TaxTMI 
TaxTMI 
2021 (3) TMI 326
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....ept with variance in figures. 2. The assessee had raised the following grounds of appeal :- "Based on the facts and circumstances of the case and in law, Uber India Systems Private Limited ('the Appellant"), respectfully craves leave to prefer an appeal against the order dated 11 September 2018 passed by the Learned Commissioner of Income Tax (Appeals) - 60 [' Learned CIT(A)"] (received by the Appellant on 15 September 2018) under section 201(1) / 201(1A) of the Income-tax Act. 1961 ('Act") on the following grounds which are separate and without prejudice to each other: On the facts and in the circumstances of the case and in law, the Learned CIT(A) has: General 1. Erred in treating the Appellant as an 'assessee in default' under section 201(1) of the Act for non-deduction of tax at source under section 194C of the Act amounting to Rs. 19,65,61,979 with respect to disbursements made to Driver-Partners on behalf of Uber B.V; 2. Erred in arbitrarily rejecting the submissions and explanation of the Appellant and that too on assumptions, presumptions, surmises and conjectures and hence the impugned order is unsustainab....
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....oviding lead generation services to Driver-Partners who provides transportation services to end consumer facilitated through Uber BV application. 11. Erred in completely ignoring that all the contracts with Driver-Partners shall be governed by and construed in accordance with the laws of The Netherlands and therefore due recognition should be given to the interpretation under the laws of The Netherlands, before recharacterization of contractual relationships; 12. Erred in holding that ''web / app based aggregator" business model recognized by service tax law cannot be applied for income tax purposes, thereby disregarding the settled law of consistency to be followed for all Central Acts; 13. Erred in leading to a conclusion that the support activities provided by the Appellant to Uber S V. makes Appellant the actual face operating for Uber B.V. in India, though all contractual arrangements with Driver-Partners and Users are with Uber B.V.; Non-applicability of section 194C of the Act 14. Erred in holding that the Appellant is liable to deduct tax as per the provisions of section 194C of the Act from ride fare and incentive remittances to ....
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....3. We have heard the rival submissions and perused the materials available on record including various judicial pronouncements that were referred to at the time of hearing by both the parties. The following primary facts would be relevant to be considered for the purpose of better appreciation of the issues in dispute before us. A) Uber Technologies Inc. is a company incorporated in the United States of America and is the owner of the Uber Application ("Uber App") which provides lead generation services to independent Driver-Partners who are interested in providing transportation services to Riders ("Users"). The phrase "lead generation services" as used above merely means the provision of a digital platform/ marketplace where Driver-Partners (who wish to provide transportation services on their own account) can contract with Users (who wish to avail transportation services that are provided by Driver-Partners) and conclude undertake a contract of transport between themselves. Uber Technologies Inc. has granted a license of the Uber App to a company incorporated in the Netherlands namely, Uber B.V. to operate the Uber App worldwide including in India (excluding USA)'. B) ....
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....Driver-Partners located in the vicinity of the User. The Driver-Partner has an option of either accepting or rejecting the request received through the Uber App. If he accepts the request received from a User, he is given the details of the User like location, mobile number, name etc. After reaching the location of a User, he picks up the User and starts the trip. After dropping the User at the location provided, the User is required to pay the Driver-Partner, the fare agreed by them. The Driver-Partners has authorized the use of software to determine the fare on his behalf taking into account various factors such as demand, time of the day etc and this fare (agreed between the Driver-Partner and the User) may be paid by the User to the Driver-Partner either in cash or by using one of the digital payment modes provided on the App. If the User chooses to pay by one of the digital modes, the fare is collected by Uber B.V. on behalf of the Driver-Partner. (5) For providing the aforesaid lead generation services to the Driver-Partners, a percentage (approx. 20%) of the fare for each trip is collected from the Driver-Partners as the fee ("Service Fee") payable to Uber B.V. Till April....
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....lus 8.5%. This fee has been the subject matter of scrutiny and the assessing officer has not questioned the arm's length basis of the said services provided by UISPL. Evidence in this regard is enclosed in pages 819 &820 of the Paper book filed before us. (3) The support services provided by UISPL includes inter-alia promotion of the Uber App amongst (potential) customers, i.e. Driver-Partners, and (potential) Users and performing certain business support services such as driver verification, documentation relating to registration of Driver-Partners, and other incidental support services. The said verification services are essentially to ensure that Driver-Partners using the Uber App are lawfully entitled to provide transportation services. (4) The aforesaid business model of incorporating a local subsidiary, for the purpose of providing support services is followed worldwide by the Uber group. The diagrammatic representation setting out in brief the flow of transactions between various parties is as under:- (D)Guidelines from Reserve Bank of India (RBI) (1) The RBI issued a Circular dated 22 August 2014 which provided that if the transacting parties i.e. Driver-Par....
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....ot control the Driver-Partner in the performance of his service and the Driver-Partner has full right to accept or reject the request received on the Uber App f) Clause 2.5. - Driver-Partner is responsible for all obligations and liabilities that arise of providing transportation service to User g) Clause 2.7.1. - Driver-Partner must use a mobile phone to receive lead generation services from Uber B.V. If required a mobile phone will be provided by Uber B.V. and its cost will be recovered from the Driver-Partner h) Clause 2.8. - Driver-Partner must provide information regarding his location so as to receive lead generation services from Uber B.V. i) Clause 3.1. - It is the Driver-Partner's responsibility to ensure that he holds a valid license, all permits and approvals under the law and possesses necessary skills to provide a transportation service j) Clause 3.2. - It is the Driver-Partner's responsibility to ensure that the vehicles used for providing service are registered as required by law, maintained in good condition and are lawfully possessed by them k) Clause 4.4.- Uber B.V. will charge a service fee to the Driv....
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....therefore provisions of section 194C of the Act are applicable when the payments are made to Driver-Partners. However, according to him, since UISPL (i.e. the assessee company) is the face of Uber B.V. in India, UISPL is the person responsible for making payment and consequently liable to deduct tax at source under section 194C of the Act. These conclusions were reached by the ld. AO based on the following points:- (a) Uber exercises full control over the selection of the Driver-Partners and on determination of ride fare and on issuance of invoices and making payment to the Driver-Partners. (b) The income earned by Uber is not from use of software application but from the provision of transportation services (despite the Assessing officer accepting that UISPL's income is only 8.5% on cost and Rs. 5,00,000/- per month) and therefore that Uber B.V.'s income is a % of ride fare earned by the Driver-Partner. (c) Uber recruits Driver-Partners, provides training, sets the quality standard, provides rating and has a right to register and de-register. Therefore, it exercises full control over the Driver-Partners. (d) Incentives are provided to....
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.... a structured transaction carried out by the assessee company. (e) UISPL is the person responsible for making payment as the bank account from which the payment is made is in the name of UISPL. (f) The transaction between the Uber B.V. and the Driver-Partners is specifically covered by Circular No. 558 which provides for deduction of tax at source under section 194C of the Act. 3.4. We should place on record our appreciation to elaborate arguments made by both the sides on each and every aspect of the assessment and the first appellate order. The various arguments of the ld. DR and its rebuttal by the ld. AR could be summarized in the following tabular form :- Contentions of Learned DR Rebuttal of the Learned AR Supporting Documents (if any) Contentions relating to "person responsible for paying" The provisions of section 194C requires specified person to deduct tax at source and not necessarily the person entering into a contract a) It is submitted that the provisions of section 194C mandate only the person who has entered into a contract with a contractor for carrying out ....
