The Commissioner Of Incometax - International Taxation -1 v. Amazon Web Services, Inc

IN THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 29.05.2025 +ITA 150/2025 & CM APPL. 29405/2025 THE COMMISSIONER OF INCOMETAX - INTERNATIONAL TAXATION -1 ....Appellant Versus AMAZON WEB SERVICES, INC AND +ITA 154/2025 & CM APPL. 29646/2025 THE COMMISSIONER OF INCOMETAX - INTERNATIONAL TAXATION -1 ....Respondent .....Appellant Versus AMAZON WEB SERVICES, INC .....Respondent Advocates who appeared in this case: For the Appellant : Mr. Ruchir Bhatia, SSC, Mr. Anant Mann, JSCMs. Aditi Sabharwal and Mr. Abhishek Anand,Advocates for the Revenue. For the Respondent: Mr. Porus Kaka, Sr. Advocate with Mr. Rohit Jain,Mr. Aniket D. Agrawal, Mr. Manish Kanth,Ms. Manisha Sharma, Advocates for the Assessee. CORAMHON’BLE MR JUSTICE VIBHU BAKHRUHON’BLE MR JUSTICE TEJAS KARIA JUDGMENT VIBHU BAKHRU, J. 1.The Revenue has filed the present appeals under Section 260A ofthe Income Tax Act, 1961 [the Act] impugning a common order dated01.08.2023 passed by the learned Income Tax Appellate Tribunal [theTribunal] allowing the appeals, being ITA No.522/Del/2023 and ITANo.523/Del/2023, in respect of assessment years [AYs] 2014-15 and2016-17, respectively. The respondent [Assessee] had preferred the saidappeals against orders dated 27.01.2023 and 24.01.2023 passed by theAssessing Officer under Section 147 read with Section 144C(13)of the Act in respect of AYs 2014-15 and 2016-17. 2.The Assessee is a company incorporated in the United States ofAmerica and is a tax resident of that country. The Assessee had receivedcertain sums of money from Indian entities for rendering cloudcomputing services, which, according to the AO are chargeable to taxas royalty and fees for technical service under the Act as well as“the Convention between the Government of the United States ofAmerica and the Government of the Republic of India for theAvoidance of Double Taxation and Prevention of Fiscal evasion withrespect to taxes on income” [India-US DTAA]. 3.The Assessee contends to the contrary and claims that its receiptsare for providing standard cloud computing services, which are notchargeable to tax either as royalties or as FTS. Therefore, the Assesseehad not filed its return of income. The Assessee’s customers that had remitted the charges to the Assessee for services had not withheld anytax under Section 195 of the Act for the same reason. 4.TheRevenuehadinitiatedproceedingsunderSection201/201(1A) of the Act in case of one M/s Snapdeal Private Limited(erstwhile Jasper Infotech Private Limited), which had availed of theservices of the Assessee. The information that the said company hadremitted funds overseas as charges for the services rendered by theAssessee was furnished to the AO. The AO was of the view that theamounts received by the Assessee were chargeable to tax under the Act.Accordingly, the AO issued notices under Section 148 of the Act andcommenced proceedings for re-assessment for AYs 2014-15 and 2016-17. 5.The draft assessment order was passed by the AO, assessing thetotal income of the Assessee. The Assessee had filed its objectionsbefore the Dispute Resolution Panel , which were rejected byseparate orders dated 06.12.2022. Pursuant to the said directions, theAO issued the final assessment orders dated 27.01.2023 and 24.01.2023for AY 2014-15 and AY 2016-17, respectively, whereby the AOdeterminedtheAssessee’sincomechargeabletotaxat₹2,47,68,23,222/- in respect of AY 2014-15 and ₹10,07,81,05,172/- in respect of AY 2016-17. 6.The Assessee appealed the aforementioned final assessmentorders before the Tribunal. The learned Tribunal allowed the saidappeals and set aside the assessment orders in view of its finding that the amounts received by the Assessee were neither in the nature ofroyalties nor fees for included services , which were chargeable totax under the Act read with the India-US DTAA. 6.The Assessee appealed the aforementioned final assessmentorders before the Tribunal. The learned Tribunal allowed the saidappeals and set aside the assessment orders in view of its finding that the amounts received by the Assessee were neither in the nature ofroyalties nor fees for included services , which were chargeable totax under the Act read with the India-US DTAA. 7.In the aforesaid context, the Revenue has projected the followingcommon questions of law in the present appeals:common questions of law in the present appeals: “2.1 Whether on the facts and in the circumstances of thecase, Ld. ITAT has erred in holding that the paymentsreceived by the Assessee accruing/arising from Indiafrom its customers are not royalty income within themeaning of Article 12(3) of the India-USA DTAA aswell as section 9(l)(vi) of the Income Tax Act, 1961?case, Ld. ITAT has erred in holding that the paymentsreceived by the Assessee accruing/arising from Indiafrom its customers are not royalty income within themeaning of Article 12(3) of the India-USA DTAA aswell as section 9(l)(vi) of the Income Tax Act, 1961? 2.2Whether on the facts and in the circumstances of thecase, the Ld. ITAT has erred in holding that thepayment received by the Assessee from customers isnot royalty without appreciating the fact that theassessee provides use of hardware and completeinfrastructure comprising of server, software, datastorage space, networking equipment database, etc.and hence constitutes ‘royalty’ being towards usagesof equipment by the customers?case, the Ld. ITAT has erred in holding that thepayment received by the Assessee from customers isnot royalty without appreciating the fact that theassessee provides use of hardware and completeinfrastructure comprising of server, software, datastorage space, networking equipment database, etc.and hence constitutes ‘royalty’ being towards usagesof equipment by the customers? 2.3Whether on the facts and in the circumstances of thecase, the Ld. ITAT has erred in holding that thepayments received by the assessee from customers isnot royalty income without appreciating the fact thatreceipts from customers in India are on account of‘use of equipment’ as specified under clause (iva) ofExplanation 02 to section 9(l)(vi) of the Act read withExplanation 5 to section 9(l)(vi) of the Act as well asArticle 12(3) of the India-USA DTAA?case, the Ld. ITAT has erred in holding that thepayments received by the assessee from customers isnot royalty income without appreciating the fact thatreceipts from customers in India are on account of‘use of equipment’ as specified under clause (iva) ofExplanation 02 to section 9(l)(vi) of the Act read withExplanation 5 to section 9(l)(vi) of the Act as well asArticle 12(3) of the India-USA DTAA? 2.4Whether on the facts and in the circumstances of thecase, the Ld. ITAT has erred in holding that thepayments received by the assessee on account of cloudcomputing is not royalty income without consideringcase, the Ld. ITAT has erred in holding that thepayments received by the assessee on account of cloudcomputing is not royalty income without considering the fact that even if an argument is made that assesseereceives service income, then also it would be treatedas fees for included services (FIS) as per article 12(4)(a) of the India USA DTAA being ancillary andsubsidiary to the application or enjoyment of the rightproperty or information in the form of a online cloudcomputing for which it is entitled to royalty? 2.5Whether the Ld. ITAT has erred in holding that thepayments received by the assessee from its customersdid not constitute ‘fee for technical service’ as definedunder section 9(l)(vii) of the Income Tax Act, 1961 or'fee for included service' as defined under Article12(4) of the India-USA DTAA?payments received by the assessee from its customersdid not constitute ‘fee for technical service’ as definedunder section 9(l)(vii) of the Income Tax Act, 1961 or'fee for included service' as defined under Article12(4) of the India-USA DTAA? 2.5Whether the Ld. ITAT has erred in holding that thepayments received by the assessee from its customersdid not constitute ‘fee for technical service’ as definedunder section 9(l)(vii) of the Income Tax Act, 1961 or'fee for included service' as defined under Article12(4) of the India-USA DTAA?payments received by the assessee from its customersdid not constitute ‘fee for technical service’ as definedunder section 9(l)(vii) of the Income Tax Act, 1961 or'fee for included service' as defined under Article12(4) of the India-USA DTAA? 2.6Whether Ld. ITAT has erred in holding that thepayments received by the Assessee accruing/arisingfrom India are not taxable in India without taking intoaccount the fact that the agreement entered into by theAssessee with its customers result in importing of atechnical knowledge, experience skill, know how orprocesses and therefore, there is fulfillment of a makeavailable clause in terms of article 12(4) (h) of India-USA DTAA as well as Explanation -2 of section9(l)(vii) of the I.T.Act, 1961 ?”payments received by the Assessee accruing/arisingfrom India are not taxable in India without taking intoaccount the fact that the agreement entered into by theAssessee with its customers result in importing of atechnical knowledge, experience skill, know how orprocesses and therefore, there is fulfillment of a makeavailable clause in terms of article 12(4) (h) of India-USA DTAA as well as Explanation -2 of section9(l)(vii) of the I.T.Act, 1961 ?” REASONS AND CONCLUSION 8.The principal issue that arises in the present appeals is whetherthe amounts received by the Assessee from Indian entities for providingits services are taxable under the Act. The AO had initiated the re-assessment proceedings pursuant to the information received that M/sSnapdeal Private Limited (erstwhile Jasper Infotech Private Limited)had made foreign remittances to the Assessee towards “Hosting andBandwidth Charges” without deducting any withholding tax. It is theAssessee’s case that it provides standardised and automated cloud computing services to its customers. Any person desiring to avail of theservices is required to enter into a standardized contract electronically,in respect of the said services. The AO had, in the aforesaid context,examined the said Standard Agreement [the Agreement] and on thebasis of the same, concluded that some of the receipts were taxable asroyalties and also taxable as FIS. 9.For the purposes of the present appeals, we may consider theconclusions drawn by the AO in the assessment order dated 27.01.2023in respect of AY 2014-15, which is also similar to the conclusionsdrawn in the assessment order for AY 2016-17. 10.The AO examined certain clauses of the Agreement andconcluded that Assessee is providing a host of services / intellectualproperty to its customers. The AO also noted that the Assessee providesthe customers with Services Offerings and Application ProgramInterface to enable the customers to develop further content anduse existing content for its business. In terms of the Agreement, serviceofferings means Services (including associated APIs), the “AWSContent”, the “AWS Marks”, the “AWS Site”. Further, the Agreementalso includes provision for support services to be rendered by theAssessee. 11.The AO proceeded to hold that the Assessee was providingtechnical support to its customers and also making available technologyand therefore, the fees received by it was taxable as FTS under the Actas well as FIS under Article 12 of the India-US DTAA. Additionally, the AO held that the Service Offering also covered trademarks, servicemarks and concluded that the Assessee was providing copyright andtrademark services to its customers for commercial exploitation. TheAO reasoned that; therefore, the income of the Assessee would qualifyas royalty. 11.The AO proceeded to hold that the Assessee was providingtechnical support to its customers and also making available technologyand therefore, the fees received by it was taxable as FTS under the Actas well as FIS under Article 12 of the India-US DTAA. Additionally, the AO held that the Service Offering also covered trademarks, servicemarks and concluded that the Assessee was providing copyright andtrademark services to its customers for commercial exploitation. TheAO reasoned that; therefore, the income of the Assessee would qualifyas royalty. 12.The AO examined the cloud computing models and found thatthe amounts paid to the Assessee were also in the nature of right to usescientific equipment and therefore, were covered under the definition of‘royalties’ under the India-US DTAA. 13.It is material to note that it is not the Revenue’s case that any partof the amounts received by the Assessee are taxable as business incomeattributable to the Assessee’s permanent establishment in India.There is no allegation that the Assessee has a PE in India. Thus,essentially, the controversy that arises in the present case is whether theamounts received by the Assessee for its services could be termed as‘FTS’ or ‘royalties’, which are taxable under the Act and the India-USDTAA. 14.Admittedly, the Assessee provides standardised and automatedcloud computing services / AWS services to its customers around theglobe. Thus, the controversy is, essentially, confined to determiningwhether the AO’s conclusions are sustainable in reference to theAgreement entered into between the Assessee and its customers. 15.The learned Tribunal also examined various clauses of theAgreement to determine whether any of the services rendered could beconstrued as ‘FTS’ or ‘royalty’ chargeable to tax under the Act and theIndia-US DTAA and had concluded that that the Agreement did notentail transfer of any technology, skill, technical know-how or processwith the meaning of Article 12(4)(b) of the India-US DTAA. The samealso did not entail transfer of any right to commercially exploit theAssessee’s Intellectual Property Rights . Thus, the considerationfor cloud computing services offered by the Assessee neither constitutesas royalty nor any identical payments which could be considered asancillary or subsidiary to the enjoyment of any right for which royaltiesare payable within the scope of Article 12(3) or 12(4)(a) of the India-US DTAA. 16.It is necessary to understand the nature of services being offeredby the Assessee. There is no cavil that the services offered by theAssessee are standardised services that can be availed by any of itscustomers. The Assessee operate a cloud computing platform, whichessentially comprises of hardware as well as software. The Assesseeprovides cloud services for its customers to build and develop their owncontent. Admittedly, the Agreement does not entail transferring of anyskill, knowledge or know-how by the Assessee to its customers, butlends support to its customers for the purposes of enabling thecustomers to use its cloud computing platform. 17.It is the Assessee’s case that the charges received by it are notcovered as FIS as defined under Article 12 of the India-US DTAA. It isthus relevant to refer to the said Article. Article 12 of the India-USDTAA is set out below:- “ARTICLE 12 Royalties and Fees for Included Services 1. Royalties and fees for included services arising in aContracting State and paid to a resident of the otherContracting State may be taxed in that other State. 2. However, such royalties and fees for included servicesmay also be taxed in the Contracting State in which theyarise and according to the laws of that State; but if thebeneficial owner of the royalties or fees for includedservices is a resident of the other Contracting State, the taxso charged shall not exceed: 17.It is the Assessee’s case that the charges received by it are notcovered as FIS as defined under Article 12 of the India-US DTAA. It isthus relevant to refer to the said Article. Article 12 of the India-USDTAA is set out below:- “ARTICLE 12 Royalties and Fees for Included Services 1. Royalties and fees for included services arising in aContracting State and paid to a resident of the otherContracting State may be taxed in that other State. 2. However, such royalties and fees for included servicesmay also be taxed in the Contracting State in which theyarise and according to the laws of that State; but if thebeneficial owner of the royalties or fees for includedservices is a resident of the other Contracting State, the taxso charged shall not exceed: (a) in the case of royalties referred to insubparagraph (a) of paragraph 3 and fees for includedservices as defined in this Article (other than servicesdescribed in subparagraph (b) of this paragraph): (i) during the first five taxable years for whichthis Convention has effect, (A) 15 percent of the gross amount ofthe royalties or fees for included services asdefined in this Article, where the payer of theroyalties or fees is the Government of thatContracting State, a political subdivision or apublic sector company; and (B) 20 percent of the gross amount of theroyalties or fees for included services in allother cases, and (ii) during the subsequent years, 15 percent ofthe gross amount of royalties or fees forincluded services; and (b) in the case of royalties referred to insubparagraph (b) of paragraph 3 and fees for includedservices as defined in this Article that are ancillaryand subsidiary to the enjoyment of the property forwhich payment is received under paragraph 3(b) ofthis Article, 10 percent of the gross amount of theroyalties or fees for included services. 