Godaddy.com LLC vs. ACIT (ITAT Delhi)

(i) The limited question before us is whether the domain registration fee received by the assessee can be termed as royalty. At the outset, we clarify that the appellant himself has mentioned that since it is not a tax resident of USA, therefore, it is not claiming any benefit under the provisions of India-US tax treaty. Accordingly, we have to examine within the meaning of Income-tax Act, more particularly, Section 9(1)(vi) to examine whether the receipt by the assessee on account of domain registration fee can be termed as royalty.

(ii) The contention of the Revenue is that the domain name is an intangible asset which is similar to trademark. The assessee is rendering services in connection with such domain name registration and therefore, the charges received by the assessee clearly fall within the definition of royalty as provided in Section 9(1)(vi) of the Income- tax Act. We find that Hon’ble Apex Court has considered the similar aspect in the case of Satyam Infoway Ltd. Vs. Siffynet Solutions Pvt.Ltd. – [2004] Supp (2) SCR 465 (SC).

(iii) The question before Hon’ble Apex Court was whether internet domain names are subject to the legal norms applicable to other intellectual properties such as trademarks. Hon’ble Apex Court decided the issue in favour of the assessee. The relevant observation of their Lordships reads as under :-

“The use of the same or similar domain name may lead to a diversion of users which could result from such users, mistakenly accessing one domain name instead of another. This may occur in e-commerce with its rapid progress and instant (and theoretically limitless) accessibility to users and potential customers and particularly so in areas of specific overlap.

Ordinary consumers/users seeking to locate the functions available under one domain name may be confused if they accidentally arrived at a different but similar web site which offers no such services. Such users could well conclude that the first domain name owner had mis-represented its goods or services through its promotional activities and the first domain owner would thereby lose their custom.

It is apparent therefore that a domain name may have all the characteristics of a trademark and could found an action for passing off. Over the last few years the increased user of the internet has led to a proliferation of disputes resulting in litigation before different High Courts in this country. The Courts have consistently applied the law relating to passing off to domain name disputes. Some disputes were between the trademark holders and domain name owners.

Some were between domain name owners themselves. These decisions namely Rediff Communication Ltd. v. Cyberbooth and Anr., AIR (2000) Bombay 27, Yahoo Inc. v. Akash Arora, (1999) PTC 19 201, Dr. Reddy’s Laboratories Ltd. v. Manu Kosuri, (2001) PTC 859 (Del.), Tata Sons Ltd. v. Manu Kosuri, (2001) PTC 432 (Del.), Acqua Minerals Ltd. v. Pramod Borse & Anr., (2001) PTC 619 (Del.), and Info Edge (India) Pvt.Ltd. & Anr. V. Shailesh Gupta & Anr., (2002) 24 PTC 355 (Del.) correctly reflect the law as enunciated by us. No decision of any court in India has been shown to us which has taken a contrary view. The question formulated at the outset is therefore answered in the affirmative and the submission of the respondent is rejected.” (emphasis by underlining supplied by us)

(iv) That Hon’ble Jurisdictional High Court in the case of Tata Sons Limited Vs. Mr. Manu Kishori & Ors. – 90 (2001) DLT
659 (Delhi) has also examined the identical question and held as under :-

“6. In Yahoo Inc! Vs Akash Arora 1999 PTC 201 while granting an injunction restraining the defendants from using Yahoo either as a part of its domain name or as a trademark, learned Single Judge of this Court applied the law relating to trademark to a dispute regarding Internet. It was further held that considering the vast import of Internet and its user, several Internet users are not sophisticated enough to distinguish between the domain names of the parties. It was also held that with the ease of access from all corners of the world, Courts should take a strict view of copying as the potentiality of the harm is far greater because of the easy access and reach by any one from every corner of the globe. The Court also held after analyzing Section 27 and Section 29 of the Trade & Merchandise Marks Act, that passing off action can be maintained in respect of services as well as goods.

7. In British Telecom Plc. Vs. One in a Million 1999 FSR 1 the Court held that in the case of a registration of domain names of third party trademarks of well-known names, there was jurisdiction to grant injunctive relief when the defendant was equipped with or was intending to equip another with an instrument of fraud. It was also held that a name which would by reason of similarly to the name of another, inherently lead to passing off, was such an instrument. It was held that in case it would not inherently lead to passing off but the Court concluded on the facts without regard to the defendant’s intention that the name was produced to enable passing off, was adapted to be used for passing off and, if used, was likely to be used fraudulently, an injunction would be appropriate.

