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TMI Blog2023 (5) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of entity providing service in registration of domain name is still not settled even though the Supreme Court in the case of Satyam Infoway Ltd. Vs. Sifynet Solutions Pvt. Ltd. have held that domain name was intellectual property similar to trade mark." 3. Briefly stated, the facts are that Godaddy.com LLC, assessee registered in the USA, is a domain name registrar and provides other web services to customers across the world. It is engaged in the business of providing facilitation of domain name registration, web-hosting, web designing and other services through its web site, godaddy.com. For AY 2013-14 and 2014-15, the assessee furnished its return declaring total income of Rs. 20,42,77,864/- and Rs. 41,19,81,166/- generated by it from provision of web hosting services/on sale demand and web designing/SSL certification services and offered it to tax as income from royalty. The Ld. AO however assessed it as Fees for Technical Services ("FTS") which was affirmed by the Ld. Dispute Resolution Panel ("DRP"). The revenue generated from the domain registration services amounting to Rs. 17,41,54,636/- in AY 2013-14 and Rs. 43,77,61,396/- in AY 2014-15 was not offered to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - for AY 2013-14 and penalty of Rs. 4,95,98,366/-for AY 2014- 15 under section 271(1)(c) of the Act. 4. Dissatisfied, the assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) recorded the detailed submissions filed by the assessee in para 5.1 of his appellate order(s) and deleted the impugned penalty for the observations and findings recorded in para 5.2 to 5.18 which is reproduced below:- "5.2 The relevant facts of the case are that the assessee took a position that the receipts from domain name registration are non-taxable in India. However, the Assessing Officer ("AO") while passing the assessment order under section 143(3) of the Income-tax Act, 1961 ("Act"), assessed income from domain name registration services as 'royalty' under section 9(1)(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. Relevant extract of the AO's order is reproduced below: "Domain registration partakes the character of web hosting charges since without domain registration being in place, web hostin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment held based on the information supplied by the assessee that the receipts are in the nature of Royalty. 5.7 As regards the taxation of services, the appellant explained 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). As per the appellant, simply providing services in connection with a trade mark is not sufficient to invite the application of clause (vi). The appellant submitted that if simply providing services in connection with trademark, patent etc. is taken to be covered within the definition of 'royalty' (without their additionally being the grant of a license thereto), the consequences would be absurd. In such a situation, even an advocate drafting an Intellectual Property Right ("IPR") transfer agreement will be receiving 'royalty' for his services as they will be in connection with the IPR. The appellant added that for the service fee to be characterized as royalty, the entity which provides services in connection with the right to use an IPR must also be in a position to grant the license to use such IPR. Clause (vi) can ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the issue of whether the domain names can be considered as intellectual properties such as trade mark under the Trade Marks Act, 1999. The appellant averred that the aforesaid decisions were not on the issue of taxability of domain name registration services. The appellant also contended that if these judicial precedents including the decision of Supreme Court was applicable on this issue, then the Hon'ble Delhi High Court would not have admitted the Appellant's case. * It is reiterated, that bonafide difference of opinion between the Appellant and the AO / Tribunal on the characterization of the above income, does not imply that the Appellant has concealed particulars of income or furnished inaccurate particulars. * Neither the Appellant has failed to offer explanation on the issue of taxability of receipts from domain name registration services nor the explanation given by the Appellant can be said to be false. All the details/ information (such as the relevant agreements, time to time submissions on the facts as required by the AO) in support of the claims, as was required by the AO were furnished by the Appellant during the assessment proceedings. * The is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found to be inaccurate, the liability would arise. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the appellant Such claim made in the return cannot amount to the inaccurate particulars. It was tried to be argued by the Revenue that the falsehood in accounts can take either of the two forms; (i) on item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the appellant had furnished all the details of its expenditure as well as income in its return, which details in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the appellant had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied by the Ld. AO is a debatable issue and the Hon'ble Delhi High Court has admitted the assessee's appeal on the issue and has framed the following question of law vide its order dated 25.02.2019 in ITA 891/2018, a copy of which was placed on record:- "Whether, in the facts of the case and in law, the Tribunal erred in holding that the income received by the Appellant as a consideration for providing domain registration services amounted to 'royalty' under section 9(1)(vi) of the Income Tax Act, 1961 ?" 6.1. The Ld. AR, in support of his above contention, placed reliance on the decision of Hon'ble Delhi High Court dated 05.10.2010 in CIT vs. Liquid Investment and Trading Co. (ITA No. 240/2009) and decision of the Indore Bench of the Tribunal dated 12.03.2013 in Shri Yugal Kishore Jajoo vs. Dy. CIT (ITA No. 272/Ind/2011). 7. The Ld. DR, on the other hand, relied on the order of the Ld. AO and submitted that the pendency of the issue before the Hon'ble Delhi High Court in the quantum appeal of the assessee will not render the imposition of the impugned penalty vulnerable. 8. We have heard the Ld. Representative of the parties and perused the material on records. We have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Santosh Hosiery, Civil Appeal No. 1117 of 2001 dated 03.02.2001 held as under:- "9. Furthermore, Hon'ble Delhi High Court in the case of CIT vs. Liquid Investment Limited, I.T.A.No. 240/2009 vide its order dated 5.10.2010 has clearly held that where High Court accepted substantial question of law u/s 260A, this itself shows that issue is debatable. Accordingly, no penalty was imposable u/s 271(1)(c) of the Income-tax Act, 1961. Hon'ble Supreme Court in the case of Santosh Hosiery, Civil Appeal No. 1117 of 2001 in its order dated 3rd February, 2001, observed that " To be substantial, a question of law must be debatable." Hon'ble Supreme Court while deciding as to what is substantial question of law has held that same must be debatable. 10. In the instant case, the appeal against quantum additions was admitted by Hon'ble M.P. High Court vide order dated 6.9.2005, on the following substantial questions of law :- 1) Whether in the facts and circumstances of the case the Tribunal was right in law in directing depreciation on the estimated value of Rs. 18,00,000/- as against actual purchase value of Rs. 26,05,000/- on which assessee too ..... X X X X Extracts X X X X X X X X Extracts X X X X
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