Payments For Cloud Services Not Royalty Or FTS: Delhi High Court In Favour Of Amazon Web Services
Payments For Cloud Services Not Royalty Or FTS: Delhi High Court In Favour Of Amazon Web Services
The Delhi High Court rules that payments for standardised cloud computing services can't be treated as royalty or fees for technical services.
The Delhi High Court has ruled that payments made by Indian entities to foreign cloud service providers for availing standardised cloud computing services cannot be treated as royalty or fees for technical services (FTS) under the Income Tax Act, 1961 or the India-US Double Taxation Avoidance Agreement (DTAA). A Division Bench of Justices Vibhu Bakhru and Tejas Karia passed the ruling in a batch of appeals filed by the Commissioner of Income Tax (International Taxation) against Amazon Web Services (AWS), a US-based cloud service provider.
The Court stated that, “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.”
The Court held that AWS' receipts from Indian clients were not taxable as royalty or FTS merely because the services involved access to servers, APIs, or data infrastructure. The Bench noted that customers were granted only limited, non-exclusive, non-transferable access to the AWS platform, and there was no transfer of technical know-how or skills.
The dispute arose out of reassessment proceedings initiated against AWS for AYs 2014-15 and 2016-17. The Department had argued that AWS' earnings from Indian customers were liable to be taxed as royalty or FTS in India. However, AWS contended that it merely offered standardised, automated cloud computing services without transferring any technical know-how, IP, or right to use its infrastructure.
The Court held that, “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 judgment was pronounced on 29th May, 2025.
In this case the appellant was represented by Mr. Ruchir Bhatia, Senior Standing Counsel, Mr. Anant Mann, Junior Standing Counsel along with Ms. Aditi Sabharwal and Mr. Abhishek Anand, Advocates. Meanwhile the respondent was represented by Mr. Porus Kaka, Sr. Advocate with Mr. Rohit Jain, Mr. Aniket D. Agrawal, Mr. Manish Kanth, Ms. Manisha Sharma, Advocates.
