Relief to Godaddy: Delhi HC rules fee received for registration of domain names of third parties not royalty [Read Order]

In a major relief to Godaddy.Com LLC, the Delhi High Court observed that the fees received for registration of domain names of third parties are not royalty.

The final assessment order, the AO made an addition to the income of the appellant/assessee concerning the fee received qua registration of domain names by treating the same as royalty. In this context, reference was made to Section 9(1)(vi) of the Income Tax Act. The AO’s action led to an appeal being preferred with the Tribunal. The Tribunal, however, dismissed the appellant/assessee’s appeal and, thus, sustained the addition made by the AO.

The counsel for the petitioner contended that 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, and hence, if at all, the customer/the registrant can transfer the domain name.

It was further submitted that the appellant/assessee is only an intermediary, as submitted above, and in this context renders registration services. The appellant/assessee thus does not have any right in the property or trademark in the domain name. The consideration received by the appellant/assessee as a fee is not received for use or right to use the domain name or even for transfer of all or any right of such domain name.

A Division Bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “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 Court further went on to note that if the appellant/assessee had granted rights in or transferred the right to use its domain name, i.e., Godaddy.com, to a third person. Therefore, the fee received by the appellant/assessee for registration of domain names of third parties, i.e., its customers, cannot be treated as royalty.

“The submission advanced on behalf of the appellant/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” the Court concluded.

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