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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 ..... ) 1561/Del/2022 2019-20 - Do - - Do - 3027/Del/2023 2021-22 ACIT, Circle International Taxation 1(3)(1), New Delhi, dated 31st August, 2023 - Do - 2. The facts in brief are that Godaddy.com, LLC, a Delaware limited liability company, is one of the world's largest Internet Corporation for Assigned Names and Numbers ("ICANN") accredited domain name registrars and provides other web services to its customers across the world. The Appellant, through its website (Godaddy.com) is engaged in the business of providing facilitation of domain name registration, web hosting, web designing, SSL certification and other services. The nature of the services provided by the Appellant are outlined in the submissions of the appellant, as below:- a) Domain name registration and transfer services: GD LLC registers and transfers both generic top-level domains, including the prominent domains such as .com, .net, .org, and .info, as well as country code top level domains including, .us, .ca, .mx, .fr, .it, .de, and .es. Any user desirous of obtaining particular domain can access the website of GD LLCand place a request for the same. GD LLC checks the availability of a particular domain name wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trusted signed certificate, while the data may be encrypted, the party with whom the communication is being undertaken may not be the one who is the intended recipient of the communication. 3. During the years under consideration, the Appellant had rendered the aforementioned services to its Indian customers from outside India. As for convenient reference the facts of AY 2016-17, are referred to and cited. The details of revenue earned by the Appellant from various streams during the AY 2016-17 are set out below: Particulars Amount (INR) Income from domain name registration services 96,56,25,598 Income from web hosting services, web designing, SSL certification services and sale of on-demand products (together "non-domain services") 93,23,40,477 Total 1,89,79,66,075 3.1 For the year under consideration, the assessee had filed its return of income under section 139(1) of the Act on September 29, 2016, offering its income from web hosting, web designing, SSL certification and sale of on demand products amounting to Rs. 93,23,40,477/- to tax as fee for technical services" ("FTS") under the provisions of section 9(1)(vi) read with section 115A of the Act. The return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts from provision of non-domain services such as web hosting, web-designing services etc. are taxable as fees for technical services ("FTS") as per section 9(1)(vii) of the Act as well as Article 12(4)(a) of India-USADTAA as (i) they are ancillary and subsidiary to the application or enjoyment of domain registration, (ii) involve high-technique, and (iii) fulfill the make available criteria as provided under Article 12(4)(b) of India-USA DTAA. c. Denial of the benefit of the India-USA tax treaty- The Appellant is not entitled to benefits under the India-USA tax treaty as only persons or entities that are 'liable to tax' under the laws of that country are considered to be residents for the purpose of tax treaties and since LLCs are fiscally transparent entities according to tax laws of the USA, their income is not 'subject to tax' in their own hands in the USA and should not qualify as 'residents' of USA in terms of Article 4 of India-USA DTAA. 5. Assessee approached the Dispute Resolution Panel ("DRP") and filed its objections and the DRP vide directions issued under section 144C(1) of the Act, affirmed the findings and conclusion in the draft order. Consequently, the Ld. AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived for web hosting services etc., is not ancillary and subsidiary to application or enjoyment of domain registration. LEVY OF INTEREST UNDER THE PROVISIONS OF THE ACT 5. On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234A of the Act. 6. On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. INITIATION OF PENALTY UNDER SECTION 274 READ WITH 271(1)(c) OF THE ACT 7. On the facts and circumstances of the case and in law, the Ld. AO erred in mechanically initiating proceedings under section 274 read with 271(1)(c) of the Act. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal." 6. The Ld. Counsel of the assessee has argued the issue ground wise and as with regard to the Ground No. 3, which arises out of Taxability of income from domain name registration services, it was submitted that during the year under consideration, the Appellant had earned income amounting to INR 96,56,25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. 8. 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 (ITA Nos. 891/2018, ITA 261/2019 and ITA 75/2023) 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. The relevant findings are reproduced hereunder: "15.2 A close perusal of the aforementioned clause would show that what is agreed between the appellant/assessee and its customers is that mere registration of a domain name does not create any proprietorship rights in the name used as the domain name or in the domain name registration either in the appellant/assessee or the customers or even any other third party. 15.3 Therefore, the submission advanced on behalf of the appellant/assessee, i.e., that since it is not the domain name's owner, it cannot confer the right to use or transfer the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3 In this case, however, we need not travel down this path, as the appellant/assessee is only acting as a Registrar and thus offering its services to its customers for having their domain names registered. 16.4 The aforementioned principle may have been attracted if the appellant/assessee had granted rights in or transferred the right to use its domain name, i.e., Godaddy.com, to a third person. Therefore, the fee received by the appellant/assessee for registration of domain names of third parties, i.e., its customers, cannot be treated as royalty." 9. Ld. 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 sustained. 