EPRSS PREPAID RECHARGE SERVICES INDIA P. LTD. vs. ITO [2018] 100 taxmann.com 52 (Pune – Trib.); TS-623-ITAT-2018 (Pune);

Article 12 of India-USA DTAA and Explanation 2 to section 9(1)(vi).  The ITAT held that payments made towards web hosting charges (server space) to Amazon is not taxable as royalty under the Act as well as the DTAA


The Assessee, an Indian company, is engaged in distribution and sale of recharge pens of various DTH providers via online network.  For the purpose of its business, the Assessee required access to servers. The Assessee hired server space under a web hosting agreement from Amazon, a foreign company.  The Assessee did not deduct TDS.

The AO held that the payments were made for the use of servers, which amounted to use of commercial equipment and hence, they qualified as royalty u/s.9(1)(vi) of the Act.  The CIT(A) upheld the order of AO.  The Taxpayer appealed before the Tribunal.


The ITAT held that as per the agreement, the Assessee made payments for use of technology driven services of Amazon and not for use of any IPR or rights owned by it.  The ITAT held that the payments for web hosting services were for availing services and did not qualify as royalty.

The ITAT further observed that the Assessee did not use or acquire any right to use any industrial, commercial or scientific equipment.  Hence, the payments made by Taxpayer cannot be said to be covered under clause (iva) to Explanation 2 of section 9(1)(vi) of the Act.  Thus, the ITAT concluded that Assessee was not liable to withhold taxes on web hosting charges paid to Amazon.

With respect to retrospective amendment to the definition of royalty, which included use of, or right to use, an equipment as royalty, the ITAT held that it cannot be applied in respect of the tax years, which have elapsed before the amendment came into force. The ITAT further held that retrospective amendment to the Act cannot amend the DTAA. Thus, amended definition of ‘royalty’ under the Act cannot be read into the DTAA. Since the Taxpayer had no control over the servers of Amazon, payment for such services did not qualify as royalty under the DTAA as well.

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