Delhi HC sets aside Amazon Web Services tax revaluation over ₹4,500 crore remittances, sends case for fresh look

In relief of Amazon Web Services Inc. (AWS), the Delhi High Court on Thursday set aside the order of the Income Tax Department seeking to reopen its assessment of foreign remittances of more than ₹4,500 crore, I send the matter back to the Assessing Officer for fresh assessment.

A bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta, which heard AWS’s plea against the review order, ruled that the company should be given a personal hearing and an opportunity to explain whether the transactions had already been reviewed in an earlier assessment.

“The Assessing Officer shall then fix a date for personal hearing and if the assessee is represented, he shall hear the authorized representative and consider the reply in accordance with law,” the court said.

The case relates to the assessment year 2020–21. The tax department issued a reassessment notice in March this year after its risk management system (RMS) flagged several transactions involving more than ₹4,000 million crowns. The department said the transactions may not have been accounted for in an earlier assessment that involved approx ₹2,966 crore and sought an explanation from Amazon Cloud Services regarding remittances flagged by the system.

RMS is an internal risk-based system used by the tax department to identify taxpayers, returns, transactions or information that may require verification or further investigation. The RMS flag does not by itself establish that the income has escaped assessment; may cause the department to investigate the underlying transactions.

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In the reassessment process, the tax department may re-examine the earlier assessment if the Assessing Officer has information indicating that the taxable income may have escaped assessment.

In its plea to the court, AWS argued that the income for the relevant assessment year had already been examined by the tax authorities. An earlier assessment found Fr ₹2,966 crore in foreign remittances related to cloud computing services and taken into account as the company’s global income in determining India’s share.

According to AWS General Counsel Porus Kaka, an earlier assessment officer first examined AWS’s global financials and determined worldwide revenue of approximately $9.2 billion. The officer then used the share of AWS data centers in India to calculate the revenue attributable to India.

Kaka claimed that the department started with AWS’s full global revenue and then worked out India’s share. He argued that the Department could not subsequently pick up individual payments made from India and treat them as new income that escaped assessment without first ascertaining what remained to be examined.

“The department was not doing individual transfers. It was assessing my global income in the United States on a pro rata basis around the world. What’s left to assess? … What’s left to assess in India?” Kaka remarked.

The apex court also asked the revenue department what remained to be examined and the basis for determining whether AWS had a permanent establishment (PE) in India and also whether the department had jurisdiction to take action against the company.

The tax department argued that the earlier assessment did not in itself prove that every transaction now reflected in the RMS information had been reviewed. He asked AWS to reconcile the transaction to see if the payments flagged by the system had already been posted.

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The tax department also said it had not yet been able to determine whether the payments constituted royalties, fees for technical services or some other form of taxable income because it had not been given an opportunity to examine AWS’s response as part of the reassessment.

The issue also relates to a separate AWS tax matter in which the Delhi High Court ruled in 2025 that payments received by the company from Indian entities for cloud computing services cannot be considered royalties under the Indo-US tax treaty. AWS relied on the decision to argue that the taxability of such payments for cloud services had already been settled.

However, the Income Tax Department subsequently relied on information available through its RMS system which showed foreign transfers of more than ₹4,500 crore from which tax was not deducted. The Department sought to verify whether these payments had already been included in an earlier assessment of AWS. This led to the current review proceedings.

According to Moneycontrol, AWS India’s revenue has been exceeded ₹20,000 crore in FY26, reaching ₹20,335 crore, an increase of 20.5%. ₹16,877 crore in FY25, according to its filings. AWS is among the leading cloud providers in India and is the country’s second largest hyperscaler in the overall public cloud services market after Microsoft Azure. According to IDC data cited by Moneycontrol, it leads the Infrastructure as a Service (IaaS) segment with nearly 52% market share.

Queries emailed to Amazon India and the Income Tax department remained unanswered till press time.

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