TMI Blog2023 (1) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... dentification labels to indicate ownership or control of a resource. We are of the considered opinion that since the assessee had no right in the domain name, the income received by the assessee from domain name registration does not fall in the category of royalty as defined under Article 12(3) of the India UAE DTAA. Further, once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Act, as in terms of section 90(2) the provisions of the Act or the DTAA, whichever is more beneficial to the assessee shall be applicable. Decision of Godaddy.com 2018 (4) TMI 390 - ITAT DELHI relied upon by the AO, is factually distinguishable as in that case the taxpayer did not claim any benefit under the tax treaty. Hence, the AO is directed to delete the addition on account of income from domain registration services. Accordingly, ground No. I raised in assessee s appeal is allowed. Addition on account of income from web hosting services - independent right to use the server space - HELD THAT:- As per the assessee, the consideration paid is for use of the server space and the customers neither have an independent right to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia UAE DTAA, the term permanent establishment means of a fixed place of business through which the business of an enterprise is wholly or partly carried on. In the present case, firstly mere conducting of a conference only for 2 days in India cannot be said to be a fixed place of business, and secondly, as noted above conducting a conference is not the core business activity of the assessee. Even if, at all, it can only be considered to be in the nature of the preparatory or auxiliary activity, which has been specifically excluded from the definition of permanent establishment under Article 5(3) of the India UAE DTAA. In absence of the permanent establishment of assessee in India, the sponsorship income cannot be taxed in India as business income. Accordingly, in view of aforesaid findings, the AO is directed to delete the addition on account of sponsorship income. As a result, ground No. III raised in assessee s appeal is allowed. - ITA no.1855/Mum./2022 And ITA no.1856/Mum./2022 - - - Dated:- 30-12-2022 - Shri G.S. Pannu, President And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Porus Kaka a/w Shri Divesh Chawla For the Revenue : Shri Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STING SERVICES On the facts and circumstances of the case and in law, the Assessing Officer ('AO') erred in proposing that income from web hosting services is taxable as 'Royalty under Section 9(1Xvi) of the Income Tax Act, 1961 (Act') and under the India- UAE treaty (tax treaty') in the absence of any physical access or control or possession or independent right being granted by the appellant to the payer. The Assessing Officer (AO) erred in concluding that the income from web hosting is interlinked to income from domain registration services and considered as royalty despite the fact that the said services are mutually exclusive and independent. GROUND III: OBJECTION AGAINST ADDITION ON ACCOUNT OF SPONSORSHIP INCOME On the facts and circumstances of the case and in law, the Assessing Officer ('AO ) erred in concluding that the assessee did not provide substantial documents and information regarding the treatment of sponsorship and other income, as a business income in computation and alleging that it is clearly evident that assessee is hiding the fact with respect to same and claimed that the same should be added to the income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Licensing of brand and trademark 2,01,16,542/ 3. Receipt for sale of customer list and customer contracts 5,06,72,737/ 4. Date centre income 3,05,20,419/ 5. Domain sale income 27,41,96,969/ 6. Sponsorship income 64,91,659/ The receipts at serial No. 4, 5, and 6 were considered taxable by the Revenue and thus, the assessee is in appeal before us. 5. The issue arising in ground No. I, raised in assessee s appeal, is pertaining to the addition on account of income from domain registration services. 6. The brief facts of the case pertaining to this issue are: During the assessment proceedings, the assessee was asked to show cause as to why the income from domain sale income, inter-alia, should not be treated as royalty. In response thereto the assessee submitted that the domain name is an internet network address that is readable in human language and can be obtained on first-come first-served b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as royalty under the provisions of the Act as well as the India UAE Double Taxation Avoidance Agreement ( DTAA ) and added the same to the total income of the assessee. 8. The assessee filed detailed objections before the learned DRP, inter-alia, against the addition made by the AO. Vide directions dated 07/03/2022, issued under section 144C(5) of the Act, the learned DRP rejected the objections filed by the assessee. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order dated 31/05/2022, and assessed the income from domain name registration as royalty. Being aggrieved, the assessee is in appeal before us. 9. During the hearing, the learned Sr. Counsel, appearing for the assessee, submitted that the assessee is a Registrar, who is authorised by ICANN and acts as an intermediary in the entire process of domain name registration. Learned Sr. Counsel by referring to the Registrar Accreditation Agreement between the assessee and ICANN as well as the Reseller Master Agreement between the assessee and the reseller submitted that the assessee neither grants domain names nor has any right to customer data given to the Registry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The role of the Registry operators within the internet ecosystem includes accepting registration requests and keeping the master database of all domain names registered in each TLDs. The Registry receives registration information from each domain name Registrar authorised to assign names in the corresponding TLD and publishes the information using a special service. (c) The Registrar is an entity that offers domain name registration services to registrants in generic top-level domains. The relationship between ICANN and every ICANN-accredited Registrar is governed by the Registrar Accreditation Agreements, which sets out the obligation of both parties. The Registries and Registrars usually charge an annual fee for the service of delegating a domain name to a user and providing a default set of name servers. (d) The reseller is a third party company that offers domain name registration services through a Registrar. The diagrammatic representation of the domain registration process is as under: ICANN (Regulator) Customer/Registrant Reseller Regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated the amount received from domain name registration taxable in India as royalty on the basis that the domain name is an intangible asset in the nature of trademark . In order to come to the conclusion, the AO, inter-alia, has placed reliance upon the decision of the Hon ble Supreme Court in Satyam Infoway Ltd. vs Siffynet Solutions (P) Ltd., (2004) 6 SCC 145. We find that while coming to the conclusion that a domain name may have all the characteristics of a trademark, the Hon ble Supreme Court, in the peculiar facts of that case took into consideration the factors, namely, the volume of sales, extent of advertisement, misrepresentation by the defendant to the public and likelihood of confusion in the minds of the public, and accordingly came to the conclusion that the Appellant has been able to establish the goodwill and reputation claimed by it in connection with the trademark. In this regard, it is relevant to note that the Hon ble Jurisdictional High Court in People Interactive (India) Private Ltd vs Vivek Pahwa, 2016 SCC OnLine Bom 7351 held that every domain name that incorporates a trademark enjoys the same protection as the mark, neither more nor less. 15. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term royalty has been defined as under: 3. The term royalties as used in this Article means payment of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematography films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience but do not include royalties or other payments in respect of the operation of mines or quarries or exploitation of petroleum or other natural resources. 17. In view of the above, we are of the considered opinion that since the assessee had no right in the domain name, the income received by the assessee from domain name registration does not fall in the category of royalty as defined under Article 12(3) of the India UAE DTAA. Further, once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Act, as in terms of section 90(2) the provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the addition made by the AO. Vide directions dated 07/03/2022, issued under section 144C(5) of the Act, the learned DRP rejected the objections filed by the assessee and held that web hosting services is a type of internet hosting service that allows individuals and organisation to provide their own website accessible via the World Wide Web and the payment is received on account of imparting the right to access the website which is valuable right falling within the purview of royalty under the domestic law of India as well as India UAE DTAA. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order dated 31/05/2022 and assessed the income from web hosting services as royalty. Being aggrieved, the assessee is in appeal before us. 21. During the hearing, the learned Sr. Counsel submitted that the consideration received by the assessee was only for use of the server space and neither independent right to use the server space nor any physical access was granted to the customer. Therefore, the amount received by the assessee on account of web hosting services is not in the nature of royalty. 22. On the contrary, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to this issue are: During the year under consideration, the assessee received sponsorship income of Rs. 64,91,659 for conducting two days conference in India. As per the assessee, the event was primarily organised to advertise the assessee s service offering to potential customers and to educate its customers. The AO vide draft assessment order did not agree with the submissions of the assessee and added the sponsorship income to the total income of the assessee. 26. The assessee filed detailed objections before the learned DRP, inter-alia, against the addition made by the AO. Vide directions dated 07/03/2022 issued under section 144C(5) of the Act, the learned DRP, after noting that the AO has not dealt with the issue of permanent establishment in India, directed the AO to pass a speaking order with regard to the existence of assessee s permanent establishment in India. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order dated 31/05/2022 and held that the assessee has a permanent establishment in India and income of Rs.64,91,659, on account of sponsorship income is taxable as business income. Being aggrieved, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorship income from the sponsors was consequential to the advertising event in the 2 days conference. In the present case, there cannot be any dispute that organising such an event is not the core business activity of the assessee. Further, under Article 5 of India UAE DTAA, the term permanent establishment means of a fixed place of business through which the business of an enterprise is wholly or partly carried on. In the present case, firstly mere conducting of a conference only for 2 days in India cannot be said to be a fixed place of business, and secondly, as noted above conducting a conference is not the core business activity of the assessee. Even if, at all, it can only be considered to be in the nature of the preparatory or auxiliary activity, which has been specifically excluded from the definition of permanent establishment under Article 5(3) of the India UAE DTAA. Thus, in absence of the permanent establishment of assessee in India, the sponsorship income cannot be taxed in India as business income. Accordingly, in view of aforesaid findings, the AO is directed to delete the addition on account of sponsorship income. As a result, ground No. III raised in assessee s ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UNT OF SPONSORSHIP INCOME On the facts and circumstances of the case and in law, the Assessing Officer (AO) erred in concluding that the assessee did not provide substantial documents and information regarding the treatment of sponsorship and other income, as a business income in computation and alleging that it is clearly evident that assessee is hiding the fact with respect to same and claimed that the same should be added to the income of the assessee. The Assessing Officer (AO) erred in ignoring the fact that the assessee had made sufficient disclosures and submitted proper evidence in support of its contention that there shall not be any addition made on account of Sponsorship Income due to the absence of Permanent Establishment in India. The assessing officer (AO) erred in law and in the fact that the income from Sponsorship is taxable as 'Business income' under the India-UAE tax treaty (tax treaty ) treating it as PE in India without giving adequate reasoning/explanation for treating it as PE in India. The Appellant craves leave to add to, or alter, by deletion, substitution, modification or otherwise, the above grounds of appeal, either before o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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