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....responsible for deducting tax at source and not the person remitting the money. Therefore, applying the same rationale, since UISPL is merely the "'remitter," and not the person responsible for making payment, it cannot be held responsible for deducting tax. b) Secondly, if according to the Learned DR the tax is to be deducted at the earliest point of time then also UISPL cannot be held as the "person responsible for paying" as that would mean the User who pays the money for transportation service is required to deduct tax at source as the User is the "person responsible for paying." Circular No. 715 does not apply as it is distinguishable and Circular No. 558 is applicable to the facts of the case. a) Circular No. 715 completely covers the instant caseand applying the same logic it can be safely concluded that UISPL is not the person responsible for paying. b) Circular No. 558 does not apply to the instant ease as it contemplates a case where the payer takes the vehicles on hire from the owner and along with it, the owner is under obligation to provide a driver and the vehicles are made available for at least 14 hours a day. In the instant case,....
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....R that the agreements are to be ignored is incorrect and fanciful. d) It is also submitted that the TDS officer or CIT(A) has not brought any contrary material on record to show, even prima facie, that the actual transaction is different than the one contemplated in the agreement. There is a sub-contract of transportation between Uber B.V. and Driver-Partner. a) It is submitted that the argument of the Learned DR is contrary to the agreement between the parties, the treatment given under service tax law and the proceedings taken in the earlier year. b) Secondly, the argument of the Learned DR is totally incorrect because if there is a sub-contract between Uber B.V. and the Driver-Partner then in the event the vehicle breaks down or the Driver-Partner does not render the service there would be an obligation on Uber B.V. to arrange for another vehicle or Driver-Partner to complete the contract. c) However, that is not so; as in such an event, the User is required to carry out a fresh search on the Uber App or arrange for an alternate transportation on its own which clearly establishes that there is no subcontract between Uber B.V. and the Driver-Par....
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....type of car which he wants and even after the Driver-Partner has accepted the trip request, the User at his own discretion has the right to cancel a particular trip if the User does not like the Driver-Partner for any reason whatsoever. c) Therefore, the argument of the Learned DR that Uber B.V. selected the Driver-Partner and the vehicle and the User does not have discretion to choose the Driver-Partner is incorrect and contrary to the facts on record. Refer clause 1.17, 2.2 -2.5 of the agreement between Uber B.V. and Driver-Partner at Page No 55 - 57 of Paper Book 11 Fare is determined by Uber B.V.: The Learned DR has alleged that, since Uber B.V. determines the fare for the ride, Uber B.V. is engaged in the transportation business. Also, the Driver-Partner is not aware about the fare being charged. a) It is submitted that the base price (comprised of Minimum Fare + Rate per Km. + Rate per Minute) of the ride is known to the User and the Driver-Partner. And, when a request is sent to Driver-Partner on the Uber App, the surge price is shown on the screen. Further, on the Uber App. the Driver-Partner can also see in which area the surge pricing is higher an....
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.... make Uber B.V a transportation service provider. Receipt for the trip is provided bv Uber therefore, service is provided by Uber: In a contract, the receiver of the service makes a payment and it is customary that the service provider acknowledges the same through a receipt. In the case of an Uber ride, the receipt to the passenger is issued by Uber B.V. and not by the Driver. The fact that Uber B.V. is giving the receipt to the passenger implies that the service of transportation has been provided by Uber B.V. to the Users. c) It is submitted that the invoice for the ride is issued by Uber B.V. on behalf of the Driver-Partner.The same is specifically mentioned on the invoice. In fact an added service is being provided by Uber B.V. to the Driver-Partner to enable them to issue an e-invoice to the Users and avoid any hassle of issuing manual receipts. Sample copy of invoices are provided at Page No 77 of Paperbook. Uber sets the Quality standard for Driver and Vehicles: Uber has set the quality standards for the Drivers and the vehicles and that's not the job of a technology company. If it was not the transportation provider, w....
