Cloud Payments Made To AWS Are Not Taxable As Royalty Or Technical Fees: Delhi HC

The Delhi High Court has reportedly ruled that payments received by Amazon Web Services (AWS) from Indian entities for cloud computing services are not taxable as royalty or fees for technical services (FTS).

A Bar and Bench report said that the Indian tax authorities argued that such payments should be taxed as either “royalty” or “fees for technical services” under both the Income Tax Act, 1961, and the India–US Double Taxation Avoidance Agreement (DTAA)

In response, AWS contended that its services were standardised, automated, and delivered through pre-set contracts, without any transfer of technical know-how, intellectual property (IP), or rights to use its infrastructure.

AWS emphasised that customers merely received access to cloud services and not the underlying technology or assets.

The court agreed, observing that customers only obtain a non-exclusive, non-transferable license to access these services. They do not receive any right, title, or IP that would enable them to commercially exploit or monetise AWS’s infrastructure or software.

It further noted that such payments do not qualify as “royalty” under Article 12(3) of the India-US DTAA, as there is no right to use, or commercial exploitation of, AWS’s IP or infrastructure by customers.

“The issue involved in the present appeal is also covered in favour of the assessee… We find no merit in the contention that the amount received by the assessee for providing services would be taxable as equipment royalty,” the Delhi HC said, citing Supreme Court and other High Court rulings.

The verdict upholds an earlier decision by the Income Tax Appellate Tribunal (ITAT), which had also ruled in favour of AWS. The development marks a significant milestone in the ongoing discourse around the taxation of payments made by Indian companies to foreign cloud service providers.

The development comes at a time when Amazon is looking to ramp up its cloud computing capacity in India. AWS plans to invest $12.7 Bn in cloud infrastructure in India by 2030, aiming to meet the growing cloud services and AI demands. Of this, $8.3 Bn will be invested in cloud infrastructure in Maharashtra.

AWS has also committed an investment of INR 60,000 Cr to establish data centres in Telangana, and an additional $2 Bn was also committed for the same. 

Before this, Amazon announced plans to build a new hyper-scale data centre in Hyderabad, which is said to be critical for AI and ML-enabled services. Other big technology companies like Google, Reliance and Oracle are also building their data centres in India.

While Google signed a memorandum of understanding (MoU) with real estate developer Anant Raj to offer cloud computing services and data centre infrastructure to enterprises, Oracle is also planning to double its investments in India, with a focus on AI and data.

Besides this, Reliance Industries Limited’s chairman Mukesh Ambani was also looking to acquire Nvidia Corp’s cutting-edge AI semiconductors to establish a data centre in Jamnagar.