GoDaddy.com Vs ACIT (ITAT Delhi)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi has held that income earned by GoDaddy.com, LLC from domain name registration services and other web-related services provided to Indian customers is not taxable as royalty or Fees for Technical Services (FTS)/Fees for Included Services (FIS) in India. The tribunal’s decision for the assessment years 2016-17, 2017-18, 2018-19, 2019-20, and 2021-22 allows the appeals filed by the US-based company against the final assessment orders.
GoDaddy.com, LLC, an accredited domain name registrar and provider of various web services globally, had approached the ITAT challenging the orders of the Assistant Commissioner of Income Tax (ACIT), which were subsequently confirmed by the Dispute Resolution Panel (DRP). The tax authorities had contended that GoDaddy’s income from domain name registration was taxable as ‘royalty’ under Section 9(1)(vi) of the Income Tax Act, 1961 and Article 12(3)(a) of the India-USA Double Taxation Avoidance Agreement (DTAA). Income from other services like web hosting, web designing, SSL certification, and on-demand products was deemed taxable as FTS under Section 9(1)(vii) of the Act and FIS under Article 12(4)(a) of the India-USA DTAA.
The dispute also involved the tax authorities’ denial of benefits under the India-USA DTAA to GoDaddy, classifying it as fiscally transparent entity (LLC) not ‘liable to tax’ in the USA and thus not qualifying as a resident under Article 4 of the DTAA.
GoDaddy argued that its role in domain name registration is merely that of a facilitator or registrar. It asserted it does not own the domain names it helps register and therefore cannot grant the right to use or transfer proprietary rights, a prerequisite for income to be classified as royalty. Regarding non-domain services, the company contended that these services do not involve the transfer or ‘making available’ of technical knowledge, experience, skill, know-how, or processes, which is a key condition for taxing income as FIS under the India-USA DTAA. They also argued that these services were not ancillary and subsidiary to domain registration income considered as royalty, as the taxability of domain registration income as royalty was contested.
The ITAT, in its order, gave significant weight to the decision of the Hon’ble Delhi High Court in GoDaddy’s own case for earlier assessment years (ITA Nos. 891/2018, ITA 261/2019, and ITA 75/2023). The High Court had previously held that income from assisting customers in domain name registration cannot be treated as royalty under Section 9(1)(vi) of the Act. The ITAT noted that the facts and agreement clauses in the present years were not shown to be different from those considered by the High Court. Relying on the principle established by the High Court that a registrar does not own the domain name and thus cannot confer the right to use it, the tribunal concluded that the income from domain name registration services is not taxable as royalty.
On the issue of eligibility for DTAA benefits, the ITAT referred to a decision of a co-ordinate bench in the case of GoDaddy’s sister concern, Wild West Domains, LLC vs ACIT (ITA No. 1774/Del/2022). That ruling held that fiscally transparent entities are entitled to DTAA benefits if they are liable to tax in their jurisdiction and possess a valid Tax Residency Certificate (TRC). This finding addressed the tax authorities’ contention regarding GoDaddy’s status as an LLC.
Concerning the taxability of non-domain services as FTS/FIS, the ITAT examined whether these services met the criteria under the India-USA DTAA, particularly the ‘make available’ clause in Article 12(4)(b) and the condition of being ancillary and subsidiary to royalty income under Article 12(4)(a). The tribunal noted that the AO had incorrectly concluded that non-domain services were ancillary and subsidiary to domain registration income, despite holding domain registration income as royalty. Since the ITAT, following the High Court, ruled that domain registration income is not royalty, the condition under Article 12(4)(a) was not met.
Furthermore, the ITAT analyzed the ‘make available’ clause. Referring to the Memorandum of Understanding (MOU) between India and the USA and various judicial precedents, including the Karnataka High Court in CIT vs. De Beers India Minerals (P) Ltd. and other ITAT decisions (Millennium Infocom Technologies Ltd., Campus Eai India Pvt. Ltd., Amazon Web Services, Inc., and Sunguard Availability Services LLP), the tribunal reiterated that for a service to ‘make available’ technical knowledge, the service recipient must be able to apply the technology independently in the future without recourse to the service provider.
The ITAT observed that GoDaddy’s web hosting and other non-domain services are standard services provided for a fixed period, requiring renewal. Users do not gain the ability to independently apply the underlying technology. Therefore, the tribunal concluded that these services do not ‘make available’ technical knowledge.
Based on these findings, the ITAT held that the income from non-domain services was not taxable as FTS/FIS under the India-USA DTAA. Consequently, the tribunal allowed the appeals, setting aside the additions made by the tax authorities. The grounds related to the levy of interest under sections 234A and 234B and the initiation of penalty proceedings were also found to be unsustainable as they were consequential to the additions.
FULL TEXT OF THE ORDER OF ITAT DELHI