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.... 16 Uber earns money as % of Ride fare and the products launched are different type of Rides: The basis of income of Uber is not the number of clicks that are made in its App which would be the number of uses made but the time and distance covered by the driver trips. The product that Uber launches in the market is not the different software applications but the different types of cars and rides a) It is submitted that Uber BV is a technology company and has created the digital marketplace for the transportation industry. Further, it continuously updates the App through which the digital marketplace is accessed by the Rider and the Driver. It is submitted that the mere fact that the service fee is payable on the basis of fare would not convert Uber B.V. to a transportation service provider from a lead generation provider. b) It is submitted that different types of cars and rides are launched in the App based on the consumer demands (like UberGo, Premier, UberXL, Hire Go, Hire XL, UberMoto, Uber Auto) thereby providing various alternate means of transportation, and meeting the demands of the consumers, This helps Uber increase the overall use of its App, which in turn ....
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....r-ruled or are based on a separate footing as per the local laws in the overseas jurisdictions. a) It is submitted that there are other favourable orders of other authorities which have clearly held that Uber B. V. is just an intermediary and does not control the Driver-Partner. The Judgements are as follows: A) Adonis Biafore vs. Uber Technologies (Commercial Arbitration Tribunal) (California) B) Randolph Scott Dorr vs. Uber Technologies (Arbitrator Award) (California) C) Robert Gollnick vs Uber Technologies Inc. (Superior court of California) D) News article stating that Sao Paulo ruling by lower court considering Uber as an employer has been reversed by the Higher Court Copy of the Judgments and news article has been handed over during the course of the Hearing 3.5. Person responsible for payment We find that the ld. AR vide Ground Nos. 6 to 13 had argued on the preliminary jurisdiction point that UISPL is not the "person responsible for payment" as per section 194C read with section 204 of the Act. For the sake of convenience, the relevant extract of section 194C of the Act is reproduced hereinbelow:- Sect....
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....famous legal maxim would come to the rescue in this regard - LEX NON COGUT AD IMPOSSIBLIA - meaning thereby that a law cannot compel a person to perform an act which he could not possibly perform. This legal maxim has been further approved in the decision of Hon'ble Supreme Court in the case of Krishnaswamy Bros reported in 281 ITR 305 (SC). 3.5.4. We find that the provisions of section 194C of the Act requires the person responsible for paying to a contractor, for "carrying out any work in pursuance of a contract", to deduct tax at source at 1% from the sum payable to individual contractor. We find that the UISPL is not "the person responsible for paying" for the transactions that are facilitated between a User and a Driver-Partner through the Uber App. Since the amount paid in cash is directly paid by user to the Driver-Partner and UISPL is not involved in the transaction at all, UISPL cannot be treated as a person responsible for paying when the amount is directly paid by the user to a Driver-Partner. When UISPL cannot be held as a person responsible for payment when cash is directly paid by the User to the Driver-Partner, then how the very same UISPL could be treated a....
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....for the purpose of section 194C read with section 204 of the Act.Hence it could be safely concluded that UISPL cannot be treated as a person responsible for paying within the meaning of section 194C read with section 204 of the Act as it has not entered into any agreement with the Driver-Partners as stated supra. 3.5.7. We find that the reliance placed by the ld AR on the following decisions are very well founded and directly supports the view that a person being a mere remitter of money cannot be held to be a person responsible for making payment:- a) Decision of Hon'ble Punjab and Haryana High Court in the case of Baldeep Singh vs. UOI reported in 199 ITR 628 (P&H). b) Decision of Hon'ble Delhi High Court in the case of CIT vs. Cargo Linkers reported in 179 Taxman 151 (Del.). c) Decision of Hon'ble Delhi High Court in the case of CIT vs. Hardarshan Singh reported in 216 Taxman 283 (Del.). d) Decision of Co-ordinate Bench of this Tribunal in the case of DCIT vs. Movies Stunt Artist reported in 6 SOT 204 (Mum.). e) Decision of Co-ordinate Bench of Indore Tribunal in the case of Chief medical Officer vs. ITO reported in 40 taxmann.com ....
