Case Law Details
PCIT Vs Godaddy.Com LLC (Delhi High Court)
Introduction: The Delhi High Court, in the context of Assessment Year (AY) 2014-15, recently issued a significant judgment on the appeal titled “PCIT vs GoDaddy.” This appeal contested the order of the Income Tax Appellate Tribunal dated 26.05.2023. The Tribunal was tasked with evaluating the legal tenability of the Commissioner of Income Tax (Appeals)’s decision to delete penalties totaling Rs. 1,97,31,721/- and Rs. 4,95,98,366/- under Section 271(1)(c) of the Income-tax Act, 1961 for AY 2013-14 and AY 2014-15.
Detailed Analysis:
The core issue revolved around the taxability of income from domain registration services. The Commissioner of Income Tax (Appeals) had deleted the penalties based on the belief that this income was not chargeable under the Act. The Tribunal’s analysis considered the dual revenue streams from web hosting and domain registration charges. Notably, the assessee had not initially offered income from domain registration services for taxation, asserting a bona fide belief in its non-taxability.
The Tribunal, drawing parallels with relevant legal precedents, emphasized the debatable nature of the issue. It noted that the quantum appeals filed by the assessee before the Hon’ble Delhi High Court raised substantial questions of law. The court had framed a question regarding whether income received for domain name registration services constituted “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961.
In subsequent proceedings, the Hon’ble Delhi High Court ruled in favor of the respondent/assessee in the quantum appeals for AYs 2013-14, 2014-15, and 2015-16. The court’s decision deemed the income from domain registration services as “royalty” under the Act.
Given this judicial stance, the Delhi High Court concluded that the penalties imposed in the instant appeal were not sustainable. The impugned order, according to the court, required no interference. Consequently, the appeal was closed, and the application for condonation of delay was dismissed.
Conclusion:
In summary, the Delhi High Court’s judgment in the PCIT vs GoDaddy case marks a significant development, emphasizing the debatable nature of the taxability of income from domain registration services. The court’s ruling in favor of the assessee in the quantum appeals shaped the outcome of the penalty dispute, ultimately leading to the dismissal of the appeal. This case underscores the importance of legal interpretations and precedents in the realm of income taxation.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This appeal concerns Assessment Year (AY) 2014-15.
2. Via the instant appeal, the appellant/revenue seeks to assail the order dated 26.05.2023 passed by the Income Tax Appellate Tribunal [in short, “the Tribunal”].
3. In the instant appeal, the Tribunal was called upon to adjudicate the legal tenability of two separate orders dated 09.2019 passed by the Commissioner of Income Tax (Appeals) [in short, “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 [in short, “the Act”], for AY 2013-14 and AY 2014-15.
4. It is not in dispute that CIT(A) deleted the penalty imposed by the AO, in view of the quantum appeals preferred before this Court concerning AYs 2013-14, 2014-15, 2015-16.
5. The Tribunal, while disposing of the appeal against the aforementioned orders of the CIT(A), had made the following observations:
“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.”
[Emphasis is ours]
5. In sum, the Tribunal was of the view that the issue involved in the appeal was debatable. Furthermore, the Tribunal had also relied on the fact that quantum appeals were pending in this Court.
6.1 Concededly, quantum appeals were filed by the respondent/assessee with this Court for the AY in issue, e., AY 2014-15 and other AYs as well.
The other AYs qua which the appeals were filed were AYs 2013-14, 2014- 15 and 2015-16.
6.2 Insofar as these appeals were concerned, the question of law, as framed, was answered in favour of the respondent/assessee and against the appellant/revenue.
7. The question of law framed and answered by this Court in ITA No. 891/2018 [AY 2013-14]; ITA No. 261/2019 [AY 2014-15] and ITA No. 75/2023 [AY 2015-16] reads as follows:
“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 [in short, “Act”]?”
8. Given the position that the respondent/assessee before us has succeeded in the aforementioned appeals, the penalty imposed in the instant appeal cannot be sustained.
9. Therefore, the impugned order, in our opinion, requires no interference.
10. The appeal is, accordingly, closed.
11. Consequently, the application filed for condonation of delay is rendered inefficacious and is, thereby, closed.
12. Parties will act based on the digitally signed copy of the order.
