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TMI Blog2025 (5) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 2 On the facts and circumstances of the case and in law, the final assessment order passed by the Ld. AO under section 143(3) read with section 144C(13), and the consequential notices issued/ orders passed in pursuance thereof, are bad in law and void ab-initio as the final assessment order is in violation of the statutory timelines prescribed under section 153 of the Act. 3. Ground 3 On the facts and circumstances of the case and in law, the Ld. AO as well as Ld. Dispute Resolution Panel ("DRP") erred in holding that the Appellant is not entitled to the benefits 3 provided under the Double Taxation Avoidance Agreement ("DTAA") between India and the United States of America ("USA") as the Appellant does not qualify as a tax resident under Article 4 of the India-USA DTAA. 4. Ground 4 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 2,60,75,70,148/- be brought to tax as royalty and in doing so, have failed to appreciate: 4.1 that the receipts are not taxable in India under section 9(1)(vi) read with section 115A of the Act 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration of the domain in its own name directly with GD LLC and also pays for such services through the channels as provided by GD LLC. b) Website hosting and e-mail: GD LLC provides web hosting services which allow its users to develop their own websites / webpages by using the development tools and applications which are available online on GD LLC website. GD LLC hosts the website of its users on its servers/dedicated servers located outside India. Such websites are accessible from the servers by anyone on a 24x7 basis. GD LLC also offers to install and configure supporting applications for such websites on its servers. c) Web Designing services: GD 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing /SSL Certification services respectively. 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. 6. In conclusion of the scrutiny assessment proceedings, the Assistant Commissioner of Income-tax, Circle -1(3)(1), International Taxation, New Delhi ("Ld. AO") vide draft assessment order dated February 13, 2024, 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) they are received for granting the right to use the servers of the Appellant, (ii) providing domain name registration services is a precondition for rendering web hosting etc. services, (iii) it is a highly technical process and (iv) because of its inherent quality. b. Income non-domain services - The Appellant's receipts from provision of non-domain services su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that since LLCXs are fiscally transparent entities according to USA tax laws, their Income is not liable to tax in USA and thus, they should not qualify as 'resident' 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 provision of Article 4(1)(b) of 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 own hands or in the hands of their partners / beneficiaries. 11. 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 appellant's sister concern, Wild west domains, LLC vs ACIT (ITA No. 1774/Del/2022) the co-ordinate bench 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. The co-ordinate bench in the assessee's own case in ITA No. 1558 to 1561 /D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia includes cloud hosting, is not taxable as FTS / FIS under the provisions of the Act read with India-USA DTAA. The Tribunal concluded that the AWS services provided by the assessee are standardized services that do not provide any technical services to its customers nor satisfy the 'make available' test as the customer will not be able to make use of the technical knowledge, skill, process etc. used by the assessee in providing cloud services by itself in its business or for its own benefit without recourse to the assessee in future. Decision of Pune Tribunal in the case of ITO vs.M/s Sunguard Availability Services LLP (ITA No.258/PUN/2021) wherein the Bench held that Cloud Infrastructure Managed Private Cloud and Colocation services provided by the assessee 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h India- USA DTAA.in the compliance of notices u/s 143(2) and 141(1) of the Act. However, the AO had passed the assessment order and held that the income from domain name registration services squarely fell within the definition of 'royalty' as per section 9(1)(vi) of the Act as well as Article 12(3) (a) of the India-USA DTAA. 14.As with regard to the same the Ld. Counsel submitted that Appellant is an ICANN accredited domain name registrar which, facilities the 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 the its data based and inform the 'registrar'(i.e. Appellant) accordingly. If the domain name is available ( i.e. it is not registered in the name of any 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 regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant/assessee, i.e., that since it is not the domain name's owner, it cannot confer the right to use or transfer the right to use the domain name to another person/entity, deserves acceptance. 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 initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of on-demand products) to Indian customers. He further submitted that domain name registration services are distinct from web hosting services. Domain name registration services involve assisting customers with registration of their domain names whereas web hosting services allow the customers to make their website accessible to users. Whilst these services work together to create a functioning website, they operate independently, and customers have the flexibility to purchase them from different providers based on their specific needs and preference. The webhosting services should not be classified as ancillary and subsidiary to the application or enjoyment of domain registration. He also submitted that appellant is entitled to avail the beneficial provisions of the India-USDTAA. The Co-ordinate bench in the assessee's own case in ITA no.1558 to 1561/Del/2022 and ITA No. 3027/Del/2023 held that the income from provision of non-domain services (such as web hosting, web designing services etc.) do not make available any technical knowledge, experience, skills, know-how, or processes or result in transfer of any technical plan of technical design to the users. The relevant findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 what people type into their web browsers to find a particular website. Purchasing, 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 websi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larified 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 who proceeds to acquire a domain name or pays for web hosting services. There 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.) ..... 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