Cloud Service Payments Not Taxable as Royalty Due to No Transfer of IP Rights: SC

CIT Vs Amazon Web Services Inc (Supreme Court of India)

The case concerns whether payments received by a non-resident entity from Indian customers for cloud computing services are taxable in India as “royalty” or “fees for technical services” (FTS) under the Income Tax Act, 1961 and the India–US Double Taxation Avoidance Agreement (DTAA).

The Assessing Officer (AO) initiated reassessment proceedings based on information that an Indian entity had made remittances to the assessee without withholding tax. The AO held that such payments were taxable as royalty and FTS, reasoning that the assessee provided access to infrastructure, software, APIs, technical support, and intellectual property. It was also concluded that the payments amounted to “equipment royalty” for use of servers, storage, and related infrastructure.

The assessee contended that it provided standardised and automated cloud computing services without transferring any technology, intellectual property, or technical know-how. Customers merely accessed services through a standard agreement and did not receive rights to exploit any intellectual property or control infrastructure.

The Tribunal examined the agreement and held that the payments did not constitute royalty or fees for included services (FIS). It found that customers were granted only a limited, non-exclusive, non-transferable licence to access services. No rights in intellectual property were transferred, and no technical knowledge or know-how was made available. The Tribunal also noted that customers had no control over infrastructure and could not commercially exploit any assets.