Relief to Amazon Web Services India: Delhi HC reduces Liability to Withhold Tax for TDS from 16% to 8% w.r.t. Payment to AWS USA [Read Order]

In a recent decision, the High Court of Delhi has modified its earlier order in the case of Amazon Web Services India Pvt Ltd & Anr. vs. Income Tax Officer & Anr. The case pertains to a dispute over the withholding tax deducted at source (TDS) on payments made by Amazon Web Services India (AWS India) to its U.S. counterpart, AWS USA.

In the original order dated February 1, 2023, the Assessing Officer (AO) had directed AWS India to withhold 16% of the remittance as TDS on reseller fees paid to AWS USA for the financial year 2022-23. The AO's decision was based on the assumption that AWS USA had a significant presence in India, constituting a Permanent Establishment (PE), and that AWS India had not provided essential financial information regarding AWS USA.

The Division Bench of Justice Vibhu Bakhru and Justice Amit Mahajan observed that, “For the purpose of Section 195(2) of the Act, the applicant is required to provide the necessary information. It would not be open for the applicant to refrain from providing the same on the ground that AO may be able to access the same otherwise.”

However, the High Court found several flaws in the AO's approach. Firstly, it noted that the AO incorrectly assumed that AWS USA was not an incorporated entity but a Limited Liability Company (LLC), which led to the erroneous conclusion that the Indo-US Double Taxation Avoidance Agreement (DTAA) did not apply to AWS USA. The court clarified that AWS USA is indeed an incorporated entity.

Secondly, the court criticised the AO for not adequately determining the proportion of income attributable to the alleged PE in India as required by the Indo-US DTAA.

Recognizing the limited scope of proceedings under Section 195(2) of the Income Tax Act, which pertains to determining TDS, the High Court modified the order. It suggested that AWS India should withhold 8% of payments made to AWS USA for the period from November 1, 2022, to March 31, 2023, instead of the originally prescribed 16%. This decision aligns with an interim order from September 14, 2022, in a similar case involving Google Asia Pacific Pte Ltd.

The High Court emphasised that this modification should not prejudice the rights of either party in the ongoing assessment proceedings regarding the tax liability of AWS USA under the Income Tax Act. AWS India agreed to this modified arrangement.

The Delhi High Court further clarified that the modified order applies for the limited period from 01.11.2022 to 31.03.2023, but it does not prevent the Revenue from taking any measures related to the period before November 1, 2022, based on the absence of a Section 195(2) application or assessment.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates