Whether Domain registration fee received by GoDaddy is taxable as royalty

GODADDY.COM LLC (APPELLANT) V. ACIT (RESPONDENTS)
ITAT DATED 03/04/2018

QUESTION

Whether Domain registration fee received by 'GoDaddy' is taxable as royalty?

BRIEF FACTS

1. The assessee-co. was engaged as accredited domain name registrar authorized by Internet Corporation for Assigned Names and Numbers.

2. The assessee had income from domain registration fees which was claimed to be not taxable in India.

3. However, the Assessing Officer assessed the same as royalty, which was confirmed by the Dispute Resolution Panel (DRP).

4. The aggrieved assessee filed the instant appeal before the ITAT.

5. It was submitted by assessee that it merely facilitated getting domain registered in the name of the customer who paid for availing of such services. Hence, the receipt in respect of domain name registration was not in the nature of royalty under Explanation 2 to section 9 of the Income Tax Act, 1961.

JUDGEMENT 

The ITAT ruled in favour of revenue on basis of a judgment delivered by the Apex Court in the case of Satyam Infoway Ltd. v. Siffynet Solutions (P.) Ltd. AIR 2004 SC 3540.

In the instant case, the Supreme Court held that the domain name is a valuable commercial right and has all the characteristics of a trademark and, accordingly, domain names are subject to legal norms applicable to trademarks.

Thus, the rendering of services for domain registration was equivalent to rendering of services in connection with the use of an intangible property which was similar to trademark.

Therefore, charges received by the assessee for said services in respect of domain name was royalty as per Explanation 2 to section 9(1)(vi) of the Income Tax Act, 1961.

DISCLAIMER: The case law presented here is only for sharing information with the readers. The views are personal ,shall not be considered as professional advice. In case of necessity do consult with professionals.

Footnotes

Section 9(1) The following incomes shall be deemed to accrue or arise.

(vi) income by way of royalty payable by-
(a) the Government; or

(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India:

Provided 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 consideration for the transfer 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.

Explanation 1-For the purposes of the first proviso, an agreement made on or after the 1st day of April, 1976 , shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub- section (1) or sub- section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977 , or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976 .

Explanation 2.- For the purposes of this clause," royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head" Capital gains") for-
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trademark or similar property.

(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trademark or similar property.

(iii) the use of any patent, invention, model, design, secret formula or process or trademark or similar property.

(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill.

(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in