Mumbai Tribunal rules domain registration charges are not taxable as royalty under DTAA

In the case of PDR Solutions FZC^[1] , the Taxpayer, a UAE tax resident, was engaged in internet domain name registration process. When a customer asked for a particular domain name, the Taxpayer would check if such domain name was already registered in the database maintained by Internet Corporation for Assigned Names and Numbers (ICANN). It was only if the requested domain name was not already registered that the requested domain name will be registered in name of that customer and the Taxpayer would charge domain registration fees. Issue under consideration before Mumbai Tribunal was whether such domain registration charges were taxable as royalty under India-UAE double taxation avoidance agreement (DTAA). 

The Tribunal held that, while domain name is an intellectual property in the nature of trademark, such domain name did not exist in the database prior to the registration. The rights in the domain name came into existence in favor of the customer only upon the registration and the same belongs to the customer alone during the period of registration. The activity of the Taxpayer did not result in transferring of any right in the domain name since its scope of activities is restricted only to facilitate the registration of the domain name after checking its availability in the database maintained by ICANN. Apart from acting as an intermediary in the entire process of domain name registration, the Taxpayer has no other role to play. Accordingly, since the Taxpayer had no right in the domain name, domain registration charges did not qualify as royalty under India-UAE DTAA.

[1] [TS-1004-ITAT-2022(Mum)]