), is the world's largest ICANN (Internet Corporation for Assigned Names and Numbers) accredited domain name registrar. During the captioned year, the Appellant earned revenues from the following services rendered to Indian customers [Refer Para 3.2 final assessment order at Page 81 of Appeal Set]: Particulars Amount (INR) Offered to tax (INR) Web hosting services/on-demand 411,981,166 411,981,166 Sale Web designing/SSL Certification Services 437,761,396/- Domain registration Meaning of domain name 2. A website is a combination of files, images, text, music etc. As there are more than a billion websites on the internet, it is important for each website to have a unique ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... checks its database and informs the 'Registrar' accordingly. If the domain name is available, i.e., it is not registered in the name of anyone else, the 'Registrant' can pay a fees and get the name registered with the help of the 'Registrar'. In order to keep the domain name, the 'Registrant' has to pay a periodical fee to the 'Registrar' i. e. the fee for domain name registration. Assessment History - AY 2013-14 8. Assessing Officer ("AO") while passing the assessment order for AY 2013- 14 held that the payment for domain name registration is for use of server of the Appellant and hence amounts to royalty as per section 9(l)(vi) of the Income-tax Act, 1961 ("Act") as well as Article 12(3)(a) of the India-US tax treaty. [Refer Para 3 of the assessment order at Page 134 of the Paper Book] 9. Hon'ble Bench vide order dated April 13, 2018 held that the domain names were similar to trademarks and the services provided by the Appellant were in connection with the use of the trademarks and the income therefrom constitutes 'royalty' within the meaning of clause (vi) read with clause (iii) of constitutes 'royalty' within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et] 5. The Appellant filed an appeal before Dispute Resolution Panel ("DRP") which upheld the order of the AO. The AO framed final assessment order dated 26 October, 2017 maintaining the aforesaid position. 6. Being aggrieved by the final assessment order passed by Ld. AO, the Appellant filed an appeal before Hon'ble ITAT. Appellant's contentions with respect to taxability of domain name registration services 1. At the outset the Appellant wishes to submit that facts involved in AY 2013-14 are similar to the AY 2014-15 (i.e. the present AY). 2. The AO while passing orders for both AYs 2013-14 (prior year) and 2014- 15 (year in appeal) has assessed income from domain name registration services as 'royalty' under section 9(l)(vi) of the Act by holding that the income was received by the Appellant on account of granting to the customers, the right to use its server and thus is in the nature of right to use industrial, commercial or scientific equipment. 3. The Hon'ble Bench while passing its order for AY 2013-14 held that the domain names were similar to trademarks. The services provided by the Appellant were in connection with the use of the trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on Income and on Capital 2014' provides: "The definition does not, however, apply to payments that, whilst based on the number of times a right belonging to someone is used, are made to someone else who does not himself own the right or the right to use it." The Hon'ble Calcutta High Court has also given a similar finding in the case of CIT vs. Davy Ashmore India Ltd. (1991)(190 ITR 626). 9. The Hon'ble AAR in the case of Cushman & Wakefield (S) Pte. Ltd. (305 ITR 208)(2008)(AAR) held: 'When the above definition of trademark is placed against the definition of royalty arising out of the use of 'trademark', as contained in clauses of Explanation 2 to section 9(l)(vi) of the Act, it emerges that the recipient of the consideration, should be either the owner of the 'trademark' or registered holder of the 'trademark'. There should also exist a connection in course of trade between the payer and the recipient.' 10. The domain names requested by the customers (if not already registered) are not owned by anyone for that matter, they simply do not exist. It is the customer who becomes the owner of such domain names upon registration, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld, each domain name owner provides information/services which are associated with such domain name " "The outcome of consultation between ICANN and WIPO has resulted in the setting up not only of a system of registration of domain names with accredited Registrars but also the revolution of the Uniform Domain Name Disputes Resolution Policy (UDNDR Policy) by ICANN on 24th October 1999. As far as registration is concerned, it is provided on a first come first serve basis." While registration with such Registrars may not have the same consequences as registration under the Trademark Act, 1999 nevertheless it at least evidences recognised user of a mark. Besides the UDNDR Policy is instructive as to the kind of rights which a domain name owner may have upon registration with ICANN accredited Registrars. In Rule 2 of the Policy, prior to application for registration of a domain name, the applicant is required to determine whether the domain name for which registration is sought "infringes or violates someone else's rights ........... These rules indicate that the disputes may be broadly categorised as : (a) disputes between trademark owners and domain name owners and (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered its domain name to begin with. Customers are allowed to and as a matter of fact do shift from one Registrar to another. It could not be said that the right to use an IPR is given by one entity in one year and by another entity in another year. Reference may be drawn to Clause 4 of Domain Name Registration Agreement between the Appellant and the customers. (Refer Clause 4 of the Domain Name Registration Agreement at Page 58 of the Paper Book) 15. Appellant wishes to highlight Clause 3.5 of the Registrar Accreditation Agreement between Godaddy and ICANN which indicates that the Appellant does not any right in the domain names "Rights in Data. Registrar disclaims all rights to exclusive ownership or use of the data elements listed in Subsections 3.2.1.1 through 3.2.1.3 for all Registered Names submitted by Registrar to the Registry Database for, or sponsored by Registrar in, each gTLD for which it is Accredited." 