Facts of the Case

  • The assessee, GoDaddy.com LLC, is a US-based company engaged in domain registration, web hosting, and web design services.
  • The Assessing Officer treated income received from domain name registration as royalty.
  • The Dispute Resolution Panel (DRP) upheld the AO’s findings.
  • The ITAT also confirmed the addition, relying on precedents equating domain names with trademarks.
  • The assessee appealed before the Delhi High Court.

Issues Involved

  1. Whether consideration received for domain name registration services constitutes royalty under Section 9(1)(vi)?
  2. Whether a domain name is equivalent to a trademark for taxation purposes?

Petitioner’s Arguments (Assessee)

  • The assessee acts merely as an intermediary/registrar and does not own domain names.
  • Domain name ownership vests with the customer (registrant), not the registrar.
  • No transfer of rights or right to use any intellectual property occurs.
  • Domain names are distinct from trademarks in nature and legal treatment.
  • The service provided is only facilitation of registration, not licensing.
  • Therefore, the consideration cannot be categorized as royalty.

Respondent’s Arguments (Revenue)

  • Domain names are akin to trademarks, and hence payments fall within royalty.
  • The services are closely linked to technical infrastructure like servers.
  • Section 9(1)(vi) is applicable, and the Tribunal rightly relied on judicial precedents.

Court’s Findings / Order

  • The assessee does not own domain names, hence cannot transfer any rights.
  • Domain registration is merely a facilitative service, not transfer or use of intellectual property.
  • The Tribunal erred in equating domain names with trademarks.
  • Reliance on prior judgments like Satyam Infoway was misplaced in this context.
  • Consideration received for domain registration does not qualify as royalty.
  • The question of law was answered in favour of the assessee and appeals were allowed.

Important Clarifications by Court

  • Ownership of domain name lies with the registrant, not registrar.
  • Registration does not create proprietary rights in favour of the registrar.
  • Domain name registration services are comparable to facilitation services, not licensing arrangements.
  • Royalty provisions require transfer of rights or use of IP, which is absent in this case.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS11122023ITA8912018_182905.pdf

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