$ 56 * IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision: 24.09.2019 + W.P.(C) 10387/2019 P.D.R SOLUTIONS FZC Petitioner Through: Mr. Kamal Sawhney, Advocate with Mr. Prashant Meharchandani and Mr. Divyansh Singh, Advocates. versus DISPUTE RESOLUTION PANEL- 2, NEW DELHI & ANR... Respondents Through: Mr. Zoheb Hossain, Senior Standing Counsel, Revenue. CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA SANJEEV NARULA, J (Oral): C.M. No. 42833/2019 (exemption) 1. Exemption allowed, subject to all just exceptions. 2. application stands disposed of. W.P.(C) 10387/2019 & CM APPL. 42832/2019 3. present petition has been filed challenging directions of Dispute Resolution Panel, (DRP) dated 25th July 2019 (hereinafter 'the impugned order'). Brief Facts: 4. Petitioner company is tax resident of UAE, and is engaged in W.P.(C) 10387/2019 Page 1 of 16 business of web presence, sale of domain names to global customers through its B2B brands "Logic Boxes", "Reseller club" and B2C brand "Big Rock . business also comprises of providing web hosting services whereby server spaces are given on lease/hire to clients. 5. For AY 2016-17, Respondent No. 2 [Assistant Commissioner of Income Tax, Circle Int. Tax. 2(2)(2)] passed draft assessment order, dated 31st December 2018, under Section 144C of Income Tax Act, 1961 (hereinafter 'the Act'), holding that Petitioner's income arising from Domain Name Registration Services and Web Hosting Services is taxable under provisions of Income Tax Act, 1961 and also under India- UAE, Double Taxation Avoidance Agreement( DTAA ). Petitioner, being aggrieved by said order filed its objections before DRP, inter alia objecting that its income arising out of domain name registration services and web hosting services are not taxable under India-UAE, DTAA. 6. DRP, after evaluating draft assessment order and decisions relied upon therein passed following order: " 3.2 We have considered factual and legal arguments of assessee. On perusal of draft assessment order, it is gathered that AO has primarily relied upon order of Ld. ITAT, Delhi in case of GoDaddy.com LLC (ITA No.No.1878/Del/2017 (A.Y 2013-14) and ITA. No. 7123/ DELI 2017 (A. Y 2014-15). On perusal of these orders dated 03.04.2018 and 24.07.2018 respectively, Panel is of view that facts of present case is squarely covered with facts of case of GoDaddy.com LLC (supra). It would be W.P.(C) 10387/2019 Page 2 of 16 appropriate to quote relevant part of order of Ld. ITAT covering issue of 'Domain Name Registration Services being treated as royalty' as under: ... (Excerpts from Godaddy.com decision reproduced) 3.3 Respectfully relying upon decision of Ld ITAT in case of GoDaddy.com LLC (supra), Panel upholds action of AO to treat receipts on account of 'Domain Name Registration Charges' as 'Royalty' u/ s 9(1)(vi) of Act. Ground of objection is therefore, dismissed. ... 4.5 In view of above discussion, Panel holds that webhosting services are interlinked with 'Domain Registration' and are ancillary and subsidiary to application or enjoyment of right for which payment is received as Royalty. Since payment received for registration of Domain Name is considered as 'Royalty', payments received for 'Web Hosting Services' are also considered as 'Royalty u/ s 9(1)(vi) of Act. Ground of objection is, therefore, dismissed." (emphasis supplied) 7. Learned Counsel for Petitioner contends that despite noting objection of Petitioner that AO has erred in proposing income from domain name registration services to be treated as Royalty, under India- UAE DTAA, DRP has not adjudicated upon same. DRP, without any application of mind, followed decision of Income Tax Appellate Tribunal (hereinafter ITAT ), Delhi in GoDaddy.com LLC (ITA No.No.1878/Del/2017 (A.Y 2013-14) and I.T.A No. 7123/DEL/2017 (A.Y 2014-15), not appreciating that taxability in GoDaddy.com (supra) was decided under provisions of Act and not under any DTAA. DRP W.P.(C) 10387/2019 Page 3 of 16 did not adjudicate Petitioner s categorical objections on taxability under India-UAE DTAA, which violates principles of natural justice. Per contra, learned counsel for Revenue, at outset raises preliminary objection as to maintainability of present petition. He argues that since there is alternate efficacious remedy available to Petitioner under Section 253(1)(d) of Act, whereby assessment order passed by AO in pursuance of DRP directions can be challenged in appeal before ITAT, Petitioner cannot be allowed to file present petition. He also contends that no assessee can be aggrieved merely by directions of DRP, since it does not culminate into order until AO incorporates it and passes assessment order. He further contends that assessee had option to either approach DRP against draft assessment order, or file appeal before CIT(A). Petitioner having elected to subject himself to jurisdiction of DRP under Section 144C(5) of Act, against which no right of appeal has been provided under Act, it cannot prefer writ petition to assail said order. Reliance has also been placed on judgment of Supreme Court in Mumbai International Airport Ltd. v. Golden Chariot Airport, (2010) 10 SCALE 69. 