16. It is submitted that the services provided by the Appellant are similar to services provided by professionals who help in registering a company's name with the Registrar of Companies (ROC). 17. Simply providing services in connection with a trade ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether DNR and WHA are inter-related or independent processes: Claim of the Appellant That the transactions described in stages 5 & 8 (i.e. DRA & WHA) are processes independent of each other and the taxabilty of the amounts received by it in lieu of these have to examined separately. Claim of Revenue The transactions are NOT processes independent of each other but rather are directly associated or inextricably connected to each other and need to be treated as parts of one single and integrated process. DNR can't be completed and Registered Domain names can't be customised and used for the benefit of the client without entering WHA (irrespective of whether with the appellant or any other agency) and specifying the details of domain name settings and name servers. (Ref. Cl. 10 of DRA, p.43-44 of PB as discussed above) Ouestion-2 Taxability of the receipts in lieu of DNR and WHA: Claim of the Appellant > Amount received for web-hosting (WHA) is taxable in India and offered to tax as Royalty; > Amount received for domain name registration (DNR) is not taxable in India becauseo It is not in the nature of FTS as it doesn't involve any human interve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 2(zl A domain name is easy to remember and use, and is chosen as an instrument of commercial enterprise not only because it facilitates the ability of consumers to navigate the Internet to find websites they are looking for, but also at the same time, services to identify and distinguish the business itself, or its goods or services, and to specify its corresponding online internet location. Consequently a domain name as an address must, of necessary, be peculiar and unique and where a domain name is used in connection with a business, the value of maintaining an exclusive identity becomes critical. "As more and more commercial enterprises trade or advertise their presence on the web, domain names have become more and more valuable and the potential for dispute is high. Whereas large number of trademarks containing the same name can comfortably co-exist because they are associated with different products, belong to business in different jurisdictions etc.. the distinctive nature of the domain name providing global exclusivity is much sought after. The fact that many consumers searching of a particular site are likely, in the first place, to try and guess its domain name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "First, there must be an interest capable of precise definition: second, it must be capable of exclussive possession or control: and third, the putative owner must have established a legitimate claim to exclusivity." It was concluded by the Hon'ble Court that "Domain names satisfy each criterion. Like a share of a corporate stock or a plot o f land, a domain name is a well-defined interest. Someone who registers a domain name decides where on the internet those who invoke that particular name- whether bv typing it into their web browsers, by following a hyperlink, or by other means - are sent. Ownership is exclusive in that the registrant alone makes that decision. Moreover, like other forms of property, domain names are valued, bought and sold, often for millions of dollars....Finally, registrants have a legitimate claim to exclusivity. Registering a domain name is like staking a claim to a plot of land at the title office. It informs others that the domain name is the registrant's and no one elses's." Makemytrip (India) Pvt. Ltd. Vs Dv. CIT (2012)(lTA Nos. 3961/Del/2009 & 4087 /Del/2009) In this case, the issue in question was whether website development cost sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns ( Cl.3(B) & 10 of Domain Registration Agreement, P. 37 & 43 of PB); vi. Right to auction and transfer domain names; vii. Right to exploit the registered domain name to generate revenue in case of default by domain owner, before the domain returns to ICAAN, right to retain the same for a limited time in a parking site and use it to earn income.