In W.P. (C) 2335/2023 -DEL HC- Delhi High Court provides relief to Amazon Web Services India, orders AWS India to withhold 8% TDS on payments to AWS USA
Justice Vibhu Bakhru & Justice Amit Mahajan [31-08-2023]

Read Order: Amazon Web Services India Pvt Ltd & Anr V. Income Tax Officer & Anr

Chahat Varma

New Delhi, September 19, 2023: In a recent decision, the Delhi High Court has modified an order related to tax withholding in a case between AWS (Amazon Web Services) India and AWS USA. The Court directed AWS India to withhold 8% of payments payable or paid to AWS USA and deposit the same with the Revenue authorities.

The present petition was filed to challenge an order dated 01.02.2023, passed by the Assessing Officer (AO). This order pertained to the disposition of an application filed by AWS India, under Section 195(2) of the Income Tax Act, 1961. The purpose of this application was to determine the appropriate proportion of the sum payable to AWS USA, chargeable to tax, for the purposes of withholding tax deducted at source (TDS).

In the matter at hand, AWS India operated by reselling web services to third-party customers within India. Meanwhile, AWS USA was headquartered in the United States and was primarily involved in offering web services to a global clientele, including AWS India. AWS India claimed that, in terms of the Reseller Agreement between AWS India and AWS USA, it had been appointed as a non-exclusive reseller of web services on a principal-to-principal basis. According to the said Reseller Agreement, AWS India asserted that it was authorized to resell web services to its customers in India. It maintained that it independently entered into contracts in its own name with Indian customers and raised invoices directly to such customers. It also received funds from its customers directly. AWS India made payments to AWS USA for the purchase of web services for the purpose of reselling them to its customers.  

In its application, AWS India claimed that AWS USA's receipts were chargeable to the Equalisation Levy under Section 165A of the Finance Act, 2016, which was paid. It contended that the payments made by it were not chargeable to income tax under the Act either as fees for technical services (FTS) or royalty under Section 9 of the Act or under the DTAA between India and the United States of America. In view of the aforesaid claims, AWS India had sought a certificate from the AO for nil withholding of tax in respect of the reseller fee paid by AWS India to AWS USA.

The division bench of Justice Vibhu Bakhru and Justice Amit Mahajan examined the challenged order, and observed that the AO had made determinations regarding AWS India's application based on information publicly available and certain assumptions that were ex-facie erroneous.

The bench also noted that the AO had made the assumption that AWS USA was not an incorporated entity but rather a Limited Liability Company. Consequently, the AO had concluded that the Indo-US DTAA did not apply to AWS USA. However, the bench stated that this assumption was clearly incorrect on its face, and there was no supporting evidence on record to justify this perspective. The use of the suffix 'Inc.' in AWS USA's name indicated that it was indeed an incorporated entity.

The bench also determined that they could not endorse the notion that the entire sum payable by AWS India to AWS USA should be regarded as revenue associated with AWS's permanent establishment (PE), if it indeed existed in India, without considering any portion of it being attributable to entities located overseas.

The bench also added that they found it challenging to comprehend AWS India's argument that all the information concerning AWS USA was accessible through the Department's portal, and therefore, the AO should have retrieved it from there. They clarified that under Section 195(2) of the Act, it is the responsibility of the applicant to provide the essential information.

Taking into account that these proceedings were limited to determining the withholding of tax and that the financial year 2022-23 had concluded, the Court proposed to the parties that, without compromising their respective positions regarding the taxation of AWS USA's income under the Income Tax Act, a total of 10% be withheld (after deducting the 2% Equalisation Levy already paid) as withholding tax.