Payments Made To AWS For Cloud Computing Services Not Taxable: Delhi High Court
The Delhi Excessive Court docket has held that funds made to Amazon Internet Providers (AWS) for cloud computing providers don’t qualify as “royalty.” The bench, comprising Justice Vibhu Bakhru and Justice Tejas Karia, upheld the Earnings Tax Appellate Tribunal’s (ITAT) determination which held that such funds are usually not taxable as royalties or charges for technical providers (FTS). The Court docket referred to earlier judgments to emphasise the distinction between transferring mental property rights and easily giving entry to standardized digital providers. It dismissed the enchantment, highlighting the important thing distinction between entry to digital sources and possession or management over them
Background
The case arose when Amazon Internet Providers obtained funds from Snapdeal for rendering cloud providers. The Assessing Officer assessed the cost made as royalty and charges for technical providers (FTS) beneath Clarification 2(iv) to part 9(1)(vi) of the Earnings Tax Act and the Assessing Officer (AO) considered these sums as chargeable to tax in India as royalty and charges for technical providers (FTS) beneath the Earnings Tax Act, 1961 (the Act) and “the Conference between the Authorities of the USA of America and the Authorities of the Republic of India for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on earnings” (India-US DTAA). The evaluation authorities contended that Snapdeal and different prospects of Amazon Internet Providers (assessees) have been utilising high-end computing infrastructure, which constitutes the usage of industrial gear or copyrighted software program and the switch of technical data, bringing the transaction beneath Article 12(4)(b) make accessible check of the DTAA.The Earnings tax tribunal when the case was introduced earlier than it held that The quantities obtained by AWS from Indian entities for offering cloud computing providers have been neither within the nature of royalties nor charges for included providers (FIS), and thus, weren’t chargeable to tax beneath the Earnings Tax Act, 1961 learn with the India-US Double Taxation Avoidance Settlement (DTAA) which and dismissed the case promopting the present apeal.
Submission by the Assessee
The counsel for the Assessee contended that the service rendered by them have been merely offering cloud computing to it is prospects which is an ancillary service and couldn’t be charged as royalties beneath the Earnings Tax Act.The assessee operates a cloud computing platform that features each {hardware} and software program elements. Clients use this platform to construct, develop, and handle their very own content material. Entry to the platform is ruled by a standardized digital contract. These providers allow prospects to remotely entry computing sources in a versatile, on-demand method, eliminating the necessity for capital-intensive investments in bodily {hardware} or infrastructure.Moreover the counsel argued that the nature of labor additionally can’t be categorized doesn’t meet the definition of FIS beneath Article 12, significantly beneath the “make accessible” check in clause 4(b), and subsequently shouldn’t be taxed as such in India.
Remark by the Court docket
The Court docket agreed with the Tribunal’s conclusion that the quantities obtained by the Assessee have been neither within the nature of royalties nor charges for included providers (FIS), and thus, weren’t chargeable to tax beneath the Earnings Tax Act.The courtroom noticed that naked entry to a software program’s options wouldn’t quantity to a switch of mental rights which is vital for a cost to be characterised as royalty. Moreover the providers offered by Amazon Internet Providers have been primary and automatic, and didn’t contain transferring to prospects any know-how, abilities, or particular data as required beneath Article 12(4)(b) of the DTAA. The assitance given to prospects like setup recommendation or troubleshooting was simply primary assist and did not depend as sharing technical data. The Court docket additionally rejected the argument that these funds have been linked to royalty beneath Article 12(4)(a), as a result of prospects did not get any rights to make use of AWS’s know-how or property.The bench affirmed this place and dismissed the Income’s declare that the funds certified as gear royalty. The Court docket emphasised that AWS maintained full management over its infrastructure always, and prospects solely accessed the sources remotely by way of the web, with out buying any bodily possession or management. This absence of “possession or management” meant there was no “use of, or proper to make use of” gear, as required beneath Clarification 2(iv) to Part 9(1)(vi) of the Earnings Tax Act.The courtroom additionally referred to its earlier ruling in CIT (Worldwide Taxation) v. Salesforce.com Singapore Pte. Ltd, the place it held that merely granting entry to a platform for knowledge enter and analytics doesn’t represent “making accessible” technical data beneath Article 12(4)(b).The courtroom whereas coping with of Article 12(4)(a), which refers to providers being ancillary and subsidiary to the enjoyment of a proper or property for which royalty is paid, the courtroom held that this argument was unsustainable. It reasoned that such a declare would depend on the cost qualifying as royalty within the first the courtroom had already rejected.The courtroom dismissed the apea filed by the division l discovering no scope of considerable query.
Case Title:THE COMMISSIONER OF INCOME TAX vs AMAZON WEB SERVICES