8. In Rediff Communications Ltd. Vs. Cyberbooth AIR 2000 Bombay 27 the user of the Website “www.radiff.com” was injuncted as it was held deceptively similar to the plaintiff’s website “www.rediff.com”. In the above decision, the Court held that the Internet domain names are of importance and can be a valuable corporate asset and such domain name is more than an Internet address and is entitled to protection equal to a trade mark. It was held that with the advancement and progress in technology the services rendered by an Internet site have also to be recognized and accepted and are being given protection from passing off.

9. In view of the above decisions, I am satisfied that it is now settled law that with the advent of modern technology particularly that relating to cyberspace, domain names or Internet sites are entitled to protection as a trade mark because they are more than a mere address. The rendering of Internet services is also entitled to protection in the same way as goods and services are, and trade mark law applies to activities on Internet.” (emphasis by underlining supplied by us)

(v) Learned counsel for the assessee has also relied upon the decision of Hon’ble Jurisdictional High Court in the case of Asia Satellite Telecommunications Co.Ltd. Vs. DIT – [2011] 197 Taxman 263. However, we find that the facts in that case were altogether different. In the said case, the assessee company carried on the business of private satellite communications and broadcasting facilities. During the relevant assessment year, it was the lessee of a satellite, called Asia-Sat 1 and was the owner of a satellite, called Asia Sat 2.

Those satellites were launched by the assessee and were placed in a geostationary orbit in the orbital slots. Those satellites neither used the Indian orbital slots nor were they positioned over Indian airspace. However, the footprint area (the area of earth’s surface over which a signal is relayed from satellite) of those satellites covered the territory of India. The assessee entered into an agreement with TV channels, communication companies or other companies who desired to utilize the transponder capacity available on its satellite to relay their signals.

The customers had their own relaying facilities, which were not situated in India. From those facilities, the signals were beamed into space where they were received by a transponder located in the assessee’s satellite. The role of the assessee in this cycle was that of receiving the signals, amplifying them and after changing frequency relaying them over the entire footprint area.

For that service, the TV channels made payments to the assessee.

The question before the Hon’ble High Court was whether such payments can be said to be royalty chargeable to tax in India. Hon’ble High Court answered the question in the negative. However, the facts in the assessee’s case are clearly different. In the case under appeal before us, the issue is whether the fees received by the assessee for rendering services for domain registration can be said to be royalty.

Therefore, in our opinion, the above decision of Hon’ble Delhi High Court relied upon by the learned counsel for the assessee would have no application.

(vii) The learned counsel has also relied upon the decision of Authority for Advance Rulings in the case of Dell International Services (India) Private Limited – [2008] 218 CTR 209 (AAR). In that case also, the issue before the Authority for Advance Rulings was whether the payment for providing communication through telecom bandwidth can be termed as royalty within the meaning of Section 9(1)(vi) of the Income-tax Act. Thus, the facts in the above case were also different than the facts under appeal before us.

(viii) On the other hand, the issue before Hon’ble Apex Court in the case of Satyam Infoway Ltd. (supra), Hon’ble Jurisdictional High Court in the case of Tata Sons Limited (supra) and Hon’ble Bombay High Court in the case of Rediff Communications Ltd. – AIR 2000 Bombay 27 was whether the domain names can be considered as intellectual properties such as trademark.

(ix) Hon’ble Apex Court in the case of Satyam Infoway Ltd. (supra) has held that the domain name is a valuable commercial right and it has all the characteristics of a trademark and accordingly, it was held that the domain names are subject to legal norms applicable to trademark.

(x) Hon’ble Bombay High Court in the case of Rediff Communications Ltd. (supra) held that domain names are of importance and can be a valuable corporate asset and such domain name is more than an internet address and is entitled to protection equal to a trademark. Hon’ble Jurisdictional High Court in the case of Tata Sons Limited (supra) held that domain names are entitled to protection as a trademark because they are more than an address.

(xi) Respectfully following the above decisions of Hon’ble Apex Court, Hon’ble Bombay High Court and Hon’ble Jurisdictional High Court, we hold that the rendering of services for domain registration is rendering of services in connection with the use of an intangible property which is similar to trademark.

(xii) Therefore, the charges received by the assessee for services rendered in respect of domain name is royalty within the meaning of Clause (vi) read with Clause (iii) of Explanation 2 to Section 9(1) of Income-tax Act.