Delhi High Court Rules in Favor of Amazon in Cloud Services Taxation Case
The Delhi High Court has delivered a significant verdict in favor of Amazon Web Services (AWS), ruling that payments made by Indian companies for cloud services are not taxable as royalty or fees for technical services (FTS) under Indian tax law or the India-US Double Taxation Avoidance Agreement (DTAA). This decision is expected to have far-reaching implications for the taxation of cloud services in India.
Background of the Case
The dispute arose from reassessment proceedings against AWS for the assessment years 2014-15 and 2016-17. The Indian tax authorities claimed that AWS’ earnings from Indian clients were taxable as royalty or FTS, arguing that the cloud services involved the use of scientific equipment and software.
Court’s Ruling
A Division Bench comprising Justices Vibhu Bakhru and Tejas Karia rejected the IT department’s argument, stating that the services provided by AWS were automated, offered remotely without human input, and did not involve the transfer of proprietary rights or technical know-how. The Court upheld the Income Tax Appellate Tribunal’s (ITAT) view that AWS’ services did not constitute royalty or FTS.
Implications of the Decision
This ruling clarifies the tax treatment of payments for standardized cloud offerings and is set to have significant implications for the taxation of cloud services in India. The decision aligns with the ITAT’s previous ruling in favor of Amazon, emphasizing that customers do not acquire any rights or title to exploit or commercially monetize AWS’ assets.
The verdict has been seen as a major victory for Amazon and is likely to impact the broader cloud computing industry in India. As cloud services continue to grow in importance, this clarification on tax treatment is expected to provide certainty for both service providers and users.