3. The term “royalties” as used in this Article means: (a) payments of any kind received as aconsideration for the use of, or the right to use, anycopyright of a literary, artistic, or scientific work,including cinematograph films or work on film, tapeor other means of reproduction for use in connectionwith radio or television broadcasting, any patent,trademark, design or model, plan, secret formula orprocess, or for information concerning industrial,commercial or scientific experience, including gainsderived from the alienation of any such right orproperty which are contingent on the productivity,use, or disposition thereof, and (b)paymentsofanykindreceivedasconsideration for the use of, or the right to use, anyindustrial, commercial, or scientific equipment, otherthan payments derived by an enterprise described inparagraph 1 of Article 8 (Shipping and Air Transport)from activities described in paragraph 2(c) or 3 ofArticle 8. 4. For purposes of this Article, “fees for included services”means payments of any kind to any person in considerationfor the rendering of any technical or consultancy services(including through the provision of services of technical orother personnel) if such services: (a)areancillaryandsubsidiarytotheapplication or enjoyment of the right, property orinformation for which a payment described inparagraph 3 is received; or (b)makeavailabletechnicalknowledge,experience, skill, know-how, or processes, or consistof the development and transfer of a technical plan ortechnical design. 5.Notwithstandingparagraph4,“feesforincludedservices” does not include amounts paid: (a)forservicesthatareancillaryandsubsidiary, as well as inextricably and essentiallylinked, to the sale of property other than a saledescribed in paragraph 3(a);(b) for services that are ancillary and subsidiaryto the rental of ships, aircraft, containers or otherequipment used in connection with the operation ofships or aircraft in international traffic; (c)forteachinginorbyeducationalinstitutions; (d) for services for the personal use of theindividual or individuals making the payment; or (b)makeavailabletechnicalknowledge,experience, skill, know-how, or processes, or consistof the development and transfer of a technical plan ortechnical design. 5.Notwithstandingparagraph4,“feesforincludedservices” does not include amounts paid: (a)forservicesthatareancillaryandsubsidiary, as well as inextricably and essentiallylinked, to the sale of property other than a saledescribed in paragraph 3(a);(b) for services that are ancillary and subsidiaryto the rental of ships, aircraft, containers or otherequipment used in connection with the operation ofships or aircraft in international traffic; (c)forteachinginorbyeducationalinstitutions; (d) for services for the personal use of theindividual or individuals making the payment; or (e) to an employee of the person making thepayments or to any individual or firm of individuals(other than a company) for professional services asdefinedinArticle15(IndependentPersonalServices). 6. The provisions of paragraphs 1 and 2 shall not apply ifthe beneficial owner of the royalties or fees for includedservices, being a resident of a Contracting State, carries onbusiness in the other Contracting States, in which theroyalties or fees for included services arise, through apermanent establishment situated therein, or performs inthat other State independent personal services from a fixedbase situated therein, and the royalties or fees for included services are attributable to such permanent establishment orfixed base. In such case the provisions of Article 7(Business Profits) or Article 15 (Independent PersonalServices), as the case may be, shall apply. 7. (a) Royalties and fees for included services shall bedeemed to arise in a Contracting State when the payer is thatState itself, a political subdivision, a local authority, or aresident of that State. Where, however, the person payingthe royalties or fees for included services, whether he is aresident of a Contracting State or not, has in a ContractingState a permanent establishment or a fixed base inconnection with which the liability to pay the royalties orfees for included services was incurred, and such royaltiesor fees for included services are borne by such permanentestablishment or fixed base, then such royalties or fees orincludedservicesshall bedeemedtoarise intheContracting State in which the permanent establishment orfixed base is situated. (b) Where under subparagraph (a) royalties or fees forincluded services do not arise in one of the ContractingStates, and the royalties relate to the use of, or the right touse, the right or property, or the fees for included servicesrelate to services performed, in one of the ContractingStates, the royalties or fees for included services shall bedeemed to arise in that Contracting State. 8. Where, by reason of a special relationship betweenthe payer and the beneficial owner or between both of them.and some other person, the amount of the royalties or feesfor included services paid exceeds the amount which wouldhave been paid in the absence of such relationship, theprovisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of thepayments shall remain taxable according to the laws of eachContracting State, due regard being had to the otherprovisions of the Convention.” 