Amazon Wins Major Tax Case in India: Delhi High Court Rules Cloud Services Not Taxable

In a landmark decision that could reshape India’s cloud computing tax landscape, the Delhi High Court has ruled in favor of Amazon Web Services (AWS), declaring that payments made by Indian customers for standard cloud services are not taxable as either royalty or fees for technical services (FTS) under Indian tax law or the India-US Double Taxation Avoidance Agreement (DTAA).

The ruling, delivered by a Division Bench of Justices Vibhu Bakhru and Tejas Karia, follows appeals filed by the Indian Commissioner of Income Tax (International Taxation) against AWS. The case centered on whether AWS’ earnings from Indian clients for cloud services should be treated as taxable income within India.

Why the Court Ruled in Favor of Amazon

The court backed the earlier ruling by the Income Tax Appellate Tribunal (ITAT), clarifying that cloud service users do not acquire any intellectual property rights (IPRs), technical know-how, or the ability to commercially exploit AWS technology.

“The customers do not acquire any right or title or any IPR… There is no material to establish that a grant of such service entails transfer of any technical know-how, skill, knowledge or process,” the court stated. It further explained that AWS merely provides automated, standardised cloud services through APIs and data infrastructure, without any human intervention or proprietary transfer.

Implications for the Tech Sector and India’s Digital Economy

The ruling has significant implications for both foreign and domestic tech companies offering cloud-based services in India. It creates legal clarity that automated cloud services without human input or transfer of proprietary information are not subject to taxation under the definitions of “royalty” or “FTS” in the Income Tax Act or the India-US DTAA.

The Delhi High Court decision also aligns India with global tax practices around cloud computing and protects foreign firms from potential double taxation, making India a more attractive market for global tech investments.

AWS, for its part, has consistently maintained that its services are standard, self-service solutions that do not provide users with access to backend infrastructure, source code, or any proprietary technology.

What the Tax Department Argued—and Lost

The Indian tax authorities argued that AWS services involved the use of scientific equipment and software, and therefore, payments for such services should be taxed under Section 9 of the Income Tax Act and Article 12 of the Double Taxation Avoidance Agreement (DTAA). However, the court rejected this stance, emphasizing that simply using cloud-hosted platforms or receiving user support does not amount to receiving technical services.

Delhi High Court rules in favour of Amazon in cloud services taxation matter

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A Win Beyond Amazon

This Delhi High Court ruling on AWS sets a precedent for how India will treat other foreign cloud providers, including Microsoft Azure, Google Cloud, and others offering similar standardised services. With cloud adoption surging in India, this decision brings clarity and consistency to a rapidly evolving digital economy.