8. We have heard learned counsels for parties at length and given due consideration to their contentions. 9. main thrust of Respondent's argument pertains to objection of maintainability of present writ petition on ground of alternative efficacious remedy being available under scheme of Act. This objection relating to maintainability of petition, urged by W.P.(C) 10387/2019 Page 4 of 16 Revenue is twofold. Firstly, relying upon judgment of Supreme Court in Authorized Officer, State Bank of Travencore v. Mathew K.C., 2018 3 SCC 85, Revenue contends that this Court should not exercise its jurisdiction under Article 226 of Constitution of India, since effective alternate remedy is available to Petitioner under statute. Elaborating on this contention, Mr. Zoheb Hossain learned counsel for Revenue contends that Doctrine of Election would squarely apply to facts of present case. Petitioner-assessee having chosen one of two available remedies in law, cannot seek to bypass statutory mechanism by approaching this Court by way of writ petition. consequences of Writ Petition being allowed would lead to opening of flood gates and would encourage others to bye-pass statutory mechanism of seeking remedy. It would lead to unhealthy practice of converting Writ Court into second round of appeal, before assessee approaches ITAT and then finally before this Court under Section 260A of Act. He contends that Supreme Court had repeatedly emphasized need to follow statutory procedure for appeals, instead of filing Writ Petitions. He contends that dispute resolution panel was set up for speedy disposal of cases to facilitate expeditious resolution of disputes. directions of DRP, while deciding issues are final viz-a-viz Revenue, as it does not have right to appeal against directions passed for particular assessment year. He submits that in given case, since directions of DRP are suitable to Petitioner, it cannot be allowed to assail same by way of Writ Petition. Secondly, Mr. Hossain objects to maintainability of Writ Petition on ground that it is pre-mature. He contends that directions issued by DRP have to be implemented by Assessing Officer only by W.P.(C) 10387/2019 Page 5 of 16 passing assessment order, and then it will ripen into order that is open to challenge in terms of provisions of Act. In support of this submission, he relied upon judgment of Madras High Court in Hyundai Motors India Ltd. v. Secretary, Income Tax Department, (2017) SCC Online Madras 32229. 10. exercise of discretionary jurisdiction under Article 226 has been subject matter of several decisions of Supreme Court and also of this Court. Courts have repeatedly held that no limitation can be placed on powers of High Court in exercise of its writ jurisdiction. power of High Court under Article 226 of Constitution of India cannot be circumscribed by strict legal principles. At same time, there is no gainsaying that this discretionary jurisdiction is not absolute. This necessarily means that Courts have to exercise power under Article 226 judiciously, in facts of case and in accordance with law. Normally, writ petition under Article 226 is not entertained, if alternate statutory remedy is available. Supreme Court in CIT v. Chhabil Das Aggarwal (2014) 1 SCC 603, held as under: "15. Thus, while it can be said that this Court has recognised some exceptions to rule of alternative remedy i.e. where statutory authority has not acted in accordance with provisions of enactment in question, or in defiance of fundamental principles of judicial procedure, or has resorted to invoke provisions which are repealed, or when order has been passed in total violation of principles of natural justice, proposition laid down in Thansingh Nathmal case [AIR 1964 SC 1419] , Titaghur Paper Mills case [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : W.P.(C) 10387/2019 Page 6 of 16 1983 SCC (Tax) 131] and other similar judgments that High Court will not entertain petition under Article 226 of Constitution if effective alternative remedy is available to aggrieved person or statute under which action complained of has been taken itself contains mechanism for redressal of grievance still holds field. Therefore, when statutory forum is created by law for redressal of grievances, writ petition should not be entertained ignoring statutory dispensation." 11. Thus, though jurisdiction is inherently broad, Courts have carved out certain restrictions. These restrictions are self imposed and discretionary in nature and principles governing them, have been set out in numerous cases. One of exceptions which is well recognised is that if there is adequate efficacious alternate remedy available to Petitioner, Court should ordinarily not entertain petition unless there exist sufficient grounds to invoke extraordinary jurisdiction under Article 226 of Constitution of India. This is to ensure that jurisdiction of High Court does not become appellate mechanism for adjudication of disputes. [See: Whirlpool Corp v Registrar of Trade Marks, (1998) 8 SCC 1, Harbanslal Sahnia v. Indian Oil Corp. Ltd., (2003) 2 SCC 107; M.P Ste Agro Industrs Development Corp. Ltd. V Jahan Khan, (2007) 10 SCC 88; Sanjana M. Wig v. Hindustan Petroleum Corp. Ltd, (2005) 8 SCC 242; Maharashtra Chess Association v. Union of India, 2019(10) SCALE 67]. 12. instant case impugns directions issued by first Respondent - DRP under Section 144C(5) of Act. Under statutory scheme, as provided under Section 144C, Assessing Officer is required to forward draft of proposed order of assessment to eligible assessee if he W.P.(C) 10387/2019 Page 7 of 16 proposes to make any variation in income or loss returned which is prejudicial to interest of such assessee. assessee may file its objections, if any, against such variation within 30 days to Dispute Resolution Panel and Assessing Officer as provided under Section 144C(ii) of Act. Sub-Section (5) of Section 144 provides that Dispute Resolution Panel shall issue such directions as it thinks fit for guidance of Assessing Officer to enable him to complete assessment. This, however is subject to consideration of attributes provided under Sub-Section (6) of Section 144C. Sub-Section (7) of Section 144 further provides that Dispute Resolution Panel may, before issuing any directions referred to in Sub-Section (5), make such further enquiries as it thinks fit or cause further enquiry to be made by Income Tax Authority and report result of same to it. Sub-Section (10) of Section 144C contemplates that every direction issued by Dispute Resolution Panel shall be binding upon Assessing Officer. Thus, statutory scheme provided, clearly contemplates that Dispute Resolution Panel has obligation to examine dispute raised by assessee to draft assessment order, by taking into consideration all material and contentions furnished by assessee. DRP is required to evaluate and analyse in objective manner, records, material and evidence furnished by assessee or collected by him, or as result of any enquiry made by him. This is certainly not empty formality and requires application of mind and due consideration of materials furnished by assessee. 13. Whether Dispute Resolution Panel has indeed considered material can only be discerned by evaluating its reasoning and findings. W.P.(C) 10387/2019 Page 8 of 16 If it appears that DRP has considered relevant materials, decision which assessee labels as wrong would not be amenable to Writ Jurisdiction and such wrongs can and should be corrected by resorting to statutory mechanism of appeal. However, if decision of DRP betrays non-consideration of relevant material, only inference one can draw is that Dispute Resolution Panel has failed to exercise its jurisdiction and it reflects non-application of mind. If such situation emerges, then in our considered view, such order would be amenable to writ jurisdiction of High Court, since it would be case of failure of statutory authority to exercise its jurisdiction. 14. We are not suggesting that every order, where there is non-application of mind, would become amenable to challenge under Article 226 of Constitution of India. However, if there is fundamental error relating to exercise of jurisdiction which is glaring and noticeable, it would fall within exceptions that Courts have carved out for entertaining such petition. Thus, there is no quarrel with legal proposition advanced by Revenue. Each case has to turn on its own facts, and we cannot at threshold refuse to entertain petition merely on ground that since Petitioner has elected to avail its remedy by filing objections before Dispute Resolution Panel, directions are not amenable to writ jurisdiction of this Court under Article 226 of Constitution of India. Pertinently, alternate efficacious remedy that has been cited by revenue is by way of appeal before ITAT, which is not available as yet, because no assessment order has yet been passed by Assessing officer. only submission of Petitioner is that DRP has not even taken W.P.(C) 10387/2019 Page 9 of 16 into consideration Petitioner s plea that it is tax resident of UAE, and under India UAE DTAA, Assessing Officer could not have proposed to treat income from domain name Registration as Royalty. If this plea of Petitioner is not even looked at/ examined by DRP, it would tantamount to jurisdictional error. To relegate Petitioner to appellate remedies, where he would have to join queue, in order to obtain order of remand to DRP, would be unjustified. Significantly, no prejudice would be caused to Revenue, as Petitioner is only seeking correction of jurisdictional error. Thus, if Petitioner was to succeed in present petition, it would only result in order remitting matter to DRP to decide afresh; in which eventuality, DRP would be entitled to deal with objections in accordance with law. 15. Having noted above, next question that falls for consideration is whether writ petition raises issue that would invite exercise of jurisdiction by Court at this stage. 