18.While ‘Service Offerings’ are defined under the Agreement readsas under: “ServiceOfferings”meanstheServices(includingassociated APIs), the AWS Content, the AWS Marks, theAWS Site, and any other product or service provided by usunder this Agreement. Service Offerings do not include ThirdParty Content.” 19.And, API under the Agreement means an applicationprogram interface. 20.The relevant extract of the Agreement, which indicates the scopeof the Service Offering License as noted by the learned Tribunal is setout below: 18.While ‘Service Offerings’ are defined under the Agreement readsas under: “ServiceOfferings”meanstheServices(includingassociated APIs), the AWS Content, the AWS Marks, theAWS Site, and any other product or service provided by usunder this Agreement. Service Offerings do not include ThirdParty Content.” 19.And, API under the Agreement means an applicationprogram interface. 20.The relevant extract of the Agreement, which indicates the scopeof the Service Offering License as noted by the learned Tribunal is setout below: “8.4 Service Offerings License. As between you and us, we or ouraffiliates or licensors own and reserve all right, title, and interestin and to the Service Offerings. We grant you a limited, revocable,non-exclusive, non-sublicensable, non-transferrable license to dothe following during the Term: (i) access and use the Servicessolely in accordance with this Agreement; and (ii) cow and use theAWS Content solely in connection with your permitted use of theServices. Except as provided in this Section 8.4, you obtain norights under this Agreement from us or our licensors to the ServiceOfferings, including any related intellectual property rights. SomeAWS Content may be provided to you under a separate license,such as the Apache Software License or other open source license.In the event of a conflict between this Agreement and any separatelicense, the separate license will prevail with respect to that AWSContent. 8.5 License Restrictions. Neither you nor any End User may usethe Service Offerings in any manner or for any purpose other thanas expressly permitted by this Agreement. Neither you nor anyEnd User may, or may attempt to, (a) modify, alter, tamper with,repair, or otherwise create derivative works of any softwareincluded in the Service Offerings (except to the extent softwareincluded in the Service Offerings are provided to you under aseparate license that expressly permits the creation of derivativeworks), (b) reverse engineer, disassemble, or decompile theService Offerings or apply any other process or procedure to derive the source code of any software included in the ServiceOfferings, (c) access or use the Service Offerings in a wayintended to avoid incurring fees or exceeding usage limits orquotas, or (d) resell or sublicense the Service Offerings. Alllicenses granted to you in this Agreement are conditional on yourcontinued compliance this Agreement, and will immediately andautomatically terminate if you do not comply with any term orcondition of this Agreement. During and after the Term, you willnot assert, nor will you authorize, assist, or encourage any thirdparty to assert, against us or any of our affiliates, customers,vendors, business partners, or licensors, any patent infringementor other intellectual property infringement claim regarding anyService Offerings you have used. You may only use the AWSMarks in accordance with the Trademark Use Guidelines.” 21.It is apparent from the above that whilst the Assessee’s customerscan access and use the cloud computing service, they do not acquire anyright or title or any IPR that would entitle them to exploit orcommercially monetize the said assets on its own. 22.Article 4 of the Agreement clearly spells out that the customersare solely responsible for the development, content, operation,maintenance and use of its Content. The relevant extract of Article 4 ofthe Agreement as noted by the AO as well as the learned Tribunal intheir respective orders is reproduced below: “4. Your Responsibilities 4.1 Your Content. You are solely responsible for thedevelopment, content, operation, maintenance, and use of YourContent. For example, you are solely responsible for: (a) the technical operation of Your Content, including ensuringthat calls you make to any Service are compatible with then-current APIs for that Service; (b) compliance of Your Content with the Acceptable UsePolicy, the other Policies, and the law; (c) any claims relating to Your Content; and “4. Your Responsibilities 4.1 Your Content. You are solely responsible for thedevelopment, content, operation, maintenance, and use of YourContent. For example, you are solely responsible for: (a) the technical operation of Your Content, including ensuringthat calls you make to any Service are compatible with then-current APIs for that Service; (b) compliance of Your Content with the Acceptable UsePolicy, the other Policies, and the law; (c) any claims relating to Your Content; and (d) properly handling and processing notices sent to you (orany of your affiliates) by any person claiming that YourContent violate such person’s rights, including noticespursuant to the Digital Millennium Copyright Act. 4.2 Other Security and Backup. You are responsible forproperly configuring and using the Service Offerings and takingyour own steps to maintain appropriate security, protection andbackup of Your Content, which may include use of encryptiontechnology to protect Your Content from unauthorized access androutine archiving Your Content. AWS log-in credentials andprivate keys generated by the Services are for your internal useonly and you may not sell, transfer or sub-license them to anyother entity or person, except that you may disclose your privatekey to your agents and subcontractors performing work on yourbehalf.” 