ITAT Rules Domain Registration and web Hosting not Royalty Income [Read Order]

The Delhi bench of Income Tax Appellate Tribunal has held that the Domain name registration services receipts and web hosting services receipts incomes are not taxable as royalty citing consistent rulings from the high court and its own coordinate benches which states that the services do not fall within the definition of royalty under the Income-Tax Act or the relevant Double Taxation Avoidance Agreement (DTAA) and further are not to be considered as fee for technical services or for included services.

The appeal was filed by PDR Solutions FZC challenging the final assessment order which was issued by the Deputy Commissioner of Income Tax , Circle , International Taxation-2(2)(2), NewDelhi under section 144C(13) read with section 143(3) of the Income Tax Act for the assessment year 2016-2017.

The main issues were whether the receipts from Domain name registration services and web hosting services should be taxed as royalty income under section 9(1)(vi) of the act and the Indo-UAE tax treaty.

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In Godaddy.Com LLC vs. ACIT (2023) taxmann.com (Delhi) it was held that the income from Domain registration services does not give rise to royalties and in 146 taxmann.com 84 (Mumbai-Trib) held that income received by the assessee towards domain registration services is not taxable in india under article 12 of the double taxation avoidance agreement (DTAA).

The bench also considered the taxability of web hosting services provided to customers in the assessee’s case. It was determined that web hosting typically refers to server space that stores data files with providers offering servers network connections and internet connectivity often through data centres .

The consideration paid was for the use of server space and customers neither held an independent right to use the space nor possessed physical access to it .There was no right to use the technology platform or any grant of license for its use . It was noted that the term royalty was not as broadly defined in the India-UAE DTAA.

Under section 9(1)(vi) of the Act by Finance Act,2012 made the possession ,control or location of the right, property or information irrelevant under the Act’s provisions. In DIT vs New skies satellite BV[2016] in that case it was held that amendments to the Finance Act alone couldn’t unilaterally alter the definition of royalty in a DTAA.

The amount received by the assessee for web hosting services were not considered royalty under Article 12(3) of the India -UAE DTAA . This was due to the absence of any grant of control over the assessee’s equipment to its customer . Furthermore web hosting and domain registration services were determined to be independent activities .The assessing officer deleted the addictions to the services .

The ITAT, in the case of GoDaddy.com LLC which included the judicial member from this current quorum ruled that income from domain registration and web hosting services falls outside the scope of fee for technical services or fee for included services .

The bench comprising Anubhav sharma (Judicial Member) and Manish Agarwal (Accountant member) held that such incomes are not taxable as royalties . The grounds raised in the appeal were sustained and the impugned additions were deleted. Therefore the appeal was allowed.

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