16. There is no dispute that Respondent No. 2 passed draft assessment order dated 31st December 2018 under Section 144C of Act holding that Petitioner s income arising from domain name Registration Services and Web Hosting Services is taxable under provisions of Income Tax Act 1961 and also under India-UAE DTAA. Petitioner approached Respondent No. 1 and filed objections by invoking jurisdiction under Section 144C of Act against aforesaid draft assessment order. Petitioner categorically objected in Form 35A that its income arising out of domain name registration services and web hosting services is not taxable W.P.(C) 10387/2019 Page 10 of 16 under India-UAE DTAA. arguments noted by Respondent No. 1 on 25th July 2019, specifically records objection raised by Petitioner with respect to non-taxability of Income under India-UAE DTAA in following words:- "2. AO/ TPO have proposed certain adjustments in income of assessee. assessee is before this Panel objecting to same. Objection wise directions of Panel are as below: 3. Ground No. 1 Addition on account of income from Domain Name Registration Services bring treated as royalty 1. On facts and circumstances of case and in law, Assessing Officer {'AOJ erred in proposing that income from Domain Name Registration services are taxable as 'Royalty' under Section 9(1)(vi) of Income Tax Act, I 961 ('Act and under India- UAE Treaty ('tax treaty ) AO based her conclusion on contention that assessee is owner of domain name and is imparting right to use in respect of domain name thus erroneously considering it as 'Trademark'. 2. assessee prays that income from domain name registration services is erroneously taxed as Royalty under tax treaty and AO 's conclusions in this regard are invalid, unwarranted and accordingly we pray that addition of INR 76,64,37, 723 proposed by learned AO be reversed." 17. perusal of aforenoted objections recorded by Respondent No.1 under 144C (5) of Act, leaves no room for any doubt that despite categorical recording noted above, same has not been adjudicated upon. DRP has, instead, blindly followed decision of GoDaddy.com LLC W.P.(C) 10387/2019 Page 11 of 16 (supra), and held that Web Hosting Services are interlinked with domain registration and are ancillary and subsidiary to application or enjoyment of right for which payment is received as royalty. Since payment so received is considered as royalty, payments received for Web Hosting Services are also considered as Royalty under Section 9(1)(vi) of Income Tax Act, 1961. It is starkly noticeable that main contention, or to say basic argument, raised by Petitioner with respect to non- taxability of its income under India-UAE DTAA has not been noticed or discussed, much less adjudicated upon. 18. case of Petitioner is essentially that definition of Royalty under Act is wider than that provided in Treaty. Petitioner s contention is that under Act transfer of rights in property similar to trademark is also covered, whereas under Treaty, only transfer of right to use trademark is covered and not similar rights or rights in property similar to trademark . This Court, at this stage, is not expressing any view on merits of aforesaid objection as it is for Respondent No. 1 to consider, evaluate and analyse same, while exercising power under Section 144C of Act. However, we cannot gloss over fact that this elementary argument of Petitioner has not been dealt with at all in impugned directions. Further, it also cannot escape our attention that decision of ITAT Delhi in GoDaddy.com LLC (supra) - which forms basis of impugned directions, has distinguishing feature, which is also noted in impugned directions in para 3.2. In case of GoDaddy.com LLC (supra), assessee took stand that it is not tax resident of USA, and therefore, it was not claiming any benefit under provisions of India- W.P.(C) 10387/2019 Page 12 of 16 US Tax Treaty. Accordingly, Tribunal was called upon to decide whether receipt by assessee on account of domain registration fee could be termed as Royalty as per Section 9(1)(vi) of Income Tax Act, 1961. This is apparent from discussion in para 8 of decision, which has been reproduced in impugned directions, and reads as under:- 8. We have carefully considered arguments of both sides and perused relevant material placed before us. limited question before us is whether domain registration fee received by assessee can be termed as royalty. At outset, we clarify that appellant himself has mentioned that since it is not tax resident of USA, therefore, it is not claiming any benefit under provisions of India-US tax treaty. Accordingly, we have to examine within meaning of Income-tax Act, more particularly, Section 9(1)(vi) to examine whether receipt by assessee on account of domain registration fee can be termed ns royalty. Section 9(1)(vi) of Income-tax Act rends as under:- 119. (1) following incomes shall be deemed to accrue or arise in India:- (vi) income by way of royalty payable by - (a) Government; or (b) person who is n resident, except where royalty is payable in respect of any right, property or information 12 IT A-1878/Del/2017 used or services utilised for purposes of business or profession carried on by such person outside India or for purposes of making or earning any income from any source outside India; or (c) person who is non-resident, where royalty is payable in respect of any right, property or information used or services utilised for purposes of business or profession carried on by such person in India or for purposes of making W.P.