Cloud Services Not Taxable as Royalty Under India-US DTAA | HC

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  • Last Updated on 3 June, 2025

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Amazon Web Services royalty taxation 2025

Case Details: Commissioner of Income-tax, International Taxation -1 vs. Amazon Web Services, Inc - [2025] 174 taxmann.com 1188 (Delhi)

Judiciary and Counsel Details

  • Vibhu Bakhru & Tejas Karia, JJ.
  • Ruchir Bhatia, SSC, Anant Mann, JSC, Ms Aditi Sabharwal & Abhishek Anand, Advs. for the Appellant.
  • Porus Kaka, Sr. Adv., Rohit Jain, Aniket D. Agrawal, Manish Kanth & Ms Manisha Sharma, Advs. for the Respondent.

Facts of the Case

The assessee, a company incorporated in the United States of America, provided standard and automated cloud computing services to its customers in India. The customers were required to enter into a standardised contract electronically concerning the said services.

The Assessing Officer (AO) initiated reassessment proceedings on the grounds that the assessee was providing a host of services/intellectual property to its customers. The AO also contended that the assessee was providing technical support to its customers and making technology available. Therefore, the fees received by the assessee were taxable as FTS under the Act and FIS under Article 12 of the India-US DTAA.

The matter reached the Delhi High Court.

High Court Held

The High Court held that the AO had concluded that the charges received by the assessee for cloud computing would be taxable as “equipment royalty”. The AO concluded that the payments made to the assessee were essentially towards using hardware/infrastructure comprising server, software, data storage space, networking equipment, databases, etc.

The expression “use” or “right to use” as mentioned in Article 12(3) of the India-US DTAA is to be used narrowly. The scope of royalties under Article 12(3) of the India-US DTAA does not extend to cover charges for services delivered by an assessee using scientific equipment. In the instant case, it was clear that the assessee used cloud computing hardware and software to render its services, which were availed by its customers.

The AO’s conclusion that the provision of such service would amount to the grant of the ‘right to use’ scientific equipment and therefore, the payments made were covered under the definition of ‘royalty’ under the Act as well as under Article 12(4)(a) of the India-US DTAA was erroneous. The fact that the assessee lends specific support and assistance to its customers for availing of the services does not in any manner support the view that the assessee makes available technology or technical skills, know-how, or the other process to its customers within the scope of Article 12(4)(b) of the India-US DTAA.

The assessee also addresses various requests of its customers, including answering best practice questions and providing configuration guidance, amongst other things, only as support for availing of its services. Thus, the payments received could not be considered as royalties within meaning of article 12(3) of India- US DTAA.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied