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TMI Blog2025 (1) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from domain name registration services is not chargeable to tax in India as royalty under the provisions of section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA DTAA. We find that this view has also been affirmed by Hon ble Delhi High Court in the Appellant s own case for AY 2013-14 to AY 2015-16 [ 2023 (12) TMI 718 - DELHI HIGH COURT ] wherein, vide order dated December 11, 2023, it has been held that the income earned by the Appellant from assisting customers in registration of domain names cannot be treated as royalty under the provisions of section 9(1)(vi) of the Act itself. DR could not cite before us any new or different set of facts for the present years to claim that the clauses of the relevant agreements are not identical to the years for which the above mentioned order was passed by the Hon ble Delhi High Court. Thus the ratio of the said decision should apply and the income earned by the Appellant from providing domain name registration services to Indian customers during the year under consideration cannot be held to be taxable in India under the provisions of section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA DTAA. Ground no. 3 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a domain name and having services of web hosting, the person creating a website has to independently engage its technological inputs which may be unique to the needs of that person in terms of the objectives of the website. Thus the income from provision of non-domain services (such as web hosting, web designing services etc.) do not make available any technical knowledge, experience, skill, know-how, or processes or result in transfer of any technical plan or technical design to the users. Accordingly, the consideration received by the Appellant for rendering such services should fall outside the ambit as FIS as per Article 12(4)(b) of the India-USA DTAA. Ground no. 4 is sustained. - Shri Anubhav Sharma, Judicial Member And Shri Brajesh Kumar Singh, Accountant Member For the Assessee : Shri Ravi Sharma, Advocate For the Revenue : Ms. Prajna Paramita, CIT-DR ORDER PER ANUBHAV SHARMA, JM: These are appeals preferred by the assessee against the final assessment orders of the Asstt. Commissioner of Income Tax, Circle International Taxation 1(3)(1), New Delhi (hereinafter referred to as the Ld. AO, for short). Further details of the orders of the ld. AO are as under:- ITA No. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LLC assists its users in creating various designs for website header, website content, website logo, business card, letterhead etc., so that the users can build their own website. The relevant tools and applications required for the above services are available on the website of GD LLC itself. d) Sale of on-demand products: GD LLC provides its domain users with email, calendar and other standard services with limited features. Additional features (like multiple email ids , additional space, synchronization etc.) are also available to the users for a service fee, which varies based on the service level requested by the users. e) SSL certification services: GD LLC also provides SSL certification services, which ensures that the message to be sent is properly encrypted and reaches the intended recipient. GD LLC is a Certifying Authority ( CA ) and is eligible to issue SSL certificates to the users, who request for such certificate for a defined consideration. As a CA, GD LLC is required to maintain detailed records of what certificates have been issued and the information used to issue such certificates. Further, GD LLC may be subject to audit regularly to make ensure that it has fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments from time to time during the reassessment proceedings and the assessee duly complied with all requests in a timely manner. Furthermore, during the course of re-assessment proceedings, the assessee also filed an additional claim with the Ld. AO for availing benefits under the provisions of India-USA tax treaty and furnished copies of TRCs obtained from the Department of Treasury, Internal Revenue Service, USA. The assessee also filed a detailed submission, providing factual and legal arguments as to why such income should not be charged to tax as royalty or FTS under the provisions of the Act read with India-USA tax treaty. Copies of the submissions filed by the Assessee from time to time are provided in the paper book to the synopsis. 