Amazon Web Services, Inc. a subsidiary of Amazon that provides on-demand cloud computing platforms and APIs to individuals, companies, and governments, on a metered, pay-as-you-go basis has been recently served with a notice of income tax demand from the Income Tax Department.
The tax department detected that AWS was charging a fee for providing cloud computing services to Indian entities but not paying tax on it and Amazon India didn’t respond to queries, as per the source.
If there is a reason to believe that some income that should be taxed has not been assessed, the assessing officer can issue a notice under Section 147 of the Income Tax Act.
The department asserts that the revenue derived from cloud computing services was categorized as both royalty and fee for technical services (FTS), and therefore is taxable in India. Additionally, an official stated that the sum also encompasses interest on outstanding tax liabilities, but not a penalty.
Another source says that the department has identified multiple companies that have been transferring funds to their parent companies without paying taxes.
Some companies are sending large sums of money to their parent companies under the guise of royalty payments as a means of evading taxes. We have already issued notices in some cases and are currently in the process of sending more, the official stated.
The tax authorities are inclined towards including as many incomes in the purview of Royalty or Fees for Technical Services(FTS) as it is taxed at a flat rate of 10-30% unlike business income which is taxed at a lower rate. The assessees, on the other hand, are inclined towards classifying as many sources of income as business income as earlier stated, for a lower tax burden.
For the purposes of taxation under the Income Tax Act, 1961, Royalty is defined in Explanation 2 to clause (vi) of sub-section (1) of Section 9.
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