Cloud Computing Services Not Taxable as Royalty or FTS in India: Delhi High Court Rules in Favour of Amazon Web Services

Background: The Central Tax Question in the AWS Case

In a significant ruling with broad implications for foreign technology companies providing cloud-based services to Indian customers, the Delhi High Court held in Commissioner of Income Tax, International Taxation-1 vs. Amazon Web Services, Inc. that receipts from standardised cloud computing services are not taxable in India as Royalty or as Fees for Technical Services (FTS/FIS) under the Income Tax Act, 1961 or under the India-USA Double Taxation Avoidance Agreement (DTAA).

This ruling is relevant not only for cloud service providers operating out of treaty jurisdictions but also for Indian companies and entities that pay for cloud computing services from foreign vendors, particularly in determining their TDS withholding obligations on such payments. For a structured review of your cross-border service arrangements and applicable withholding tax positions, our international tax advisory services can provide the necessary guidance.

Facts of the Case: The AO's Position on Royalty and FTS Taxability

The assessee, Amazon Web Services, Inc. (AWS), is a company incorporated in the United States of America and a tax resident of that country. It is engaged in providing standardized cloud computing services comprising a platform that operates both hardware and software infrastructure to customers across the globe, including Indian entities.

The Assessing Officer (AO) took the position that payments received by AWS from Indian customers for cloud computing services were chargeable to tax in India on the following grounds:

• The payments constituted Royalty under Section 9(1)(vi) of the Income Tax Act, specifically as amounts paid for the "use" or "right to use" scientific equipment, given that the services were delivered through AWS's hardware and software infrastructure.
• The service offerings, including "AWS Content," "AWS Marks," and "AWS Site," constituted technical support that satisfied the "make available" clause under the India-USA DTAA, thereby making the fees taxable as Fees for Included Services (FIS) under the Treaty.

AWS contested both positions, arguing that its cloud computing services are entirely standardised and automated with no transfer of technical knowledge, skill, or know-how to the customer and therefore not taxable either as Royalty or as FTS/FIS under the Act or the applicable DTAA.

Court's Findings: Make Available Clause Not Satisfied; Services Are Standardised

The Delhi High Court, relying on precedents including CIT v. Telstra Singapore Pte Ltd (2024) and DIT v. New Skies Satellite BV, decided in favour of the assessee on both grounds, concluding as follows:

• The agreement between AWS and its Indian customers does not amount to a transfer of any skill, knowledge, or know-how. The arrangement merely provides customers with access to AWS's cloud computing platform it does not make any technical capability or process available to the customer for independent use.
• The services provided by AWS are standard, automated services. The support and assistance offered to customers for availing the cloud platform do not satisfy the "make available" condition under the India-USA DTAA, i.e., the technology, technical skills, or know-how are not transferred in a manner that enables the customer to apply them independently. Accordingly, the fees received are not taxable as Fees for Included Services (FIS) under the Treaty.

Advisory Implications: What This Ruling Means for Cross-Border Cloud Service Arrangements

This ruling reinforces a growing trend in Indian jurisprudence where courts have consistently held that standardised, automated technology services, including cloud computing, SaaS, and platform-access arrangements do not constitute Royalty or FTS under the Income Tax Act or applicable DTAAs, provided the service does not transfer technical knowledge or make technology available to the recipient for independent use.

For foreign technology and cloud service providers receiving payments from Indian entities, this ruling provides a strong basis for taking the position that such receipts are not subject to Indian withholding tax. For Indian companies that have been deducting TDS on cloud service payments to foreign vendors and remitting That tax to the government, this judgment may support a review of whether such deductions were required and whether excess TDS can be reclaimed. Our direct tax services team can assist in evaluating the implications of this ruling for your specific contractual and tax arrangements.

Additional Resources

• Increase in Tax Rate on Royalties and Fees for Technical Services in India
• Taxability of Income Earned by Foreign Companies in India
• Form 10F Filing for Non-Residents: Claiming DTAA Benefits in India
• Double Taxation Relief for Indian IT Firms Under Trade Agreements