The Mumbai Income Tax Appellate Tribunal (ITAT) has recently ruled that the income received from domain name registration services provided by a Registrar authorized by the Internet Corporation for Assigned Names and Numbers (ICANN) is not taxable as royalty in India, as long as there is no intellectual property right in the form of a trademark involved. This ruling distinguishes itself from the Delhi ITAT’s ruling in the case of Godaddy.com v. ACIT (2018) 170 ITD 217 (ITAT Delhi), where the assessee did not claim any tax benefits under the India-UAE Double Taxation Avoidance Agreement (DTAA).
The assessee in this case is a UAE-based company that provides web presence services and sells domain names to customers globally through its brands ‘Logic Boxes’, ‘Reseller Club’, and ‘Big Rock’. For the assessment year 2017-18, the Revenue had made additions of INR 27.41 crores by treating the amount received for domain name registration as taxable in India as royalty, on the basis that the domain name is an intangible asset in the form of a trademark. Additionally, the Revenue had also made additions on account of web hosting services (INR 3.05 crores) and sponsorship income (INR 64.91 lacs).
In its appeal, the ITAT noted that the assessee functions as the Registrar in the domain name registration process, while its group companies act as resellers, procuring domain registration services from the assessee and providing them to end customers. The ITAT also observed that before registration, the domain name did not exist in the database, and the customer’s right to the specific domain name came into existence only upon registration. The domain name is registered on a first-come-first-serve basis, and the only person who can claim the right over the domain name is the customer.
The ITAT emphasized that the Registrar’s role is limited to acting as an intermediary in the domain name registration process, and it has no other role to play. Hence, the ITAT ruled that the assessee, as a domain name registrar, does not have any right in the domain name registered in the customer’s name, let alone an intellectual property right or an intangible asset in the form of a trademark. As a result, the ITAT directed the Revenue to delete the addition on account of income from domain registration services for the related assessment years 2017-18 and 2018-19.
In summary, the Mumbai ITAT’s ruling in the case of PDR Solutions FZC v. DCIT [TS-1004-ITAT-2022(Mum)] clearly distinguishes the role of a domain name Registrar from that of an entity with an intellectual property right and clarifies that the income received from domain name registration services is not taxable as royalty in India, absent a trademark. This ruling was passed on December 30th, 2022.
