Receipts for AWS services /Cloud computing services rendered by Amazon to Indian Customers Not Taxable as FTS under Indo-US Treaty: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench held that the receipts for Amazon Web Services cloud computing services rendered by amazon to Indian customers are not taxable as Fee for Technical Service (FTS) under India -US treaty.

The assessee, Amazon Web Services is a foreign company and a tax resident of the 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 department received information from the office of ITO of International Taxation that the assessee had received an amount of Rs. 30,94,81,489/- without TDS thereon under section 195 of Income Tax Act, 1961. The consideration so received is chargeable to tax both under the definition of royalty under the provisions of section 9(1)(vi) of the Income Tax Act and under the provisions of the India-USA Double Taxation Avoidance Agreement.

It was observed that the assessee did not file the income tax return.  Thereafter a notice was issued under Section of the Income Tax Act. Accordingly, the assessee filed a return as declaring income Nil.

Further a show cause notice was issued and served upon the assessee and the notice asked to the assessee that why receipts for from rendering cloud computing services, should not be treated as royalty under the provisions of the Act, as well as the DTAA.

Further why the entire receipts from India should not be treated as fee for technical services under the provisions of the Act, as well as the DTAA.

Assessee submitted that the receipts are neither royalty or fee for technical services both under the Act as well as the India-USA DTAA.

Subsequently the AO passed a draft assessment order by proposing to tax the entire receipts and treating such receipts to be taxable in India as royalty as well as Fees for Technical Services Fees for Included Services both under the Income Tax Act as well as India-USA DTAA.

Aggrieved by the order, the assessee filed an appeal before the Dispute Resolution Panel (DRP) who upheld the order. Thus, the assessee filed a second appeal before the tribunal.

During the proceedings, Porus Kaka, the counsel for the assessee submitted that the assessee provided cloud computing services which were merely standard and automated services.

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.

Further counsel argued that 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. Therefore, assessee did not provide any technical service and support to customers.

Moreover, the counsel pointed out that the customers did not receive any exclusive or commercial right to use the copyrights or other intellectual property involved in AWS Services.

However only receive a right to access and use the AWS Services itself and consequently, the payments made to the assessee in relation to the AWS Services would not be considered in exchange for the right to use any copyright.

Thus, the payments made by Indian customers to the assessee for usage of the same cloud computing services /AWS Services is not taxable as royalty as well as Fees for Technical Services Fees.

Vizay B. Vasanta, Counsel for Revenue, submitted that the amount received as “cloud service fee” from customers in India towards cloud computing services rendered by the assessee from outside India treating the same as royalty and FTS/FIS under the provisions of the Act and the India-USA DTAA.

It was observed by the tribunal that AWS Services provided by the assessee are merely standard and automated services which are all publically available online to anyone. These services are all standardised and there is no customisation done for any particular customer.

Thus, 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.

Further, AWS Services provided by the assessee are standardised automated services that did not provide technical services to its customers nor does it satisfy the ‘make available’ clause as the customer would not be able to make use of the technical knowledge, skill, process etc. used by the assessee in providing cloud computing services, by itself in its business or for its own benefit, without recourse to the assessee in future. Hence, rendering cloud computing service cannot be held to be liable to tax in India as FTS/FIS.

After reviewing the facts and submissions of the both parties, the two member bench of G.S.Pannu, (President)  and Astha Chandra,  (Judicial Member) held that receipts for Amazon Web Services cloud computing services rendered by amazon to Indian customers are not taxable as Fee for Technical Service(FTS) under India -US treaty.

To Read the full text of the Order CLICK HERE

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