Godaddy.Com LLC v. ACIT [2023]

🌐 GoDaddy.com LLC vs. ACIT – Delhi High Court: Domain Name Registration Fees Not Royalty under India–USA DTAA (2024)

📌 Background

The characterization of payments for domain name registration services has long remained contentious. Tax authorities frequently argued that fees paid for registering or maintaining a domain name constitute “royalty” under Section 9(1)(vi), equating a domain name with a trademark or similar intellectual property.

However, the digital economy functions differently: domain registrars merely facilitate allocation of domain names by maintaining a database and acting as intermediaries—they do not own the domain names, nor do they grant any proprietary rights.

In GoDaddy.com LLC v. ACIT (2024) 337 CTR 321 (Delhi High Court), the Court provided a landmark clarification that fees earned by GoDaddy for domain name registration are NOT royalty under Section 9(1)(vi) or Article 12 of the India–USA DTAA.

📂 Facts of the Case

• Assessee: GoDaddy.com LLC, a U.S.-based non-resident entity.
• Business Activities:
  • Web hosting services
  • Registration and transfer of generic top-level domains (.com, .net, .org, .info)
  • Registration of country-code top-level domains (ccTLDs)
• Nature of Receipts: Fees from Indian customers for registration and renewal of domain names.
• Assessee’s Contention:
  • It does not own the domain names, and therefore cannot grant any “right to use” a domain.
  • The service is purely administrative in nature.
  • Fee received is business income, taxable only if it has a Permanent Establishment (PE) in India (which it does not).
• Revenue’s Stand:
  • Domain names are akin to trademarks.
  • Registration fees represent royalty under Section 9(1)(vi) and Article 12(3)(a) of India–USA DTAA.
  • Hence, GoDaddy’s Indian customers must deduct TDS.

The CIT(A) and ITAT had issued varying interpretations across years, but the High Court’s ruling finally settled the issue.

❓ Point of Dispute

Does the fee received by GoDaddy for providing domain name registration and related services constitute “royalty” under Section 9(1)(vi) or Article 12(3)(a) of the India–USA DTAA, thereby attracting TDS under Section 195?

📑 Submissions by the Assessee

• It acts merely as a registrar—a technical intermediary between the domain name registrant and the domain registry.
• It does not possess ownership or exclusive rights over any domain name.
• It cannot transfer, assign, or grant proprietary rights in domain names.
• The Registrar Accreditation Agreement (RAA) explicitly states that:
  • Registrar has no proprietary rights in domain names.
  • Registrar cannot confer any “right to use” over the domain name.
• Therefore, the payments cannot be classified as royalty.
• Under Article 7 of the India–USA DTAA, business profits of a non-resident are taxable in India only where it has a PE, which GoDaddy does not.

📑 Submissions by the Revenue

• A domain name functions like a trademark, identifying a business on the Internet.
• Registration of domain name involves granting of rights resembling intellectual property rights.
• Thus, fees should be classified as royalty.
• ITAT had earlier held domain name fees as royalty, relying on the analogy with trademark licensing.

⚖️ Legal Principles & Court’s Findings

1. No proprietary rights over domain names

The Court examined the RAA and emphasized:

• GoDaddy has no ownership of domain names.
• It cannot grant any rights other than processing registration requests.
• It merely maintains a database on behalf of the registry.

Therefore, GoDaddy cannot transfer any right in a domain name.

2. Domain name registration ≠ trademark licensing

A domain name:

• May function like a mark in commercial space,
• But registration of a domain does not transfer any trademark right, copyright, or proprietary interest.

Thus, domain registration does not constitute “use of trademark”.

3. No “use or right to use” intellectual property

For a payment to be “royalty”, Article 12(3)(a) of the DTAA requires:

• Use of or right to use a copyright, patent, trademark, or similar property.

The Court held:

• Customers only receive the right to use a designated web address,
• Not any underlying intellectual property.

Hence, the fee is not royalty either under DTAA or domestic law.

4. Purely administrative service

GoDaddy’s role is limited to:

• Checking availability
• Processing registration
• Submitting data to the central registry

It is not granting IP rights, only performing administrative functions.

5. DTAA overrides domestic law

Even if Section 9(1)(vi) is interpreted expansively:

• Article 12(3) of India–USA DTAA is narrower and prevails under Section 90(2).
• Under the treaty, such payments cannot be treated as royalty.

🏁 Held

The Delhi High Court held:

✔ Fees for domain name registration are not royalty under Section 9(1)(vi).

✔ Not royalty under Article 12(3)(a) of India–USA DTAA.

✔ GoDaddy has no proprietary rights to transfer; hence cannot confer a “right to use.”

✔ The receipts are not taxable in India in the absence of a PE.

✔ Assessee’s appeal allowed; Revenue’s position rejected.

✅ Practical Impact for Digital Businesses

• Domain registration services are not royalty, providing major clarity for Internet businesses.
• Indian customers of foreign registrars need not deduct TDS.
• Reinforces the principle that administrative or technical facilitation services do not become royalty.
• Provides certainty for cloud service providers, registrars, and web-hosting companies.

🔑 Key Takeaways

1. Domain registrars do not own domain names, hence cannot transfer IP rights.
2. Domain registration ≠ licensing of trademarks.
3. DTAA overrides domestic law; Article 12(3)(a) requires clear transfer of IP rights.
4. TDS under Section 195 is not applicable on domain registration fees.
5. Strengthens jurisprudence on distinguishing digital administrative services from IP licensing.

📢 Why This Case Matters

This judgment is crucial for the digital economy, where millions of domain names are registered yearly through foreign registrars. It eliminates unnecessary tax compliance burdens on Indian users and prevents misclassification of domain registration services as “royalty”, aligning Indian law with global norms in Internet governance.

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