Delhi High Court Directs Nil TDS For GoDaddy, Says Domain Registration Fees Not Taxable Under India-US DTAA

The Delhi High Court has held that domain name registration fees received by GoDaddy is not chargeable to income tax in India, in terms of the India-USA Double Taxation Avoidance Agreement.

A division bench of Justices Dinesh Mehta and Vinod Kumar also criticised the Income Tax Department for refusing to grant a nil withholding tax certificate under Section 197 of the Income Tax Act, 1961, despite binding judicial precedent.

“We record our displeasure about the casual rather callous manner, in which the petitioner's application under Section 197 of the Act of 1961 has been rejected, completely disregarding the binding judgment of this Court…” the judges said.

The Court was dealing with a writ petition filed by GoDaddy.com LLC, challenging an order of the tax authorities rejecting its application for a nil TDS certificate in respect of payments received from Indian customers for domain registration services.

The tax department had denied the certificate on the ground that the Revenue had proposed to file a Special Leave Petition (SLP) against earlier judgments holding that such receipts were not taxable in India.

The Department was referring to the High Court's decision in GoDaddy.com LLC vs. Asst. Commissioner of Income Tax (2023) where it was held that fees received for facilitating registration of domain names of customers can't be treated as royalty.

The Department contended that until the Supreme Court decided the issue, a nil withholding certificate could not be granted.

Rejecting this approach, the High Court held,

“Such reason, according to us cannot be said to be a reason in the eyes of law, much less a plausible or sustainable one. While noticing that limitation of filing SLP has since passed, we are constrained to record that impugned order unravels the mindset of the authority, for whom Revenue collection appears to be the sole objective.”

The Court cautioned that the Authority deciding application under Section 197 has an obligation to decide the application as per the provisions of the Act, while having due regard to the treaties between the two countries. “He should not be driven or swayed by the Revenue targets/considerations,” it said.

Accordingly, the Court directed the Competent Authority to issue a certificate at 'nil' rate within a period of 15 days.

For Petitioner: Senior Advocate Sachit Jolly with Advocates Mayank Chaturvedi and Abhyudaya Shankar

For Respondent: Advocate Siddhartha Sinha, SSC with Easha Gurung, JSC.