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....ney to deduct tax at source as is provided in section 204(iv) of the Act, wherein, Drawing and Disbursing Officer (DDO) i.e. the remitter of money for Government, wherever required, need to deduct tax at source being person responsible for paying. The said provision is restricted to payment made by DDO on behalf of the Government and the same cannot be extended to other payments made by outsiders. 3.5.12. Hence UISPL (i.e. the assessee company) being a mere remitter of collections made on behalf of the Driver-Partner at the direction of Uber B.V. cannot be held as the 'Person responsible for paying' within the meaning of section 194C read with section 204 of the Act. 3.6. Applicability of provisions of section 194C of the Act We find that the Driver-Partners enter into only one agreement i.e. with UberB.V. for availing the 'lead generation service'. The relevant clauses of the said agreement which are enclosed in pages 55 to 66 of the paper book filed before us are summarised as under: a) Clause 1.14 and 1.17 - Transportation service is provided by the Driver-Partner to the User and Uber B.V. merely provides lead generation services to the Driver-Partner. ....
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....Uber B.V. and the Driver-Partner. 3.6.1. Similarly, the Users wishing to avail of Uber B.V.'s lead generation services enter into agreements/ contract with Uber B.V.. The relevant clauses of the said agreement entered into between Uber B.V. and the Users which are enclosed in pages 69 to 75 of the paper book are summarized as under:- a) Clause 2 - Uber B.V. provides a technology platform to the User and the User agrees that the transportation service is not provided by Uber B.V.. Uber B.V. does not control third party transportation services availed by the User. b) Clause 3 - User must create an account for using the technology platform provided by Uber B.V. c) Clause 4 - After User receives transportation services from the Driver-Partner, Uber B.V. may, if so required by the User, facilitate the payment to be made by the User to the Driver-Partner. It is open to the User by exercise of an option at will, not to avail of this facility provided by Uber B.V. and to pay the Driver-Partner directly for the transportation service availed by remitting cash payment to the Driver-Partner. d) Clause 5- Uber B.V. has no responsibility or li....
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.... providing is not liable to pay service tax but aggregator is the person liable to pay service tax. For this purpose, Rule - 2(1)(d)(i)(AAA) of Service Tax Rules, 1994 was amended to provide that the aggregator liable to pay service tax if he is involved in the transaction in any manner. These documents are enclosed in page 90 of the paper book filed before us.Accordingly, later on, vide letter dated 27.4.2015, Uber B.V. intimated the service tax authorities that Uber B.V. has discharged its liability of service tax as an aggregator. Evidences in this regard are enclosed in Pages 82 and 88 of the Paper book filed before us. 3.7.1. From the above, again it becomes very clear that one wing of the legislature has recognized Uber B.V. as an aggregator and not a service provider which again brings us to the same point that the transportation service is provided by Driver-Partner to Users directly for which User is making the payment and it is the User who is the person responsible for making payment. And, Uber B.V. and UISPL are not a party to the contract of transportation entered into between a User and a Driver-Partner. 3.8. Principle of Consistency in the assessment made bv....
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.... thereon is as under:- Section 204 - For the purposes of the foregoing provisions of this Chapter and section 285, the expression "person responsible for paying" means - (i) ................ (ii) ................ (iii) ................ (iv) ................ (v) in the case of a person not resident in India, the person himself or any person authorized by such person or the agent of such person in India including any person treated as an agent under section 163. 3.10.1. We find that the insertion of clause (v) in section 204 of the Act is effective only from 1.4.2020 i.e. applicable from Asst Year 2020-21 onwards and not earlier. We find that this amendment makes it very clear that any person who is authorized to make payment on behalf of a non-resident will be covered within the purview of section 204 of the Act and will be required to deduct tax at source. It is not the case of the revenue that the assessee company need to be taxed as an agent of non-resident in terms of section 163 of the Act. It is the case of the revenue that UISPL is making payment to Driver-Partners on behalf of Uber B.V. ( non-resident entity). This ame....