23.As noted earlier, the AO had taken note that “Service Offerings”mean the AWS content, the AWS Marks, the AWS Site and otherservices provided under the Agreement. 24.In addition, the AO had also noted the definition of ‘AWSContent’ and ‘AWS Mark’, which is noted below: “AWS Content” means Content we or any of its affiliatesmake available in connection with the Services or on theAWS Site to allow access to and use of the Services,including WSDLs; Documentation; sample code; softwarelibraries; command line tools; and other related technology.AWS Content does not include the Services. “AWS Marks” means any trademarks, service marks,service or trade names, logos, and other designations of AWS and its affiliates that we may make available to you inconnection with this Agreement.” 25.It is apparent from the above, the AWS Content, is madeavailable by the Assessee only in connection with its services or on theAWS Site to allow access to the services. However, it is clear that thecustomers are not provided any right to commercially exploit the same.AWS Content is provided only for the purposes to allow access and useof its services. The same would include documentation, sample code,software libraries, command line tools and other related technology.Thus, the said content is confined to facilitate the access and avail theAssessee’s services. It would be erroneous to assume that the Assesseederives any proprietary right in respect of the AWS Content. 26.Additionally, the AO had also noted the assistance offered by theAssessee to its customers under the support guidelines and the AOconstrued providing AWS Support to mean that the Assessee wasmaking available technology to its customers. And, the considerationfor the same would fall within the scope of FIS under Article 12 of theIndia-US DTAA. 27.The AO’s aforesaid finding was founded on the definition of‘AWS content’ and support guidelines.The AO had noted that onaccessing the support links, the following information is available: “AWS Support provides a mix of tools and technology,people, and programs designed to proactively help youoptimize performance, lower costs, and innovate faster.We save time for your team by helping you to move faster in the cloud and focus on your core business. Weare determined to make our customers successful ontheir cloud journey and address requests that rangefrom answering best practices questions, guidance onconfiguration, all the way to break-fix and problemresolution. 27.The AO’s aforesaid finding was founded on the definition of‘AWS content’ and support guidelines.The AO had noted that onaccessing the support links, the following information is available: “AWS Support provides a mix of tools and technology,people, and programs designed to proactively help youoptimize performance, lower costs, and innovate faster.We save time for your team by helping you to move faster in the cloud and focus on your core business. Weare determined to make our customers successful ontheir cloud journey and address requests that rangefrom answering best practices questions, guidance onconfiguration, all the way to break-fix and problemresolution. On behalf of our customers, we are focused on solvingsome of the toughest challenges that hold you back inyour cloud journey. Sometimes that means helping youtroubleshoot an issue, but more often, it involves“looking around corners” to find ways for you to betterutilize AWS services, answer best practices questions,and provide guidance on configuration. We focus onhelping you achieve the outcomes you need to makeyour business successful. It is our approach to Supportthat sets AWS apart. Benefits Move faster with AWS Use AWS experts to quickly build up knowledgeand expertise. AWS Support helps you stay agilewitharchitecturalguidanceasyoubuildapplications and solutions. Have a question or needhelp? Just ask - our cloud support engineers and subjectmatter experts are here with answers and guidance.They are looking around the corner to identify newways AWS can help your business. Highly-trained engineers, large network of subject-matter experts At AWS, we hire smart Cloud Support Engineers thatare well versed in DevOps technologies, automation,infrastructure orchestration, configuration managementandcontinuousintegration,andwhoarenotconstrained by how “things are usually done”. CloudSupport Engineers held to same standard for technicalaptitude as AWS software development organization.We also have a vast network of subject-matter experts ranging from Solutions Architects to product managersthat can come off the bench to help you as needed Engineers empowered to help you achieve your goals At AWS, Cloud Support Engineers do not simplyfollow a run-book. Rather, AWS engineers stay withSupport cases from the start all the way through toresolution. This model avoids the need for escalationpaths typically employed by support organizations andeliminates the need for customers to interface withmultiple support engineers, which can slow down time-to-resolution and allow you to move faster in yourcloud journey. Support plans Developer Support We recommend AWS Developer Support if you aretesting or doing early development on AWS and wantthe ability to get technical support during businesshours as well as general architectural guidance as youbuild and test. Business Support We recommend AWS Business Support if you arerunning production