Domain Name Registration Fees Not Royalty: Delhi HC

Fees Received for Facilitating Registration of Domain Names (Trademark) Owned by Third Party, i.e., Customers Cannot be Treated as Royalty

Overview: Registration services provided by domain name registrars to its customers for registration of their particular trademark (domain name) cannot be considered as if the registrar has inferred any right or transferred any right to use such domain name to the customer. This has been held by High Court of Delhi in the case of Godaddy.Com LLC v. Assistant Commissioner of Income-tax [2023] 157 taxmann.com 256 (Delhi)[11-12-2023].

Facts of the case:

1. Assessee or the taxpayer, a resident of United States, is engaged in the business of providing domain name registration services to its customers.

2. Tax officer brought such fees received by the assessee as royalty stating that the taxpayer is providing domain registration services as right to use or the use of servers maintained by it.

3. The order of the officer was upheld by the Dispute Resolution Panel (herein “DRP”) and the Income-tax Appellate Tribunal (herein referred to as the “tribunal” or “ITAT”).

4. Aggrieved by the order of the tribunal, the taxpayer filed an appeal before the hon’ble high court.

Decision of the court:

1. The court appreciated the facts about operation of the business of the assesses or how it provides its services. The functions of the taxpayer involve facilitation of sending the request of a customer seeking a particular domain name to the registry for checking the availability of the domain name.

2. In the whole process of registration, nor did the assessee own that domain name neither did it provide a domain name out of collection its trademarked names. The agreement entered by the assessee and registry of names shows the same only.

3. Further, the court held that the decision of the ITAT was based on false reliance on a decision of the supreme court, where the principles derived from such decision was related to the rights of the domain owner.

4. Thus, the court while ruling in the favor of the taxpayer held that fee received for registration of domain names of third parties, i.e., its customers, cannot be treated as royalty.

Conclusion: In a landmark ruling, the High Court of Delhi sided with the taxpayer, asserting that the fees received for facilitating the registration of domain names owned by third parties—its customers—cannot be treated as royalty. This decision provides clarity on the tax implications of domain registration services and underscores the importance of discerning the specific nature of transactions in the evolving landscape of intellectual property taxation.