(C) 10387/2019 Page 13 of 16 or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to so much of income by way of royalty as consists of lump sum consideration for transfer outside India of, or imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, inventions, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of agreement made before 1st day of April 1976 and agreement is approved by Central Government: [Provided further that nothing contained in this clause shall apply in relation to so much o income by way of royalty as consists of lump sum payment made by person, who is resident, for transfer of all or any rights (including granting of licence) in respect of computer software supplied by non-resident manufacturer along with computer or computer-based equipment under any scheme approved under Policy on Computer Software Export, Software Development and Training, 1986 of Government of India)." 19. Respondent No. 1 has evidently not taken note of aforesaid aspect and has relied upon decision of ITAT, in GoDaddy.com LLC (supra) to uphold action of AO to treat receipts on account of domain name registration charges as royalty under Section 9(1)(vi) of Act. Whether or not, said distinction would have bearing on ultimate decision is one thing, but DRP should have noticed same and dealt with it. It could not have completely ignored it or glossed over it. Even if first Respondent were to come to conclusion that aforesaid decision of ITAT was W.P.(C) 10387/2019 Page 14 of 16 applicable to Petitioner, it was surely necessary for panel to give its reasons for coming to that conclusion. factual position as noted in para 8 of decision in GoDaddy.com LLC (supra) reproduced above is inextricably connected to Petitioner s main plank of objection viz. non- taxability under provisions of Treaty. Therefore, it was not expected of first Respondent to irrationally apply decision of GoDaddy.com LLC (supra) to give its finding and directions regarding taxability of receipts in hands of Petitioner, without discussing petitioner s submissions against its applicability. perusal of impugned direction also shows that apart from copying reasoning given in GoDaddy.com LLC (supra), first Respondent has merely endorsed and followed said reasoning without giving any indication as to how same has been held to be applicable to Petitioner while dealing with its foremost objection regarding provisions of Treaty. There is also no discussion regarding sustainability of Petitioner s objection or as to how findings rendered by Assessing Officer in draft order on said issue has to be accepted. conclusion has been summarized in para 3.3 of impugned directions as under:- "3.3 Respectfully relying upon decision of Ld ITAT in case of Go Daddy.com LLC (supra), Panel upholds action of AO to treat receipts on account of 'Domain Name Registration Charges' as 'Royalty' u/s 9(1)(vi) of Act. Ground of objection is therefore, dismissed." 20. first Respondent ought to have considered objection raised by Petitioner and discussed same on basis of material placed, before giving its conclusion. Having examined impugned directions in W.P.(C) 10387/2019 Page 15 of 16 light of objections raised by Petitioner, we have no hesitation in holding that first Respondent has completely failed to exercise its jurisdiction and has rendered entire process of dispute resolution as per scheme of Act farcical. 21. Accordingly, writ petition is allowed and impugned order is set aside. Consequently, matter is remitted back to first respondent for considering objections raised by petitioner in detail, and for passing fresh order on merits and in accordance with law by giving reasons and findings. It is made clear, once again that this Court is not expressing any view on merits of claim/objections made by Petitioner, or findings rendered by Transfer Pricing Officer, as it is for first respondent to consider and decide these aspects. first respondent shall pass such order after hearing petitioner within period of eight weeks from date of receipt of copy of this order. In case Petitioner is still aggrieved, it shall be open to it to avail of its remedies. No costs. Consequently, pending application is also disposed of. SANJEEV NARULA, J VIPIN SANGHI, J SEPTEMBER 24, 2019 ss/nk W.P.(C) 10387/2019 Page 16 of 16 P.D.R Solutions FZC v. Dispute Resolution Panel-2, New Delhi & Anr