Facts of the Case

The respondent, Amazon Web Services, Inc. (AWS), is a company incorporated in the United States of America and a tax resident of the USA. AWS provides standardised and automated cloud computing services to customers globally, including customers in India. For Assessment Years 2014-15 and 2016-17, AWS received payments from Indian customers towards cloud computing services. AWS did not file returns of income in India on the ground that such receipts were not taxable in India. Correspondingly, Indian customers did not withhold tax under Section 195.

Based on information received during proceedings under Sections 201/201(1A) in the case of an Indian customer, the Assessing Officer initiated reassessment proceedings under Section 147 read with Section 148 for the relevant years. Draft assessment orders were passed holding that receipts were taxable as royalty and fees for technical/included services under the Income-tax Act and Article 12 of the India–US DTAA. Final assessment orders were passed under Section 147 read with Section 144C(13), determining substantial taxable income. The ITAT allowed AWS’s appeals and set aside the assessments. The Revenue appealed to the Delhi High Court under Section 260A.

Issues Involved

Whether payments received by AWS from Indian customers for cloud computing services constituted royalty under Section 9(1)(vi) of the Income-tax Act and Article 12(3) of the India–US DTAA, whether such payments constituted fees for technical/included services under Section 9(1)(vii) and Article 12(4) of the DTAA, including on the basis of “equipment royalty” or the “make available” test, and whether the ITAT erred in deleting the additions.

Petitioner’s Arguments

The Revenue contended that AWS provided access to hardware, software, servers, storage, networking equipment and APIs, amounting to use or right to use equipment and intellectual property. It was argued that payments were taxable as royalty, including equipment royalty, and alternatively as fees for included services as the services were technical and ancillary to the enjoyment of rights or made available technical knowledge and processes. The Revenue also relied on contractual clauses relating to service offerings, trademarks, content and support services.

Respondent’s Arguments

AWS contended that it provided standardised, automated cloud computing services through a non-exclusive, non-transferable licence to access services, without transferring any intellectual property, source code, technology or control over equipment. Customers neither acquired any right to commercially exploit IP nor had any equipment placed at their disposal. The services did not “make available” technical knowledge or processes. There was no permanent establishment in India, and the receipts were not taxable as royalty or fees for included services under the Act or the India–US DTAA. Reliance was placed on binding precedents including Engineering Analysis Centre of Excellence and coordinate High Court decisions on cloud and software services.

Court Order / Findings

The Delhi High Court examined the agreements, the nature of services and the findings of the ITAT. The Court held that AWS provides standardised and automated cloud computing services and does not transfer any technology, know-how, skill or process to customers. Customers are granted only limited access to services; no equipment or IP is placed at their disposal for use or commercial exploitation. Support services are incidental and do not satisfy the “make available” test.

The Court rejected the Revenue’s characterization of receipts as equipment royalty, holding that the use of AWS’s infrastructure by AWS to render services does not amount to granting customers the right to use equipment. The Court further held that the receipts do not qualify as royalty or fees for included services under Article 12 of the India–US DTAA. The issues were held to be squarely covered by Supreme Court and High Court precedents, including Engineering Analysis Centre of Excellence, Salesforce.com Singapore, MOL Corporation, and other decisions cited. No substantial question of law arose.

Important Clarification

The High Court clarified that access to standardised cloud services does not equate to use or right to use equipment or IP. Payments for cloud computing services, absent transfer of rights or making available technical knowledge, are not taxable as royalty or fees for included services under the Act or the India–US DTAA, particularly where there is no permanent establishment in India.

Final Outcome

The Revenue’s appeals were dismissed. The Delhi High Court upheld the ITAT’s order deleting the additions and held that payments received by Amazon Web Services, Inc. from Indian customers for cloud computing services were not taxable in India as royalty or fees for technical/included services.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769677701_THECOMMISSIONEROFINCOMETAXINTERNATIONALTAXATION1VsAMAZONWEBSERVICESINC.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.