Payments for AWS Cloud Services Not Taxable as 'Royalty' or 'Fees for Included Services' Under India-US DTAA: Delhi High Court - 2025-05-29

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Delhi High Court Rules in Favor of Amazon, Cloud Computing Fees Not Taxable as Royalty in India

New Delhi: In a significant ruling with wide-ranging implications for the digital economy, the Delhi High Court has held that payments received by Amazon Web Services Inc. (AWS), a US-based company, from Indian customers for cloud computing services are not taxable as 'royalty' or 'Fees for Included Services' (FIS) under the Income Tax Act, 1961, and the India-US Double Taxation Avoidance Agreement (DTAA).

A division bench of Justice Vibhu Bakhru and Justice Tejas Karia , while dismissing appeals filed by the Income Tax Department, upheld the findings of the Income Tax Appellate Tribunal (ITAT), bringing clarity to a contentious cross-border taxation issue.

Background of the Case

The case stemmed from assessment orders for the assessment years 2014-15 and 2016-17, where the Assessing Officer (AO) sought to tax the revenue earned by AWS from Indian entities. The Revenue contended that the payments made by Indian customers for AWS's cloud services constituted:

1. Royalty: Specifically, for the "use or right to use" industrial, commercial, or scientific equipment, as customers were utilizing AWS's vast infrastructure of servers, software, and data storage.

2. Fees for Included Services (FIS): Arguing that the technical support and access to Application Program Interfaces (APIs) provided by AWS "made available" technical knowledge, skill, and processes to its customers.

AWS, on the other hand, maintained that it provided standardized, automated services and did not grant customers any control over or right to use its underlying infrastructure. It argued that customers were merely availing a service, not licensing equipment or technology, and therefore, the receipts were not taxable in India in the absence of a Permanent Establishment (PE).

Court's Analysis and Legal Precedents

The High Court meticulously examined the AWS Customer Agreement and the nature of the services provided. The bench found that the agreement grants customers a limited, non-exclusive, and non-transferable license to access and use the cloud services, not to control or exploit the underlying infrastructure or intellectual property.

The court made a crucial distinction between a payment for a service that is rendered using technology, and a payment for the use of that technology itself.

"The scope of royalties under Article 12(3) of the India-US DTAA does not extend to cover charges for services, which are delivered by an assessee by use of scientific equipment. In the present case, it is clear that the cloud computing hardware and software are used by the Assessee to render its services which are availed by its customers," the judgment noted.

The court emphasized that the customer does not have physical possession or control over the equipment, which remains under the complete control of AWS. Therefore, the payments could not be classified as "equipment royalty."

Regarding the FIS argument, the court found that the support provided by AWS was ancillary to enabling customers to use the cloud platform effectively. It did not satisfy the "make available" clause under Article 12(4)(b) of the DTAA, which requires imparting technical knowledge or skills that the recipient can apply independently.

The bench heavily relied on the landmark Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT , which held that payments for the use of copyrighted software do not constitute royalty. The High Court also cited its own recent judgments in similar cases, including CIT v. Salesforce.com Singapore Pte. Ltd. and CIT v. MOL Corporation , to reinforce its conclusion.

Final Verdict and Implications

Concluding that no substantial question of law arose for consideration, the High Court dismissed the Revenue's appeals.

"The Assessee grants access to standard and automated facilities... However, there is no material to establish that grant of such service entails transfer of any technical know-how, skill, knowledge or process," the court affirmed.

This judgment provides significant tax certainty for foreign technology companies providing cloud-based services (SaaS, PaaS, IaaS) to Indian customers. It reaffirms the principle that standard service arrangements, where the provider uses its own infrastructure and does not transfer technology or control over equipment to the customer, do not give rise to royalty or FIS income taxable in India under most tax treaties.