4. In conclusion of the assessment proceedings, the Ld. AO vide draft assessment order dated September 28, 2021, has held as under: a. Income from domain name registration charges The Appellant s receipts from facilitation of domain name registration charges squarely fall within the definition of royalty as per section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA Double Taxation Avoidance Agreement ( DTAA or tax treaty ) as (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under Article 4 of the India-US DTAA TAXABILITY OF INCOME FROM DOMAIN NAME REGISTRATION SERVICES 3. On the facts and circumstances of the case and in law, the Ld. AO as well as the Ld. DRP grossly erred in holding that the Appellant's receipts from domain name registration services amounting to INR 96,56,25,598/- should be brought to tax as royalty and in doing so has failed to appreciate: (i) that the receipts are not taxable under section 9(1)(vi) read with section 115A of the Act. (ii) that the receipts are not taxable under Article 12(3) of the India-USA DTAA (iii) that domain name not being a property owned by the Appellant could neither be licensed for use or right to use nor could give rise to any element of royalty for that reason. (iv) that registration services are not in connection with any existing intellectual property TAXABILITY OF INCOME FROM WEB HOSTING SERVICES ETC. 4. On the facts and circumstances of the case and in law, the Ld. AO as well as the Ld. DRP has erred in alleging that the Appellant's receipts from web hosting, sale of on demand products, web designing, SSL certification services etc., amounting to INR 93.23.40.477/- should be charged to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration of domain names. Any Registrant/ customer desirous of registering a domain name can approach any one of these Registrars (including the Appellant) to check whether the proposed domain name is available. The Appellant would then ask the relevant Registry whether the proposed domain name is available, which would then check its database and inform the Registrar (i.e. the Appellant) accordingly. If the domain name is available (i.e. it is not registered in the name of anyone else), the customer would get the domain name registered with Registry with the help of the Appellant and would pay a periodical fee to the Appellant, a portion of which would be retained by the Appellant with the other parts going to the relevant Registry and ICANN. 7.1 The Appellant, being a Registrar, is not the owner of domain name that it helps to register and does not hold any proprietorship rights in the names used domain names. This is affirmed by clause 3.5 of the Accreditation Agreement between the Appellant and ICANN and reference to Page 203 of the Paper book and clause 2 of the agreement between the Appellant and its customers, available at Page 57 of the paper book, was made. It was cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the registrant (and not the Registrar) who owns the domain name, and can protect its goodwill by initiating passing off action against a subsequent registrant of the same domain name/a deceptively similar domain name. The observations made in the following paragraphs of Satyam Infoway, being apposite, are extracted hereafter: What is important for the purposes of the present appeal is the protection given to intellectual property in domain names. A prior registrant can protect its domain name against subsequent registrants. Confusing similarity in domain names may be a ground for complaint and similarity is to be decided on the possibility of deception amongst potential customers. The defences available to a compliant are also substantially similar to those available to an action for passing off under trademark law What is also important is that the respondent admittedly adopted the mark after the appellant. The appellant is the prior user and has the right to debar the respondent from eating into the goodwill it may have built up in connection with the name 16.2 From a perusal of the above, it is clear that the Court in Satyam Infotech was concerned only with the rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant by alleging that since LLCs are fiscally transparent entities according to USA tax laws, their income is not liable to tax in the USA and thus, they should not qualify as residents of USA as per Article 4(1)(a) of the India-USA DTAA for the purpose of availing benefits provided therein. Furthermore, the Ld. AO had also held that since the Appellant is a corporation as per the USA tax laws, it should also not come under the provisions of Article 4(1)(b) of the India-USA DTAA, which state that entities like partnerships, estates or trusts can be considered to be residents of the USA if the income derived by them is subject to tax in the USA either in their own hands or in the hands of their partners/ beneficiaries. 11.1 In this context the Ld. Counsel has submitted that the issue is no more res integra after the decision of co-ordinate bench in the case of the Appellant s sister concern, Wild West Domains, LLC vs ACIT (ITA No.1774/Del/2022) where it has been held that fiscally transparent entities are entitled to the benefits of the relevant DTAA where a valid TRC has been issued by the revenue authorities of the concerned jurisdiction. 11.2 Ld. Counsel has also pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by it from web hosting, web designing services etc. under the India-USA DTAA and for that the Ld. Counsel has submitted that the provisions of Article 12(4) of the India-USA DTAA define the term FIS to mean payments for technical or consultancy services that either 1) are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalties are received or 2) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. He submitted that as far as the first limb of the above definition is concerned, in the assessment order passed for the year under consideration, the Ld. AO has held that since web hosting, web designing services etc. are ancillary and subsidiary to the application or enjoyment of domain name registration services, the income