AWS cloud payments not taxable as royalty or technical fees: Delhi HC
Payments received by US firm
Amazon Web Services
, from Indian entities for rendering
cloud computing services
are not taxable as
royalty and fees for technical service
(FTS), the
Delhi High Court
held on Thursday.
A Division Bench of justices Vibhu Bakhru and Tejas Karia dismissed the income tax department's petition holding that rendering such services by Amazon cannot be taxed either under the
Income Tax Act
or the India-US Avoidance of Double Taxation and Prevention of Fiscal evasion with respect to taxes on income. 'We find no merit in the contention (of department) that the amount received by the assessee for providing services would be taxable as equipment royalty.'
The court said that Amazon' customers did not acquire any right of using the infrastructure and software of the US service provider for the purposes of commercial exploitation. The charges paid by Amazon's customers are for availing services, which the company provides by using its proprietary equipment and other assets, it added.
"No part of its equipment or IPRs (
Intellectual Property Rights
) are alienated by the assessee (Amazon Web Services) in favour of its customers for their use," the court said in its 36-page judgment said.
Therefore, the payments received cannot be considered as royalties within the meaning of Article 12(3) of the
India-US Double Taxation Avoidance Agreement
, it added.
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The assessee had received certain payments from Indian entities for rendering cloud computing services, which, according to the income tax Assessing Officer (AO) were chargeable to tax as royalty and FTS under the Act as well as the DTAA.
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Amazon contended to the contrary and claimed that its receipts were for providing standard cloud computing services, which cannot be chargeable to tax either as royalties or as FTS, thus it did not file its return of income. The company'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 Revenue had initiated proceedings under Section 201/201(1A) in case of M/s
Snapdeal
(erstwhile Jasper Infotech), which had availed of the Amazon's services and had remitted funds to the latter as charges for the services rendered by the US company. The AO was of the opinion that the amounts received by Amazon were chargeable to tax under Act. Accordingly, the assessing officer issued notices to Amazon under Section 148 and commenced proceedings for re-assessment for assessment years (AYs) 2014-15 and 2016- 17.
In its final assessment order in 2023, the AO determined Amazon's income chargeable to tax at Rs 247.68 crore in respect of AY 2014-15 and Rs 1007.81 crore for AY 2016-17.
On appeal, the
Income Tax Appellate Tribunal
in August 2023 ruled in favour of Amazon, saying the customers were granted only a non-exclusive and non-transferable license to access the standard automated services offered by Amazon. The tribunal's order was challenged by the department before the HC.
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