TMI Blog2018 (4) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. - ITA No. 1878/Del/2017 - - - Dated:- 3-4-2018 - Shri G. D. Agrawal, President And Ms. Suchitra Kamble, Judicial Member Appellant by : Shri S.P. Singh Shri Manoneet Dalal, ARs and Shri G. Chandra Shekhar Ms. Shradha Khandelwal, CAs. Respondent by : Shri G.K. Dhall, CIT-DR. ORDER Per G. D. Agrawal, President This appeal by the assessee for the assessment year 2013-14 is directed against the order of learned Dispute Resolution Panel-1, New Delhi dated 23rd December, 2016. 2. Ground No.1 of the assessee s appeal, which reads as under, is of general nature and needs no separate adjudication :- That on the facts and in the circumstances of the case and in law, the impugned order of assessment framed by the AO pursuant to the directions of the DRP is erroneous and bad in law as well as in facts. 3. Ground No.2 of the assessee s appeal reads as under :- That on the facts and in the circumstances of the case and in law, the AO/DRP has wrongly alleged that receipts from domain name registration amounting to INR 174,154,636 should be charged to tax as royalty as per the provisions of section 9(1)(vi) read with section 115A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used in various networking contexts and application-specific naming and addressing purposes. In general, a domain name represents an Internet Protocol (IP) resource, such as a personal computer used to access the Internet, a server computer hosting a web site, the web site itself or any other service communicated via the Internet. Domain names are organized in subordinate levels (sub domains) of the DNS root domain, which is nameless. The first-level set of domain names are the top-level domains (TLDs), including the generic top-level domains (gTLDs), such as the prominent domains com, info, net, edu, and org, and the country code top-level domains (ccTLDs). Below these top-level domains in the DNS hierarchy are the second-level and third-level domain names that are typically open for reservation by end-users who wish to connect local area networks to the Internet, create other publicly accessible Internet resources or run web sites. The registration of these domain names is usually administered by domain name registrars who sell their services to the public. A fully qualified domain name (FQDN) is a domain name that is completely specified in the hierarchy of the DNS, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, digits or hyphens, although it is not to start or end a label. Labels are always separated by the full stop (period) character in the textual name representation. 6.3 What are the functions performed by ICANN and what are the functions performed by Go Daddy in the procedure As a technical coordinating body, ICANN (Internet Corporation for Assigned Names and Numbers) performs a variety of functions related to the Internet s unique identifiers. These include operational functions, collaboration, coordination and engagement. In this case, clients desirous of services apply to assessee who in turn enquires from ICANN availability of domain name. On confirmation, assessee registers the clients for fees and for conditions as imposed by ICANN. As already mentioned, Godaddy US is a registrar of the customers who need these services and provide the services to its customers. And ICANN is the central organisation who appoints such registrar like Godaddy US and charge fee from Godaddy under a fixed predetermined formula. The clients all over the worlds apply for services as per Proforma given by the assessee and pay fees for the same. One part of the fees is allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. The definition of royalty under the act is similar to tax treaty wherein the use of or right to use of any industrial, commercial, or scientific equipment or similar property should be treated as royalty. Here, certain terms need to be clarified in today s information technology atmosphere: Equipment : supplies or tools needed for a special purpose or the act of equipping someone or something Scientific : of or relating to science or done in an organized way that agrees with the methods and principles of science. In the instant case, the customers of Godaddy are using the server of the assessee and paying the fees for the same, as domain name registration is a tool which equips the customer with the right to use the server of Godaddy and web hosting charges are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment of domain registration fee is received. Accordingly, the domain registration charges are royalty as per Section 9(1)(vi) the act as well as Article 12(3)(a) of the tax treaty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the appellant is not a tax resident of USA and, therefore, does not claim any benefit under the provisions of India-USA tax treaty. He stated that taxability of the receipt from domain registration fees needs to be examined under the provisions of the Income-tax Act, 1961. He stated that the learned Assessing Officer/DRP have incorrectly linked web hosting services with domain name registration services. He stated that these two services have independent existence. In support of his contention, he referred to a sample web hosting agreement between the assessee and the customer. He further submitted that domain name registration is the process of registering a domain name which identifies one or more IP address with a name that is easier to remember and use in URLs to identify particular web pages. The domain name allows others to access user s website directly with an easy to memorize address instead of using a numeric IP address. Registering a domain name secures that specific internet address. In this regard, he referred to the sample domain name registration agreement. He further explained the process of registration of domain name which is as below :- a) A user ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer as well as learned DRP and further stated that the transaction of domain name registration and web hosting services are interrelated processes. He stated that these are not independent processes of each other but are inextricably linked/connected to each other. He further stated that even otherwise, the amount received for domain name registration is taxable in India as royalty within the meaning of Section 9 of the Income-tax Act, 1961. He stated that domain name is an intangible asset similar to trademark. He stated that appellant has been accredited by ICANN to registered domain names and, as per agreement between the appellant and ICANN, the appellant has the right to register, assign, transfer and manage specific domain names. The appellant enjoys absolute and exclusive rights to assign domain names under specific domain extensions. The ICANN owns domain extensions but has granted the registrar all the rights and risks relating to the assignment, allocation, transfer and management of specific domain names within specific extensions. The appellant registrar has thus right to own, allocate, register, transfer, cancel/deactivate, renew, suspend, auction and exploi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government : [Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.]. 9. Explanation 2 after the sub-section defines the word royalty , which reads as under :- Explanation 2. For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to users and potential customers and particularly so in areas of specific overlap. Ordinary consumers/users seeking to locate the functions available under one domain name may be confused if they accidentally arrived at a different but similar web site which offers no such services. Such users could well conclude that the first domain name owner had mis-represented its goods or services through its promotional activities and the first domain owner would thereby lose their custom. It is apparent therefore that a domain name may have all the characteristics of a trademark and could found an action for passing off. Over the last few years the increased user of the internet has led to a proliferation of disputes resulting in litigation before different High Courts in this country. The Courts have consistently applied the law relating to passing off to domain name disputes. Some disputes were between the trademark holders and domain name owners. Some were between domain name owners themselves. These decisions namely Rediff Communication Ltd. v. Cyberbooth and Anr., AIR (2000) Bombay 27, Yahoo Inc. v. Akash Arora, (1999) PTC 19 201, Dr. Reddy s Laboratories Ltd. v. Manu Kosuri, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Rediff Communications Ltd. Vs. Cyberbooth AIR 2000 Bombay 27 the user of the Website www.radiff.com was injuncted as it was held deceptively similar to the plaintiff s website www.rediff.com . In the above decision, the Court held that the Internet domain names are of importance and can be a valuable corporate asset and such domain name is more than an Internet address and is entitled to protection equal to a trade mark. It was held that with the advancement and progress in technology the services rendered by an Internet site have also to be recognized and accepted and are being given protection from passing off. 9. In view of the above decisions, I am satisfied that it is now settled law that with the advent of modern technology particularly that relating to cyberspace, domain names or Internet sites are entitled to protection as a trade mark because they are more than a mere address. The rendering of Internet services is also entitled to protection in the same way as goods and services are, and trade mark law applies to activities on Internet. (emphasis by underlining supplied by us) 12. Learned counsel for the assessee has also relied upon the decision of Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) of the Income-tax Act. Thus, the facts in the above case were also different than the facts under appeal before us. On the other hand, the issue before Hon ble Apex Court in the case of Satyam Infoway Ltd. (supra), Hon'ble Jurisdictional High Court in the case of Tata Sons Limited (supra) and Hon ble Bombay High Court in the case of Rediff Communications Ltd. AIR 2000 Bombay 27 was whether the domain names can be considered as intellectual properties such as trademark. Hon ble Apex Court in the case of Satyam Infoway Ltd. (supra) has held that the domain name is a valuable commercial right and it has all the characteristics of a trademark and accordingly, it was held that the domain names are subject to legal norms applicable to trademark. Hon ble Bombay High Court in the case of Rediff Communications Ltd. (supra) held that domain names are of importance and can be a valuable corporate asset and such domain name is more than an internet address and is entitled to protection equal to a trademark. Hon'ble Jurisdictional High Court in the case of Tata Sons Limited (supra) held that domain names are entitled to protection as a trademark because they are more than an addre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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