Delhi High Court rules that payments to Amazon Web Services for cloud services are not taxable as royalty or technical fees. Major win for global tech firms and Indian startups.
New Delhi: Today, On May 29, The Delhi High Court recently gave an important decision on the taxation of cloud computing services in India.
The Court said that Indian companies paying foreign cloud service providers like Amazon Web Services (AWS) for standard cloud services do not need to pay tax on that money as royalty or fees for technical services (FTS).
This case was between the Commissioner of Income Tax (International Taxation) and Amazon Web Services, a cloud services company based in the United States.
A Division Bench of Justices Vibhu Bakhru and Tejas Karia gave this ruling after hearing a group of appeals filed by the Income Tax Department against AWS.
The Court’s decision supports AWS and will have a big impact on how cloud computing services are taxed in India in the future.
The Income Tax Department had claimed that AWS’ income from Indian clients, including well-known companies like Snapdeal, should be taxed in India.
They argued that AWS was giving Indian customers access to its servers, data storage systems, APIs, and other digital tools. According to the Department, this counted as providing access to scientific equipment, software, and infrastructure.
Therefore, the payments received by AWS should be taxed as either “equipment royalty” or “fees for technical services” under Section 9 of the Income Tax Act, 1961 and Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and the United States.
However, AWS disagreed with the Income Tax Department’s view. The company said it only provides standardised and automated cloud computing services to its customers.
These services are provided remotely using a self-service model, where clients agree to pre-written terms and use AWS’s platform without any human help or customisation.
AWS explained that it does not transfer any kind of intellectual property rights (IPRs), technical know-how, or ownership of its systems and infrastructure to customers.
The Court supported AWS’ position and agreed with an earlier decision of the Income Tax Appellate Tribunal (ITAT), which had already ruled in favour of AWS.
Also Read: AMAZON SCAM | Consumer Court Imposes Penalty on Amazon for Delivering Dirty Rice Bowl Instead of Laptop Table
The High Court clearly stated that just using cloud services like storage, hosting, and computing power does not mean a customer gets ownership or control of the technical setup behind it.
The Court said,
“The customers do not acquire any right or title or any IPR that would entitle them to exploit or commercially monetize the said assets on its own.”
This means that Indian customers using AWS services are not receiving any technology or software in a way that would make them owners or users of AWS’s intellectual property. They are only using a service.
The case originally started because of reassessment proceedings by the tax authorities for the Assessment Years (AYs) 2014–15 and 2016–17. The Assessing Officer claimed that AWS should have paid tax in India on the money it earned from Indian companies.
But the High Court examined AWS’s services closely and noted that the main nature of these services is that they are “standard and automated” and provided remotely without any human interaction or involvement.
The Court pointed out several key facts that supported AWS:
- Customers only get “limited, non-exclusive, non-transferable access to the AWS platform”
- “There was no transfer of technical know-how or skills”
- “The infrastructure was not placed at the disposal of customers”
- “The services were consumed online and the software’s source code was never shared.”
Further, the Court said,
“There is no material to establish that grant of such service entails transfer of any technical know-how, skill, knowledge or process… The customers of the assessee do not acquire any right to commercially exploit any of the assessee’s IPRs.”
The Revenue also tried to argue that AWS’s customer support amounted to technical or consultancy services, and that this meant AWS was providing technical knowledge to its customers. But the Court did not accept this argument.
It said,
“The fact that the assessee lends certain support and assistance to its customers… does not in any manner support the view that the assessee makes available technology or technical skills.”
The Court looked at other similar rulings from the Supreme Court and High Courts and confirmed that this case is also in line with previous decisions.
In the end, the Court clearly stated,
“The issue involved in the present appeal is also covered in favour of the assessee…We find no merit in the contention that the amount received by the assessee for providing services would be taxable as equipment royalty.”
Senior Standing Counsel Ruchir Bhatia, along with Advocates Anant Mann, Aditi Sabharwal, and Abhishek Anand, appeared for the Income Tax Department.
On the other hand, Senior Advocate Porus Kaka argued for AWS and was assisted by Advocates Rohit Jain, Aniket D Agrawal, Manish Kanth, and Manisha Sharma.
Click Here to Read More Reports Justice Bhushan Ramkrishna Gavai
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE
