Payments Received Not Royalties Under Article 12(3) Of India-US DTAA: Delhi High Court Dismisses Plea Against Amazon Web Services

The Delhi High Court has dismissed the Appeals filed by the Commissioner of Income Tax-International Taxation against Amazon Web Services.

The said Appeals challenged the Common Order passed by the Income Tax Appellate Tribunal (ITAT), which allowed the Appeals in respect of assessment years (AYs) 2014-15 and 2016-17, respectively.

A Division Bench of Justice Vibhu Bakhru and Justice Tejas Karia observed, “The charges paid by the Assessee’s customers are for availing services, which the Assessee provides by using its proprietary equipment and other assets. No part of its equipment or IPRs are alienated by the Assessee in favour of its customers for their use. Therefore, the payments received cannot be considered as royalties within the meaning of Article 12(3) of the India USDTAA.”

SSC Ruchir Bhatia represented the Appellant while Senior Advocate Porus Kaka represented the Respondent.

Facts of the Case

The Respondent-Assessee (Amazon Web Services) had preferred Appeals against Orders passed by the Assessing Officer (AO) under Section 147 read with Section 144C(13) of the Income Tax Act, 1961 (ITA) in respect of AYs 2014-15 and 2016-17. Amazon Web Services, Inc is a company incorporated in the United States of America (USA) and is a tax resident of that country. It had received certain sums of money from Indian entities for rendering cloud computing services, which, according to the AO are chargeable to tax as royalty and fees for technical service (FTS) under the ITA as well as “the Convention between the Government of the United States of America and the Government of the Republic of India for the Avoidance of Double Taxation and Prevention of Fiscal evasion with respect to taxes on income” (India-US DTAA). It contended that its receipts are for providing standard cloud computing services, which are not chargeable to tax either as royalties or as FTS and therefore, did not file its return of income. The Assessee’s customers that had remitted the charges to the Assessee for services had not withheld any tax under Section 195 of the ITA for the same reason.

The Revenue had initiated proceedings under Sections 201 and 201(A) of the ITA in case of one M/s Snapdeal Private Limited (erstwhile Jasper Infotech Private Limited), which had availed of the services of the Assessee. The information that the said company had remitted funds overseas as charges for the services rendered by the Assessee was furnished to the AO. The AO was of the view that the amounts received by the Assessee were chargeable to tax under the ITA. Accordingly, the AO issued notices under Section 148 of the ITA and commenced proceedings for re-assessment for AYs 2014-15 and 2016-17. The draft assessment order was passed by the AO, assessing the total income of the Assessee. The Assessee had filed its objections before the Dispute Resolution Panel (DRP), which were rejected by separate orders. Pursuantly, the AO issued the final assessment orders and determined the Assessee’s income, against which the Assessee appealed. The ITAT allowed the Appeals and this was challenged before the High Court.

Reasoning

The High Court in view of the above facts, said, “We find no merit in the contention that the amount received by the Assessee for providing services would be taxable as equipment royalty. As noted before, 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 Court concluded that no substantial question of law arises for consideration before the Court.

Accordingly, the Court dismissed the Appeals.

Cause Title- The Commissioner of Income Tax - International Taxation - 1 v. Amazon Web Services, Inc (Neutral Citation: 2025:DHC:4622-DB)

Appearance:

Appellant: SSC Ruchir Bhatia, JSC Anant Mann, Advocates Aditi Sabharwal, and Abhishek Anand.

Respondent: Senior Advocate Porus Kaka, Advocates Rohit Jain, Aniket D. Agrawal, Manish Kanth, and Manisha Sharma.

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