Court: AWS Cloud Services Not Taxable as Royalty or FIS under India-US DTAA<\/strong><\/p>\n The US-based company<\/strong>, Amazon Web Services, Inc. (AWS<\/strong>), was assessed by the Indian tax authorities for AYs 2014-15<\/strong> and 2016-17<\/strong>. The Assessing Officer initiated proceedings under Section 147<\/strong> of the Income Tax Act, contending that payments received by AWS<\/strong> from Indian clients for cloud computing services were taxable in India as \u201croyalty<\/strong>\u201d or \u201cfees for included services<\/strong>\u201d (FIS) under Section 9<\/strong> of the Act and Article 12<\/strong> of the India-US DTAA<\/strong>. The AO argued that the cloud services involved access to AWS\u2019s infrastructure and proprietary software, thereby constituting the use of equipment and technical services.<\/p>\n AWS averred that the services were automated and offered standard cloud-based access without transferring technical expertise or the right to use intellectual property for profit. Additionally, it claimed that since it lacked a Permanent Establishment (PE<\/strong>) in India, the receipts were exempt from DTAA taxation. The assessee appealed to the ITAT after being dissatisfied with the reassessment order that the DRP had confirmed.<\/p>\n Issue Raised:<\/strong> Whether payments made by a non-resident entity<\/strong> (in this case AWS) for standard cloud computing services may be taxed in India as \u201croyalty\u201d or \u201cfees for included services\u201d under the Income Tax Act and the India-US DTAA, in the absence of a PE.<\/p>\n Court\u2019s Decision: <\/strong>The Delhi High Court, while deciding the appeal, upheld the ITAT\u2019s ruling that AWS\u2019s cloud computing services did not qualify as \u201croyalty<\/strong>\u201d or \u201cfees for included services<\/strong>\u201d (FIS) under Indian tax law<\/strong> or the India-US DTAA<\/strong>. The court further clarified that the services rendered did not involve the transfer of technical expertise, know-how, or skill. Furthermore, AWS did not give its clients any permission to use, duplicate, or profit from its intellectual property. Users were only allowed to use standard cloud-based services<\/strong>, and their access was restricted<\/strong>, non-exclusive<\/strong>, and revocable<\/strong>. Additionally, the use of equipment or infrastructure was not separately licensed to users; rather, it was merely incidental to the delivery of cloud services<\/strong>.<\/p>\n The Hon\u2019ble Court ruled that AWS only offered cloud service access<\/strong>, not technical knowledge transfer or software\/equipment licensing, according to Article 12 of the India-US DTAA<\/strong>. The court, citing earlier decisions, reiterated that automated, standardised<\/strong> services<\/strong> are not considered technical or royalties. As a result, the revenue\u2019s appeals were denied, and the reassessment orders were deemed null<\/strong> and void<\/strong>.<\/p>\n<\/div>\n Join StudyCafe Membership. For More details about Membership Click Join Membership Button<\/p>\n Join Membership<\/a><\/p>\n In case of any Doubt regarding Membership you can mail us at [email\u00a0protected]<\/span><\/a><\/p>\n<\/div>\n Join Studycafe’s WhatsApp Group or Telegram Channel for Latest Updates on Government Job, Sarkari Naukri, Private Jobs, Income Tax, GST, Companies Act, Judgements and CA, CS, ICWA, and MUCH MORE!”<\/p>\n<\/div>\n
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