10. In regard to the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h income was taxable as FTS/FIS since it was ancillary and subsidiary to the application or enjoyment of domain registration and fulfilled the 'make available' criteria provided in Article 12(4)(b) of India- USA DTAA. The relevant extract of the assessment order is reproduced hereunder:- ".....Besides, both the services/facilities i.e., 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 are fulfilled as discussed earlier) and latter under royalty (because of the right it confers and the equipment it provides as discussed earlier). [refer Page 15 of the assessment order] ...... 6.6 Therefore, as discussed in the paragraphs above, the web hosting charges etc. of Rs. 932,340,477/- are taxable as Fees for Technical services Section 9(1)(vii) the act as well as Article 12(4)(a) of the tax treaty as it is ancillary and subsidiary to the application or enjoyment of domain registration." [refer Page 16 of the assessment order] 11.3 Ld. Counsel has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as 'royalties', the payments received for providing web hosting, web designing services etc. cannot be said to be in the nature of FIS as per Article 12(4)(a) of the India-USA DTAA. 11.6 As far as the second limb of the above definition is concerned, the ld. Counsel submitted that in the assessment order passed for the year under consideration, the Ld. AO has held that the web hosting, web designing services etc. rendered by the Appellant fulfill the 'make available' criteria laid down under Article 12(4)(b) of the India-USA DTAA. He submitted that in order to understand that the meaning of the term "make available", it would be relevant to draw reference to Memorandum of Understanding ("MOU") entered between India and the USA. The MOU entered between India and USA for "royalties and fee for included services" provides that for a fee to be regarded as FIS, the underlying assumption is that the same makes available any technical knowledge, experience, skill, know-how or process which enables the person acquiring the services to apply the technology. According to the MOU, mere rendering of services is not taxable as FIS unless the service recipient is able to make use of the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to apply or deploy such services on their own independently without resorting back to the Appellant. Accordingly, rendition of such services in no manner 'makes available' any technical knowledge, experience, skill, know-how, or processes or involves development or transfer of any technical plan or technical design to the users. 11.9 As with regard to the above, our attention is drawn towards the following judicial precedents wherein it has been opined that the consideration received from provision of web hosting services is not subject to tax as FTS / FIS:- * Decision of the coordinate bench of this Tribunal in the case of Millennium Infocom Technologies Ltd. [2009] 117 ITD 114 (Delhi) wherein it was opined that providing of space on the servers by the non-residents for the purpose of hosting of the website will not result in the provision of technical service for a fee and accordingly, such payments cannot be taxed as FTS / FIS in India. * Recent decision of coordinate bench of this Tribunal in the case of Campus Eai India Pvt. Ltd. [TS-631-ITAT-2023(DEL)] wherein, following the decision of Millennium Infocom Technologies Ltd. (supra), it was held that the income from web ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel on the decision of the coordinate bench in the case of Wild West Domains, LLC (supra) certainly takes care of the issue wherein relying the decision of the Mumbai Bench of the Tribunal in the case Linklaters LLP vs. ITO (Int. Taxation) 40 SOT 51 and Herbert Smith Freebills LLP vs. ACIT (TS 822-ITAT-202 (Del Trib.) the coordinate bench has given benefit of DTAA, irrespective of the fact that the assessee in that case was fiscally transparent entity in USA, like the present assessee. Accordingly, ground No.2 is sustained in favour of the appellant. 14. Next we have no hesitation to accept the proposition set up by the ld. Counsel that once ground no. 3 is decided in favour of assessee and the receipts from domain name registration services are held to be not liable to be taxed as royalty income then by alleging them to taxable being ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalties are received, cannot be accepted. 14.1 In fact it is even questionable that non-domain name services can be ancillary and subsidiary to the application or enjoyment of a right, property or information for domain name services. As for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registering, and using a domain name for a website, will make it much easier for site visitors to remember the entity connected to the domain name. When they enter domain name in their browsers, their computer sends a request to a cluster of servers called the Domain Name System (DNS). We don't really need to know what goes on behind-the-scenes here. The important thing to remember is that the DNS then responds with the IP address of that website's hosting server, which is how people are able to use domain name to reach a website of a particular entity or individual. 14.3 Web hosting is where website files are stored. Hosting is the disk space, bandwidth, and tools used to create and maintain a website. It is like the home of website where it actually lives. A good way to think about this is if the domain name were the address of an individual's house, then web hosting would be the actual house that the address points to. All websites on the internet need web hosting. This web hosting company may be the same company which has provided the domain name or a different company. This computer, also known as a hosting server, contains website's files and sends them back to the users' we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no transfer of any knowledge or know-how by the service provider which can deliver any enduring benefit to said person. In fact, to make the website operational on the basis of ownership 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.
15.1 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.
16. Ground no.1 being general and remaining ground being consequential are accordingly allowed.
17. Consequent to aforesaid discussion, as the discussion of issues applies pari materia to all the appeals, the same are allowed.
Order pronounced in the open court on 01.01.2025. X X X X Extracts X X X X X X X X Extracts X X X X
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