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19. The learned DR, on the other hand, heavily relied on the order of the learned CIT (A). Referring to para 4.5 of the assessment order, the learned DR submitted that the assessee is utilizing the services of Amazon web services for data transfer, storage services etc. which are related to process. He submitted that the expression process' includes transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. He submitted that Amazon Elastic Compute Cloud makes available the technology to the clients in India. The services and capabilities found in clouds have applications such as testing and development, production workload hosting, big data analytics i.e. IAAS/PAAS etc. The above facilities provided by Amazon are the advanced technologies provided to clients in India, who would otherwise have to hire experts, purchase costly software and invest heavily in hardware coupled with the fact that the hardware gets outdated and obsolete and needs replacement in short span. Even the software updates are available for a limited period and subsequently have to be purchased anew. With attrition the norm in IT Industry, the need to retain expert also is limited. Therefore, the facilities so provided by Amazon are not in the nature of off the shelf products but are specialized services/processes which fall under the definition of royalty. He accordingly submitted that the nature of functions involved in the elastic cloud compute are complex and require processing on the ITA No 2028 of 2017 Reasoning Global E-Application Ltd Hyderabad part of the end user. As such the functions are related to the process as defined under the definition of royalty as per Article 12 of Indo US DTAA. He accordingly submitted that the order of the learned CIT (A) being in accordance with law should be upheld. He also relied on various decisions.

22. We find some force in the above argument of the learned Counsel for the assessee. From the various clauses of the agreement which are already reproduced in the preceding paragraphs and the copies of invoices raised, it can be safely concluded that cloud base services do not involve any transfer of rights to the assessee in any process. The grant of right to install and use the software included with the subscription does not include providing any copy of the said software to the assessee. The assessee in the instant case does not get any right of reproduction. The services, in our opinion, merely facilitate the flow of user data from the front run user through internet to the providers system and back. Therefore, the subscription fee in our opinion is merely a consideration for the online access of the cloud computing services for process and storage of data or run ITA No 2028 of 2017 Reasoning Global E-Application Ltd Hyderabad the applications but cannot be considered as Royalty within the meaning of section 9(1)(vi) of the Act.

"19. Now, another issue which needs to be seen is whether charges paid to Amazon for various services provided by it are in the nature of royalty, if any, or not. The assessee has placed on record the copy of agreement with Amazon, which we have referred in the paras hereinabove. He has also placed on record the copies of bills raised by Amazon online. The perusal of details filed by assessee of monthly charges paid, it transpires that the same are fluctuating from month to month and there is no regular payment being made to Amazon. In case of provision of royalty to a person, then as seen from the terms and conditions of various agreements, there is fixation of price to be paid and there may be variation on account of use of certain services but first there has to be basic price fixed. However, in the facts of present case, looking at the documentation, the billing is segregated into various services i.e., AWS services, storage services, etc. and the assessee before us has filed a chart of summary of services availed. The first such services are on account of service charges for Elastic Compute Cloud. As per clause 1, it is on account of use of service provider Linux; as per clause 1.2, Windows and as per clause 1.3, Windows & SQL Server stanard and clause 1.4 of Bandwidth. The total service charges for Elastic Compute Cloud are USD 40,253.17. The month-wise details of said payments made by assessee from September 2009 to March 2010 reflected that in the first month, charges totalled to USD 4269.02, in October at USD 5599.36 and there on.

7.1 Giving thoughtful consideration to the matter on record, the bench is of considered view that the cloud base services do not involve any transfer of rights to the customers in any process. The grant of right to install and use the software included with the subscription does not include providing any copy of the said software to the customer. The assessee's cloud base services are though based on patents / copyright, but the subscriber does not get any right of Microsoft Regional Sales Corporation, USA reproduction. The services are provided online via data centre located outside India. The Cloud services merely facilitate the flow of user data from the front-end users through internet to the provider's system and back. The ld. AO has fallen in error in interpreting it as licensing of the right to use the above Cloud Computing Infrastructure and Software (para 10.5 of the Ld. AO order). Thus, the subscription fee is not royalty but merely a consideration for online access of the cloud computing services for process and storage of data or run the applications.