workloads on AWS and want 24x7access to technical support from engineers, access toHealth API, and contextual architectural guidance foryour use-cases. Enterprise On-Ramp We recommend Enterprise On-Ramp if you haveproduction/business critical workloads in AWS andwant 24x7 access to technical support from engineers,accesstoHealthAPI,consultativearchitecturalguidance, and a pool of Technical Account Managers(TAMs) to coordinate access to AWS subject matterexperts. Enterprise Support We recommend Enterprise Support for 24x7 technicalsupportfromhigh-qualityengineers,toolsand technology to automatically manage health of yourenvironment, consultative architectural guidance, and adesignated Technical Account Manager (TAM) tocoordinate access to proactive / preventative programsand AWS subject matter experts. Customer testimonials Enterprise On-Ramp We recommend Enterprise On-Ramp if you haveproduction/business critical workloads in AWS andwant 24x7 access to technical support from engineers,accesstoHealthAPI,consultativearchitecturalguidance, and a pool of Technical Account Managers(TAMs) to coordinate access to AWS subject matterexperts. Enterprise Support We recommend Enterprise Support for 24x7 technicalsupportfromhigh-qualityengineers,toolsand technology to automatically manage health of yourenvironment, consultative architectural guidance, and adesignated Technical Account Manager (TAM) tocoordinate access to proactive / preventative programsand AWS subject matter experts. Customer testimonials FanDuel uses AWS Support for architectural guidanceand expertise in order to focus on building value for itscustomers. AWS Support helps FanDuel scale up forcritical events like the NFL season launch and evenhelped reduce infrastructure costs by 50%. WirelessCar partners with AWS Support to improve itsarchitecting of applications and improve its utilizationof AWS services, all while reducing costs and ensuringoptimal performance. Pitney Bowes uses AWS Support for architecturalguidance as it builds new applications, avoiding criticalmistakes and designing for optimal performance. AWSSupport helps Pitney Bowes create solutions thatdelight its customers. Scope of AWS Support Our AWS Technical Support tiers cover developmentand production issues for AWS products and services,along with other key stack components.” 28.The AO reasoned that the support provided by the Assessee to itscustomers is highly technical. The AO also reasoned that the Assesseemakes available various technologies to its customers on noting thedefinition of AWS Content, which include documentation and samplecode and also the following extract from the support page: “We are determined to make our customers successfulon their cloud journey and address requests that rangefrom answering best practices questions, guidance onconfiguration, all the way to break-fix and problemresolution. AWS Support helps you stay agile with architecturalguidance as you build applications and solutions.” 29.The fact that the Assessee lends certain support and assistance toits customers for availing of the services does not in any manner supportthe view that the Assessee makes available technology or technicalskills, know-how or the other process to its customers within the scopeof Article 12(4)(b) of the India-US DTAA. The Assessee also addressesvarious requests of its customers including answering best practicequestions, guidance of configuration amongst others only as a supportfor availing of its services. 30.The AO had observed that there are following three major modelsfor delivering cloud computing services to business: “1. Infrastructure as a Service (IaaS) Model - Under thismodel, typically utilised by large multinational businesses,IT infrastructure in the form of data centers, virtual servers,network infrastructure, equipment, etc. are sourced as aservice from third party service providers. The customerdoes not manage or control the underlying cloudinfrastructure, but has control over the operating system,storage, and deployed applications, and may be givenlimited control of select networking components. 2. Platform as a Service (PaaS) Model - PaaS is a categoryof cloud computing services that provides a computingplatform and programming tools as a service for softwaredevelopers. The client does not control or manage theunderlying cloud infrastructure, including the network,servers, operating systems, or storage, but has control overthe deployed applications. 3. Software as a Service (SaaS) Model - Under this modelthe service provider hosts several software applications forconsumers to use as and when required thereby eliminating the need to install and run the software application on theconsumer’s own infrastructure. It can be provided either tobusiness customers (B2B) or to individual customers (B2C).” 2. Platform as a Service (PaaS) Model - PaaS is a categoryof cloud computing services that provides a computingplatform and programming tools as a service for softwaredevelopers. The client does not control or manage theunderlying cloud infrastructure, including the network,servers, operating systems, or storage, but has control overthe deployed applications. 3. Software as a Service (SaaS) Model - Under this modelthe service provider hosts several software applications forconsumers to use as and when required thereby eliminating the need to install and run the software application on theconsumer’s own infrastructure. It can be provided either tobusiness customers (B2B) or to individual customers (B2C).” 31.The AO reasoned that the payments made to the Assessee areessentially towards usage of hardware/ infrastructure comprising ofserver, software, data storage space, networking equipments, data basesetc. 