The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the cloud computing services rendered by Amazon web services to customers in India do not fall within the Fee for Technical Services (FTS) under Article 12(4)(b) of the India-USA DTAA.
The assessee is a foreign company and a tax resident of USA. The assessee provides ‘standard and automated’ cloud computing services/AWS Services to its customers around the globe. The customers are required to enter into a standard contract electronically with the assessee.
The assessee is a tax resident of USA and hence it has opted to be governed by the provisions of India-USA DTAA, which is more beneficial to it in terms of Section 90(2) of the Income Tax Act.
The Authorized Representative submitted that the cloud computing services provided by the assessee are merely standard and automated services. The facility of different categories of cloud computing services provided by the assessee as well as pricing, are all publically available online to anyone.
In order to avail cloud computing services, the customer enters into a standard AWS customer agreement which authorises the customer to access the cloud computing services they opt for. The customers themselves are responsible for the development, content, operation, maintenance and use of the customer’s content while availing the standard and automated cloud computing services.
The Authorized Representative referred to the relevant clauses of the sample agreement entered into by the assessee with its customers (Customer Agreement) which is on record and submitted that the terms of the said Customer Agreement clearly show that the assessee is primarily providing automated cloud computing services which are in the nature of standard and automated computing services.
The Departmental Representative, on the other hand, filed detailed written submissions alleging that the impugned receipts are taxable as royalty both under the Act as well as India-USA DTAA.
In the case of EPRSS Prepaid Recharge Services India (P.) Ltd v. ITO [2018] 100 taxmann.com 52, the Pune Tribunal, relying on the order of the Madras High Court in the case of Skycell Communications Ltd. v. DCIT 251 ITR 53 held that payments made to the assessee for cloud computing services do not qualify as royalty under the India-USA DTAA.
The Two-member bench comprising of G.S. Pannu (President) and Astha Chandra (Judicial member) held that the payments received by the assessee from Indian Customer(s) from rendering AWS Services do not qualify as royalty under Article 12(3) of the India-USA DTAA and hence are not taxable in India. Thus, the appeal of the assessee was allowed.
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