The Delhi High Court has held that the Amazon Web is not liable to pay Royalty on rendering cloud computing services to Indian Entities.
The bench of Justice Vibhu Bakhru and Justice Tejas Karia has observed that the Assessee’s customers do not acquire any right of using the infrastructure and software of the Assessee for the purposes of commercial exploitation. The charges paid by the Assessee’s customers are for availing services, which the Assessee provides by using its proprietary equipment and other assets. No part of its equipment or IPRs are alienated by the Assessee in favour of its customers for their use. Therefore, the payments received cannot be considered as royalties within the meaning of Article 12(3) of the India-US Double Taxation Avoidance Agreement (DTAA).
The respondent/Assessee, Amazon Web Services is a company incorporated in the United States of America and is a tax resident of that country. The Assessee had received certain sums of money from Indian entities for rendering cloud computing services, which, according to the AO are chargeable to tax as royalty and fees for technical service (FTS) under the Act as well as “the Convention between the Government of the United States of America and the Government of the Republic of India for the Avoidance of Double Taxation and Prevention of Fiscal evasion with respect to taxes on income” (India-US DTAA).
The Assessee contends to the contrary and claims that its receipts are for providing standard cloud computing services, which are not chargeable to tax either as royalties or as FTS. Therefore, the Assessee had not filed its return of income. The Assessee’s customers that had remitted the charges to the Assessee for services had not withheld any tax under Section 195 of the Act for the same reason.
The department had initiated proceedings under Section 201/201(1A) of the Act in case of one M/s Snapdeal Private Limited (erstwhile Jasper Infotech Private Limited), which had availed of the services of the Assessee. The information that the said company had remitted funds overseas as charges for the services rendered by the Assessee was furnished to the AO. The AO was of the view that the amounts received by the Assessee were chargeable to tax under the Act. Accordingly, the AO issued notices under Section 148 of the Income Tax Act and commenced proceedings for re-assessment for AYs 2014-15 and 2016-17.
The issue raised was whether payments for cloud computing are taxable as royalty under the Act and the relevant Double Taxation Avoidance Agreement.
The court has held that the payments received for rendering cloud computing services cannot be considered as royalties within the meaning of Article 12(3) of the India-US DTAA.
The court has dismissed the appeal filed by The Commissioner Of Income Tax – International Taxation -1.
Case Details
Case Title: The Commissioner Of Income Tax – International Taxation -1 Versus Amazon Web Services, Inc
Case No.: ITA 150/2025 & CM APPL. 29405/2025
Date: 29.05.2025
Counsel For Petitioner: Mr. Ruchir Bhatia
Counsel For Respondent: Mr. Porus Kaka, Sr. Advocate