(Cl. 10 of Domain Registration Agreement, P. 44 of PB) viii. Right of refusal/exclusion of registrant from accessing the registered domain and customising it or advertising there in in case the domain has been parked. (Cl. 10 of Domain Registration Agreement, P. 44 of PB) ix. Right to issue Certified Domain seal which is a trademark and is protected by copyright, trademark and other intellectual property laws. > The appellant Registrar thus, has right to own, assign, allocate, transfer, cancel, deactivate, suspend, auction, renew and exploit domain names under accreditation agreement with ICANN. > The appellant Registrar in turn, transfers and allocates all or part of such assigned rights to the Registrant to enable it to use such rights in respect of such property i.e. domain names. > Domain Registration charges were m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions taken herein by the Ld. AR that the issue of ownership with whom it is applicable has also been dealt with in the said order The Tribunal held as under:- "8. We have carefully considered the arguments of both the sides and perused relevant material placed before us. The limited question before us is whether the domain registration fee received by the assessee can be termed as royalty. At the outset, we clarify that the appellant himself has mentioned that since it is not a tax resident of USA, therefore, it is not claiming any benefit under the provisions of India-US tax treaty. Accordingly, we have to examine within the meaning of Income-tax Act, more particularly, Section 9(1)(vi) to examine whether the receipt by the assessee on account of domain registration fee can be termed as royalty. Section 9(1)(vi) of the Income-tax Act reads as under :- "9. (1) The following incomes shall be deemed to accrue or arise in India :- (vi) income by way of royalty payable by - (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information concerning technical, industrial, commercial or scientific knowledge, experience or skill; [(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and] (v)." 10. The contention of the Revenue is that the domain name is an intangible asset which is similar to trademark. The assessee is rendering services in connection with such domain name registration and therefore, the charges received by the assessee clearly fall within the definition of royalty as provided in Section 9(1)(vi) of the Income-tax Act. We find that Hon'ble Apex Court has considered the similar aspect in the case of Satyam Infoway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (supra) has also examined the identical question and held as under :- "6. In Yahoo Inc! Vs Akash Arora 1999 PTC 201 while granting an injunction restraining the defendants from using Yahoo either as a part of its domain name or as a trademark, learned Single Judge of this Court applied the law relating to trademark to a dispute regarding Internet. It was further held that considering the vast import of Internet and its user, several Internet users are not sophisticated enough to distinguish between the domain names of the parties. It was also held that with the ease of access from all corners of the world, Courts should take a strict view of copying as the potentiality of the harm is far greater because of the easy access and reach by any one from every corner of the globe. The Court also held after analyzing Section 27 and Section 29 of the Trade & Merchandise Marks Act, that passing off action can be maintained in respect of services as well as goods. 7. In British Telecom Plc. Vs. One in a Million 1999 FSR 1 the Court held that in the case of a registration of domain names of third party trademarks of well-known names, there was jurisdiction to grant injunctive relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned over Indian airspace. However, the footprint area (the area of earth's surface over which a signal is relayed from satellite) of those satellites covered the territory of India. The assessee entered into an agreement with TV channels, communication companies or other companies who desired to utilize the transponder capacity available on its satellite to relay their signals. The customers had their own relaying facilities, which were not situated in India. From those facilities, the signals were beamed into space where they were received by a transponder located in the assessee's satellite. The role of the assessee in this cycle was that of receiving the signals, amplifying them and after changing frequency relaying them over the entire footprint area. For that service, the TV channels made payments to the assessee. The question before the Hon'ble High Court was whether such payments can be said to be royalty chargeable to tax in India. Hon'ble High Court answered the question in the negative. However, the facts in the assessee's case are clearly different. In the case under appeal before us, the issue is whether the fees received by the assessee for rendering services for domai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the assessee's appeal. 13. Ground Nos.3 & 4 of the assessee's appeal, which read as under, were not pressed by the assessee at the time of hearing :- "3. That on the facts and circumstances of the case and in law, the AO/DRP has erred in holding that the web hosting services provided/rendered by the Appellant qualify as fees for included services as per Article 12(4)(a) of the India-USA Tax Treaty as well as under Section 9(1)(vii) of the Act. 4. That on the facts and circumstances of the case and in law, the AO/DRP has erred in not appreciating that the Appellant has characterized income from web hosting services as royalty and already offered the same to tax as per the provisions of section 9(1)(vi) read with section 115A of the Act." 14. At the time of hearing, the learned counsel stated that the assessee itself has offered the income from web hosting services as royalty. The Assessing Officer has assessed the same as fees for technical services which is upheld by the DRP. He stated that since the rate of tax for royalty as well as for FTS is the same, the assessee would not like to contest ground Nos.3 & 4 because so far actual tax liability is concerned, these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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