The Delhi High Court has held that income received by GoDaddy.Com as consideration for providing domain name registration services amounts to ‘Royalty’ under section 9(1)(vi) of the Income Tax Act, 1961.
The appellant/revenue seeks to assail the order dated 26.05.2023 passed by the Income Tax Appellate Tribunal [“the Tribunal”] which was in favour of the respondent GoDaddy Com LLC. The Tribunal was called upon to adjudicate the legal tenability of two separate orders dated 30.09.2019 passed by the Commissioner of Income Tax (Appeals) [“CIT(A)”], whereby, he had deleted the penalty amounting to Rs. 1,97,31,721/- and Rs. 4,95,98,366/-, levied under Section 271(1)(c) of the Income-tax Act, 1961 [“the Act”], for AY 2013-14 and AY 2014-15.
The Tribunal, while disposing of the appeal against the orders of the CIT(A), has observed that “8. We have heard the Ld. Representative of the parties and perused the material on records. We have also considered the decision of the Hon‟ble Delhi High Court in Liquid Investment and Trading Co. (supra) and decision of Indore Bench of the Tribunal in Yugal Kishore Jajoo (supra) relied upon by the assessee. It is an undisputed fact that the assessee earned revenues from two streams i.e. web hosting and domain registration charges and offered revenue from web hosting services to tax in the return filed for the relevant AYs. However, the assessee did not offer to tax its income from domain registration services for the reason that it was under a bonafide belief that this income is not chargeable to tax under the provisions of the Act. The said income has been held to be taxable as “royalty” by the appellate authorities including the Tribunal in the quantum appeal of the assessee. In this view of the matter, the Ld. AO imposed the impugned penalty which was deleted by the Ld. CIT(A) for the detailed observations and findings recorded by him in his appellate order(s) with which we are inclined to agree.
9. We notice that in the quantum appeal filed by the assessee before the Hon‟ble Delhi High Court, the Hon‟ble Court has framed a substantial question of law as mentioned earlier. We are, therefore, of the view that the issue involved in the present appeals is a debatable issue and the position in law is not yet settled. The impugned penalty in both the AYs is therefore not exigible.”
The question of law framed was “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 [“Act”]?”
A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “the respondent/assessee before us has succeeded in the appeals, the penalty imposed in the instant appeal cannot be sustained. Therefore, the impugned order, in our opinion, requires no interference.”
Consequently, the application filed for condonation of delay is rendered inefficacious and is, thereby, closed.
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