Cloud computing services not taxable as royalty

The case pertains to the landmark case of Amazon Web Services, Inc[1], by the Delhi High Court, relating to the taxation of receipts by Amazon Web Services (AWS) from Indian customers for cloud computing services.

Case Background and Facts

• Amazon Web Services, Inc. (AWS), a U.S.-based tax resident company, offered standardised and automated cloud computing services to Indian customers.
• Indian entities had paid AWS for these services without withholding tax under Section 195 of the Income Tax Act, 1961, contending the services receipts were not royalties or fees for technical services (FTS).
• The Assessing Officer (AO) re-assessed the income under Sections 147 and 144C(13), classifying receipts as royalty and FTS under the Income Tax Act and the India-US Double Taxation Avoidance Agreement (DTAA).
• AWS appealed, contending the receipts were for cloud services, not taxable as royalties or FTS.

Key Findings and Arguments

• AWS provides a non-exclusive, non-transferable, limited license to access its cloud services, without transferring intellectual property rights or ownership to the customers.
• Customers do not acquire a right to commercially exploit AWS’s intellectual property (software, hardware, trademarks).
• The cloud computing services do not transfer technical knowledge, processes, or skill to customers.
• Payments were for usage of cloud infrastructure, not a right to use or own scientific equipment.
• Various precedents referred by assessee are as under:
  • Engineering Analysis Centre of Excellence P. Ltd[2]
    • This Supreme Court decision clarified that subscription fees for cloud-based services do not qualify as royalty because there is no transfer of copyright or proprietary rights to the subscriber.
    • The Court emphasized that merely providing access to software hosted remotely does not amount to transfer of rights qualifying as royalties.
    • The decision strongly influenced the interpretation of software and cloud subscription payments as service receipts rather than royalty income.
  • Salesforce.com Singapore Pte. Ltd[3]
    • The Delhi High Court held that fees for access to Salesforce’s cloud CRM services are not taxable as royalties or FTS.
    • The Court noted that no copyright transfer or exclusive rights were granted to customers; instead, they received limited access for using the software.
    • It was observed that the make-available clause under Article 12(4) of the DTAA was not fulfilled since technical knowledge or know-how was not imparted to customers.
  • MOL Corporation[4]
    • Following the Engineering Analysis case, the Delhi HC ruled that subscription fees for cloud services are not royalty under the Income Tax Act or DTAA.
    • The Court rejected the argument that payments for usage of cloud infrastructure amount to royalties for the right to use scientific equipment.
    • The decision affirmed that cloud infrastructure and software access are means of delivering services, not transfer or license of proprietary rights.
  • Urban Ladder Home Decor Solutions P. Ltd[5]
    • The Karnataka High Court held that payments to AWS and similar companies for IT infrastructure and digital advertising platforms do not qualify as royalties.
    • The Court reasoned that payments were for using facilities on a rental basis, not for transfer or license of intellectual property.
    • The decision aligned with the principle that such payments are not taxable as royalty income in India.
  • The AO’s characterization that the payments were for “equipment royalty” was rejected as the equipment was not physically or exclusively placed at customers’ disposal.
  • The support services from AWS were incidental and did not amount to making available technical know-how or processes.
  • The Tribunal and the High Court referenced relevant agreements defining service offerings, licenses, restrictions on derivative works, and use of AWS Marks to conclude no transfer or license qualifying as royalty or FTS exists.

Court’s Conclusion

• The High Court upheld the Tribunal’s decision that payments for cloud computing services to AWS do not constitute royalties or FTS under the Income Tax Act or India-US DTAA.
• AWS’s customers receive limited access to online automated services, with no transfer of rights to use software, hardware, or IPR for commercial exploitation.
• AWS’s consideration for cloud services is not taxable as royalty or FTS; therefore, no withholding tax obligations arise.
• This decision aligns with recent Supreme Court and High Court judgments establishing cloud computing subscriptions as service receipts, not royalties.

This case sets a significant precedent clarifying the tax treatment of cloud computing services and reinforces that such services, even involving use of software and hardware infrastructure, are not royalties if no rights to use or exploit proprietary technology are transferred. The decision provides clarity to multinational companies and tax authorities on the application of Indian tax law and international treaties to cloud service revenues.

For detailed discussion, please feel free to contact devadhaantu@devadhaantu.in

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[1] Amazon Web Services, Inc [TS-661-HC-2025(DEL)]

[2] Engineering Analysis Centre of Excellence P. Ltd. v. CIT (2021) 432 ITR 471 (SC)

[3] CIT International Taxation v. Salesforce.com Singapore Pte. Ltd. (2024) 465 ITR 257 (Delhi HC)

[4] Commissioner of Income-tax International Taxation v. MOL Corporation (2024) (Delhi HC)

[5] Commissioner of Income-tax, International Taxation v. Urban Ladder Home Decor Solutions P. Ltd. (2025) (Karnataka HC)