Delhi High Court Dismisses Revenue's Appeal Against Amazon AWS | No Substantial Question Of Law Arises; Charges For Cloud Services Not Taxable As Royalties
Isabella Mariam
The High Court of Delhi Division Bench of Justice Vibhu Bakhru and Justice Tejas Karia has dismissed appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961. The Court held that the payments received by the respondent for cloud computing services do not fall under the categories of "royalties" or "fees for technical services" as defined under the Income Tax Act and Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA). Consequently, the final assessment orders issued by the Assessing Officer (AO) treating these payments as taxable income have been invalidated. The Court concluded that the Tribunal had rightly set aside the assessments and found no merit in the Revenue’s contention. It was categorically recorded that the standardised cloud computing services offered by the respondent did not entail the transfer of any intellectual property or technical know-how that would invoke tax liabilities under the relevant provisions.
The Revenue initiated proceedings under Section 260A of the Income Tax Act, 1961 to challenge the common order dated 01.08.2023 of the Income Tax Appellate Tribunal (ITAT), which had allowed appeals in favour of the respondent, a United States-based company engaged in providing cloud computing services globally. The challenged assessment years (AYs) were 2014-15 and 2016-17. The respondent had appealed against the AO’s final assessment orders issued under Section 147 read with Section 144C(13), dated 27.01.2023 and 24.01.2023, wherein the AO had held that the amounts received by the respondent from Indian entities were taxable either as royalty or as fees for technical services.
The respondent, a tax resident of the United States, had not filed a return of income in India, asserting that the charges received for standardised cloud computing services from Indian clients were not taxable under Indian law or the India-US DTAA. The respondent’s Indian customers, including Snapdeal Private Limited, had not withheld tax under Section 195 while making payments for such services.
The AO initiated reassessment proceedings based on information indicating that Snapdeal had made payments abroad for hosting and bandwidth services. The AO issued notices under Section 148 and proceeded with reassessment. Draft assessment orders were issued, and following objections before the Dispute Resolution Panel (DRP)—which were rejected—the AO passed final orders determining taxable income at ₹2,47,68,23,222/- for AY 2014-15 and ₹10,07,81,05,172/- for AY 2016-17.
The AO concluded that the services provided included intellectual property, APIs, support services, and the use of servers and storage equipment. The AO argued that the payments constituted royalties under Section 9(1)(vi) and Article 12(3) of the DTAA, and were also taxable as fees for technical or included services (FTS/FIS) under the Act and Article 12(4) of the DTAA.
The respondent countered that the services provided were fully automated, standardised, and accessible online, with no transfer of any intellectual property or exclusive rights to customers. The ITAT agreed with the respondent’s position and stated that the payments were not in the nature of royalty or FTS/FIS.
The High Court extensively reviewed the AO’s findings and the ITAT’s reasoning. It recorded: "It is apparent from the above that whilst the Assessee’s customers can access and use the cloud computing service, they 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 observed that under Article 4 of the agreement between the respondent and its customers: "You are solely responsible for the development, content, operation, maintenance, and use of Your Content." It was also recorded that AWS provided APIs and other content solely to facilitate access to the services: "AWS Content is provided only for the purposes to allow access and avail the Assessee’s services."
On the matter of technical support, the Court noted the AO’s reference to AWS Support Services, but concluded: "The fact that the Assessee lends certain 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."
Further, regarding equipment use, the Court rejected the AO's reasoning: "There is no doubt that 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 cited precedent from Salesforce.com Singapore Pte. Ltd. and Engineering Analysis Centre of Excellence Pvt. Ltd., stating: "A right of subscription to a cloud-based software cannot possibly be said to be equivalent to the ‘use’ or ‘right to use’ any industrial, commercial or scientific equipment."
The Court recorded its final decision in categorical terms. It stated: "We find no merit in the contention that the amount received by the Assessee for providing services would be taxable as equipment royalty."
The Bench concluded: "The Assessee’s customers do not acquire any right of using the infrastructure and software of the Assessee for the purposes of commercially exploitation. The charges paid by the Assessee’s customers are for availing services, which the Assessee provides by using its proprietary equipment and other assets."
Accordingly, the Court held: "Therefore, the payments received cannot be considered as royalties within the meaning of Article 12(3) of the India-US DTAA."
The Court upheld the ITAT’s judgement and directed: "In our view, no substantial question of law arises for consideration of this Court. The appeals are, accordingly, dismissed. All pending applications are also disposed of."
Advocates Representing the Parties:
For the Appellant (Revenue): Mr. Ruchir Bhatia, Standing Counsel; Mr. Anant Mann, Junior Standing Counsel; Ms. Aditi Sabharwal and Mr. Abhishek Anand, Advocates
For the Respondent (Assessee): Mr. Porus Kaka, Senior Advocate with Mr. Rohit Jain, Mr. Aniket D. Agrawal, Mr. Manish Kanth, Ms. Manisha Sharma, Advocates
Case Title: Commissioner of Income Tax - International Taxation -1 v. Amazon Web Services, Inc.
Neutral Citation: 2025: DHC:4622-DB
Case Number: ITA Nos. 150/2025 and 154/2025
Bench: Justice Vibhu Bakhru and Justice Tejas Karia
[Read/Download order]
