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TMI Blog2023 (12) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... as framed on 29.07.2019. Similarly, the question of law in ITA No. 75/2023 was framed on 10.02.2023. 3. The common question of law which arises for consideration, thus, reads as follows: "Whether on the facts of the case and in law, the Income Tax Appellate Tribunal [in short, "Tribunal"] erred in holding that the income received by the appellant as a consideration for providing domain name registration services amounted to 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961 [in short, "Act"]? Background 4. To adjudicate the above-captioned appeals, we will refer to the facts obtaining in ITA No. 891/2018. 5. The record discloses that a draft assessment order was passed on 31.03.2016 by the Assessing Officer (AO) under Section 144C(1) read with Section 143(3) of the Act. The draft assessment order proposed an addition concerning the income of the appellant/assessee received against domain name registration services offered to its customers by construing the same as royalty. 5.1 In this context, the draft assessment order alluded to Section 9(1)(vi) of the Act. Being aggrieved, the appellant/assessee preferred objections qua the same before the Dispute Resolution Pane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, website design, and web hosting. (iii) The appellant/assessee is one of several ICANN registrars. The appellant/assessee charges a fee from its customers for facilitating domain name registration, which is shared, three ways. While a part of the fee received from the customers is kept by the appellant/assessee, a portion of the fee is shared with ICANN and the registry. The domain name's owner is the customer who seeks domain name registration. The customer can, at his option, dissolve his engagement with the appellant/assessee and move to another registrar, having a back-to-back arrangement with ICANN and the registry appointed by it. The customer would not have been able to engage with another Registrar had the appellant/assessee been the domain name's owner. (iv) The Tribunal has erred in concluding that a domain name is like a trademark. This view is based on a misappreciation of the ratio of the judgment rendered by the Supreme Court in Satyam Infoway Ltd. and the judgment of this court in Tata Sons. (v) The appellant/assessee does not transfer any right to use the domain name to the customer, i.e., the registrant. It is the registrant who owns the domain name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing off and injunction actions. Both the domain name registrant and the trademark owner would be required to show that goodwill has been acquired, as the institution of an action by either would have to be founded on goodwill, not registration. The decision of the Supreme Court in Satyam Infoway is based on this fundamental premise. (x) The services offered by the appellant/assessee are similar to those provided by company secretaries and lawyers to their respective clients who seek registration of a company's name with the registrar of companies or registration of patents and trademarks with the concerned registrars appointed under the relevant statute. (xi) The Tribunal's reliance on Clause (vi) of Explanation 2 appended to Section 9(1) is misconceived. Clause (vi) of Explanation 2 alludes to the consideration received for rendering services in connection with activities referred to in sub-clauses (i) to (iv), (iva) and (v) of the very same Explanation. Thus, only those services are covered in Clause (vi) of Explanation 2, which are rendered in connection with activities referred to in the previous sub-clauses of the same Explanation. [See Reebok India Company v. DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. (iii) The appellant/assessee is in the business of providing domain name registration services, web designing and web hosting. (iv) In the period in issue, it earned an income of Rs. 20,42,77,864/- for providing web hosting and web designing services. Although the appellant/assessee had shown the income received towards web hosting as income from royalty, it was characterised by the AO as FTS and accordingly brought to tax @ 10%. The appellant/assessee did not assail the AO's recharacterization of web hosting services as, according to it, it would not have impacted the rate at which tax was imposed on the said service. (v) The AO brought to tax the fee received by the appellant/assessee for providing domain registration services as right to use or the use of servers maintained by the appellant/assessee in the country. Thus, according to the AO, the consideration received could be categorized as royalty under Section 9(1)(vi) on this score, as well as under Article 12(3)(a) of the IndoUS Double Taxation Avoidance Agreement [DTAA]. On the other hand, even though the Tribunal has agreed with the conclusion arrived at by the AO-that the consideration received by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th its customers/registrant against payment of the prescribed fee. 14.2. With the domain name's registration, a unique internet protocol address (IP address) is created in favour of the appellant/assessee's customer/registrant. As indicated above, the fee received for this service by the appellant/assessee is shared three ways. After the appellant/assessee has kept its share out of the registration fee paid by the customer/registrant, the rest is remitted to ICANN and the Registry. 14.3. The database concerning domain names and IP addresses is maintained in the servers owned by the appellant/assessee. 14.4. In effect, what a domain name does for the customer is to provide an easy-to-remember/identify IP address. Typically, an IP address that does not have a domain name registration consists of a series of numbers unique to each website. For example, the numeric IP address for the Supreme Court would be 164.100.229.147. However, its domain name would read as follows: main.sci.gov.in 14.5. To bring home the point that there are, in effect, three entities which are involved, amongst others, the following clauses provided in the Registrar Accreditation Agreement entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense, lending credence to the assertion of the appellant/assessee that it is not the owner of the domain name comes through by perusing the following part of Clause 3.5: "3.5 Rights in Data. "Registrar" disclaims all rights to exclusive ownership or use of the data elements listed in Subsections 3.2.1.1 through 3.2.1.3 for all Registered Names submitted by Registrar to the Registry Database for, or sponsored by Registrar in, each gTLD for which it is Accredited. Registrar does not disclaim rights in the dtata elements listed in Subsections 3.2.1.4 through 3.2.1.6 and Subsections 3.3.1.3 through 3.3.1.8 concerning active Registered Names sponsored by it in each gTLD for which it is Accredited, and agrees to grant non-exclusive, irrevocable, royalty-free licenses to make use of and disclose the data elements listed in Subsections 3.2.1.4 through 3.2.1.6 and 3.3.1.3 through 3.3.1.8 for the purpose of providing a service or services (such as a Whois service under Subsection 3.3.4) providing interactive, query-based public access. Upon a change in sponsorship form Registrar of any Registered Name in each gTLD for which it is Accredited, Registrar acknowledges that the registrar gainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. We are also of the view that passing off and injunction actions are entertained by the courts where domain name registrations are brought about in bad faith or to perpetuate fraud. The courts tend to grant injunctive relief where the defendant, in such actions, is seen to be feeding off the plaintiff's goodwill and causing confusion amongst its customers regarding the origin of the subject goods and services. Such reliefs are granted on the basis that the definition of the expression "mark" includes a "name", and in turn, the expression "trademark" so defined to include a mark, distinguishes the goods and services of one person from those of others. Therefore it is possible in a given situation that a domain name may have the attributes of a trademark. [See Section 2m read with Section 2zb of Trademarks Act, 19991]. 16.1 The Supreme Court, in Satyam Infoway, held that 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, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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