Delhi HC rules in favour of Amazon, says earnings from cloud services not taxable: ‘Customers do not acquire any right…'
Amazon
has won a major tax battle as the
Delhi High Court
has ruled that cloud payments made by Indian companies are not taxable. The court said that payments made by Indian companies to foreign cloud service providers for standard cloud computing services do not constitute royalty or fees for technical services (FTS) under the Income Tax Act, 1961, or the India-United States Double Taxation Avoidance Agreement (DTAA). This decision is set to have significant implications for the taxation of cloud services in India. A Division Bench comprising Justices Vibhu Bakhru and Tejas Karia delivered the verdict in a series of appeals filed by the Commissioner of Income Tax (International Taxation) against US-based cloud giant Amazon Web Services (AWS).
According to a report by Live Law, the Court rejected the IT department's argument that receipts from Indian clients by AWS should be taxed as royalty or FTS simply because the services involve access to servers, APIs, or data infrastructure. The ruling clarifies the tax treatment of payments for standardised cloud offerings.
What the Delhi High Court judges said in the ruling
Agreeing with the Income Tax Appellate Tribunal (ITAT) that ruled in favour of Amazon, the judges said (as reported by Live Law): 'The customers do not acquire any right or title or any IPR that would entitle them to exploit or commercially monetise the said assets on their own. There is no material to establish that a 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 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 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.'
The dispute stemmed from reassessment proceedings against AWS for assessment years 2014–15 and 2016–17, where the Indian tax authorities claimed that AWS' earnings from Indian clients were taxable as royalty or fees for technical services (FTS). The Department argued that AWS' cloud services involved the use of scientific equipment and software, making the payments liable under Section 9 of the Income Tax Act and Article 12 of the India-US DTAA.
AWS maintained that it provided standardised, automated cloud services through pre-set contracts and interfaces, without transferring technical knowledge, intellectual property, or usage rights.
The Court upheld the ITAT's view, stating that AWS' services were automated, offered remotely without human input or transfer of proprietary rights. It found no transfer of technical know-how, no access to infrastructure by customers, and no sharing of source code.
The Court also dismissed the claim that AWS' support services constituted technical or consultancy services that made technology available to customers.
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