32.The AO had concluded that the charges received by the Assesseefor cloud computing would be taxable as “equipment royalty”. 33.Thus, the AO held that the payments made by Indian entities tothe Assessee for cloud computing services would be chargeable asroyalties on account of the payments made for ‘use’, or ‘right to use’scientific equipment. 34.The Assessee had furnished its explanation regarding the servicesrendered by it. We consider it apposite to refer to relevant extract of theAssessee’s submissions, as set out in the assessment order. The sameis reproduced below: “The Company provides standard and automated cloudcomputing services to its customers. In this regard, we haveprovided below a general understanding of cloud computingservices: - Historically, various organizations which needed to storeand process large amounts of data, invested in computingresources i.e., hardware (servers) and software (operatingsystems). However, such hardware and software resourceswere costly, capital intensive, required large amount of spaceand were used in limited capacity by such companies. For e.g., a company may have a complex Enterprise ResourcePlanning (ERP) system, which would need large storage andprocessing capability to run, for which it may need to buylarge and expensive servers to host the ERP only. - With development of public internet and capability of web-based access, companies began to innovate and found waysto provide computing resources as a service to customersremotely, flexibly and on an on-demand basis i.e., provisionof computing resources without the need for customers tomake capital-intensive investments in physical computerresources / hardware. Further, companies were able todevelop technology which enabled the same computingresources to be used simultaneously for multiple usersremotely, without any intermingling of data. - The Company was one of the first companies to developweb services for computing infrastructure requested bycustomers. The Company provides quick and easy ways forcustomers to access flexible, low-cost and on-demand cloudcomputing services according to their specific needs, whenand where they need them.” 35.The aforesaid explanation clearly indicates that the servicesoffered by the Assessee does not entail transferring of any skill,knowledge, technology or process to its customers. The cloudcomputing models indicate that the Assessee has developed aninfrastructure and permits the customers to access the hardware andsoftware for developing their own content. 36.There is no cavil that the customers do not control the cloudcomputing hardware or software. They also have no right tocommercially exploit the same. 37.The expression “use” or “right to use” as mentioned in Article12(3) of the India-US DTAA is to be used in a narrow manner. Thescope of royalties under Article 12(3) of the India-US DTAA does notextend to cover charges for services, which are delivered by an assesseeby use of scientific equipment. In the present case, it is clear that thecloud computing hardware and software are used by the Assessee torender its services which are availed by its customers. 36.There is no cavil that the customers do not control the cloudcomputing hardware or software. They also have no right tocommercially exploit the same. 37.The expression “use” or “right to use” as mentioned in Article12(3) of the India-US DTAA is to be used in a narrow manner. Thescope of royalties under Article 12(3) of the India-US DTAA does notextend to cover charges for services, which are delivered by an assesseeby use of scientific equipment. In the present case, it is clear that thecloud computing hardware and software are used by the Assessee torender its services which are availed by its customers. 38.The AO’s conclusion that the provision of such service wouldamount to grant of the ‘right to use’ scientific equipment and therefore,the payments made were covered under the definition of ‘royalty’ underthe Act as well as under Article 12(4)(a) of the India-US DTAA iserroneous. 39.There is no doubt that the Assessee grants access to standard andautomated facilities, which provides computer power, storage, data andother services which may be required by customer for their computingneeds. However, there is no material to establish that grant of suchservice entails transfer of any technical know-how, skill, knowledge orprocess. The customers of the Assessee do not acquire any right tocommercially exploit any of the Assessee’s IPRs. The provision ofcloud computing services does not entail placing any hardware at theexclusive disposal of the customer. The Assessee grants access tostandardandautomatedservices,whichareavailableonline.Customers can select from the services offered according to their needs.As explained by the Assessee, cloud computing provides an effective alternative for customers to use cloud computing services instead ofbuying, owning and maintaining their own data centres and servers. 40.After examining the Agreement and appreciating the scope ofservices, the learned Tribunal found that the Assessee’s customers aregranted only a non-exclusive and non-transferable license to access thestandard automated services offered by the Assessee. Further, theAssessee does not provide the source code of the licensed software tothe customers. The Assessee’s customers have no right to exploit theAssessee’s IPR. The findings of the Tribunal to the aforesaid effect, asset out in the impugned order, are reproduced below: “13. On perusal of the terms of the above CustomerAgreement, Trademark Guidelines and Support Servic