earned by the Appellant from provision of said services must be treated as FTS/FIS as per Article 12(4)(a) of the India-USA DTAA. He stressed that the income earned by the Appellant from domain name registration services has now been considered to be outside the purview of royalty in light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s technical knowledge and skills but also absorb them to independently utilize similar technology or techniques in the future, without relying on the provider. He submitted that the above view has also been taken in the following judicial precedents:- DIT vs. Guy Carpenter Co Ltd [2012] 346 ITR 504 (Delhi High Court) Raymond Limited vs DCIT [2003] 86 ITD 791 (Mumbai Tribunal) DCIT vs. PanAmSat International Systems Inc. [2006] 9 SOT 100 (Delhi Tribunal) ACIT v. Paradigm Geophysical Pty. Ltd. [2010] 1 ITR(T) 178 (Delhi) National Organic Chemical Industries Ltd. vs. DCIT (2005) 96 TTJ 765 (Mumbai ITAT) Intertek Testing Services India (P) Ltd., In re [2008] 307 ITR 418 (AAR) C.E.S.C Ltd. v Dy. CIT [2003] 87 ITD 653 (Kolkata ITAT) Bharti AXA General Insurance Co. Ltd. v. DIT [2010] 194 Taxman 1 (AAR) 11.8 Ld. Counsel has submitted that in the instant case, it is relevant to note that the Appellant offers various packages to its customers for, hosting their websites on its servers, procure various tools for designing their web pages and avail other web services. Such services remain active for a fixed time period. Upon expiry of such fixed period, the service package is required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see does not satisfy the condition stipulated by Article 12(4)(b) of India-USA DTAA which requires that the services concerned should make available technical knowledge to the recipient/payer such that that the payer concerned is independently able to make use of the technical know-how etc. coming from the service provider s side. Decision of Ahmedabad Tribunal in the case of Esm Sys Pvt. Ltd. vs. ITO [TS-347-ITAT-2020(Ahd)] wherein the Tribunal held that payment of web hosting charges by the Appellant to a USA Co. do not constitute FIS as it does not involve any sharing of knowledge or know-how or any technology or fulfils the make available condition as enshrined in Article 12(4) of the India-USA DTAA. 12. Ld. DR has relied the order of ld. Tax authorities below. 13. After taking into consideration all submissions and the material on record we find that ld. AO has erred in giving a findings that being a LLP the assessee is not eligible for treaty benefits. The law in this regard is quite settled as it is now settled that the term, liability to taxation has to be distinguished from actual payment of taxation. Liability to taxation indicates the powers of taxing an income though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the services/facilities ie. web hosting and domain name registration flow from the same server, it is only because of the peculiar nature of the two i.e. web hosting and domain name registration fall under different categories i.e. the first under FTS (because it involved high technique and make available condition is fulfilled as discussed earlier) and latter under royalty (because of the right it confers and the equipment it provides as discussed earlier). Here, it is likely that the assessee is not offering receipts from domain registration because it has to pay certain fixed percentage to ICANN which is not being paid by the US Government. However, it is the relationship of assessee and ICANN which should not affect the Indian Revenue in any way. In case, the assessee feels the burden of taxation because of ICANN payments, the assessee should recover the same (tax) payable to India from ICANN. 14.2 The aforesaid findings of ld. AO show a lack of understanding of the nature of non-domain services. Though domain names and web hosting are often purchased together, they are actually two different things. A domain name is the permanent address of a website on the Internet. It s w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even has benefits like buying domains and hosting from different providers can give you more flexibility and control over your website, as such person is able to choose the best provider for each service. It is sometimes more cost-effective, as one may find better deals on either domain or hosting by shopping around. Thus ld. AO has fallen in error to consider web hosting charges and other non-domain services charges as FTS, being ancillary and subsidiary to the application or enjoyment of domain name registration. 15. Next examining the make available aspect we find that same has been sufficiently clarified in various decisions cited before us. It is essential to apply the make available clause that there should be some element of transmitting technical knowledge by which an enduring benefit ensues. However, in a case of purchase of domain name or hosting services or other non-domain name services, there is actually no transmission of technical knowledge and the person acquiring domain name or availing hosting services merely pays for customized services available with the service providers. The customized technology and services of the provider are fairly available to everyone w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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