Case Law Details
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.
The Court examined the nature of cloud computing services and observed that such services are standardised and automated, enabling customers to access computing infrastructure remotely. Customers use the platform to develop and manage their own content, but they do not control or own the underlying hardware or software.
On the issue of royalty, the Court held that the expression “use” or “right to use” equipment must be interpreted narrowly. Payments for services rendered using equipment do not amount to royalty unless the customer is granted possession or control of such equipment. In the present case, the infrastructure remained under the control of the assessee, and customers only accessed services. Therefore, the payments could not be treated as royalty.
On the issue of FTS/FIS, the Court found that no technical knowledge, skill, or process was “made available” to the customers. The support services provided—such as guidance, troubleshooting, and configuration assistance—were incidental to the use of services and did not transfer any technical capability enabling independent use by customers.
The Court also rejected the AO’s view that provision of APIs, documentation, and support services amounted to transfer of technology or intellectual property. These elements were only facilitative and enabled access to services, without conferring any proprietary rights.
It was further noted that there was no allegation that the assessee had a permanent establishment (PE) in India. Therefore, the only question was whether the receipts fell within royalty or FTS provisions.
The Court relied on earlier judicial precedents, including the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that payments for software or similar services do not constitute royalty where no rights in copyright or intellectual property are transferred. It also referred to decisions involving cloud services, where subscription fees were held not to be royalty.
Further reliance was placed on cases where courts held that cloud computing services merely provide access to infrastructure and do not involve transfer of rights in equipment or intellectual property. Payments for such services were treated as consideration for services rather than royalty.
Also Read Order of Delhi HC in this case:- AWS Cloud Computing Service Receipt Not Taxable as Equipment Royalty: Delhi HC
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Time is prayed for on behalf of Mr. N.Venkataraman, the learned Additional Solicitor General appearing for the Revenue as he has some personal difficulty today.
2. Mr. Porus Kaka, the learned Senior counsel has appeared on behalf of the sole respondent.
3. Mr. Porus Kaka vehemently submitted that the issue is squarely covered by the decision of this Court in “Microsoft, Gracemac Corporation as well as Salesforce.com” respectively.
4. He also brought to our notice that the Revenue had come before this Court against the Judgment and Order dated 16-2-2023 passed by the High Court of Delhi in the matter of MOL Corporation and the Special Leave Petition came to be dismissed vide Order dated 11-3-2024.
5. The Order dated 11-3-2024 passed by this Court dated 11-3-2024 reads thus:-
“Delay condoned.
Following the earlier order passed by this Court in the Case of Commissioner of Income Tax V/s. M/s. Gracemac Corporation dated 03.07.2023, which had followed the earlier judgment of this Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr. reported in (2022) 3 SCC 321, this Special Leave Petition is also dismissed.
Pending application(s) shall stand disposed of.”
6. Post this matter on 4-5-2026.
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