TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 515
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....of the AO is that the assessee has made payments to the TSPs for "carrying out work" relating to the carriage of passengers. In the opinion of the AO, the provisions of section 194C of the Act were applicable and since the assessee had failed to deduct tax at source while making such payments to TSPs, it was liable to be treated as an "assesse-in-default". 1.1 On appeal, the Ld. CIT(A) has upheld the view of the AO and now the assessee has approached this Tribunal and has raised the following grounds of appeal:- 1. That the Commissioner of Income Tax (Appeals) 3, Ludhiana ["CIT(A)"] erred in upholding the order of the Deputy Commissioner of Income - Tax, Circle (TDS) Ludhiana ("AO") where under the Appellant has been treated as an assessee-in-default under section 201 (1 )/201 (1 A) read with section 194C of the Income-tax Act, 1961 ("Act") for non-deduction of tax on "Ride Charges" remitted/ disbursed to driver partners. 2. That the CIT(A)/ AO grossly erred in law in not appreciating that the Appellant was not the person responsible for making the payment of "Ride Charges" so as to attract the provisions of section 194C of the Act. 3. That the CIT(A) grossly erred on fact....
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....that has two separate OLA Apps, one for the Rider to enable such Rider to choose his / her ride and the other one for the TSPs/ Drivers, to enable such Drivers to accept / reject the ride chosen by the Rider. 2.2 As per the assessee, in the capacity of a mere facilitator, the assessee is the operator of the said platform, which essentially serves as a repository of potential users (Riders/ Customers as well as Drivers) and is capacitated, through advanced algorithms, to integrate Rider preferences, in terms of the location of the said Rider, his / her vehicle requirements and desired destination, with a suitable Driver, willing to undertake the ride at that point of time. It is the claim of the assessee that only Drivers having with valid permits and duly authorized by the transport authorities, can sign up with the assessee. The said drivers may be self - employed or may be working for a fleet operator owning multiple vehicles. As per the assessee, the assessee undertakes comprehensive authenticity checks and due diligence to ensure that the Drivers and / or fleet operators, as the case may be, prescribe to certain standards in its endeavour to make sure that the Rider is not dir....
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....ire case of the Department rests on the erroneous assumption that the assessee is in the business of providing transportation services and that further the services are provided through a sub-contract with third party drivers. It was further submitted that it is also the case of the Department that these third party drivers performed the transportation services under total control and supervision of the assessee thereby attracting withholding obligations u/s 194 C of the Act. The Ld. AR submitted that this aspect forms a common theme in the orders passed by the AO as well as the Ld. CIT(A) so as to hold the assessee as 'assessee in default' u/s 201 of the Act. 3.1 The Ld. AR further submitted that prima facie the case of the assessee was covered in its favour by the order of the Mumbai Bench of the ITAT in the case of M/s Uber India Systems Pvt Ltd vs JCIT in ITA Nos. 5862/Mum/2018 wherein, vide order dated 04.03.2021, on identical facts and issues, the coordinate Bench of the Tribunal at Mumbai had held that section 194C of the Act was not applicable on such Payments as were collected from customers and were forwarded by the aggregator / intermediary to drivers and further the tr....
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....er/ Rider opts for intra - city services and a compact vehicle in Step - 6 above, the said account holder/ Rider is then required to input the destination or the drop location where he / she seeks to get dropped at. Following this the OLA Account holder/ Rider is required to click on the "Ride now" option. Step 8: Display of Total Fare, along with the Details: The OLA Account holder/ Rider will then be shown the Total Fare, coupled with fare details (including the trip fare, booking fee as well as the applicable taxes thereon). Step 9: Identification of the Potential Rider: The OLA Account holder will then be required to input whether he / she is booking the ride for himself / herself or for another person altogether. In case of the latter, the OLA Account holder will be required to provide the phone number of such other Rider for whose benefit the ride is sought to be booked. Step 10: Input Selection of Payment Option: The OLA Account holder/ Rider is then required to input whether he / she or any other potential Rider, as the case may be, seeks to make the payment for the ride to be undertaken through cash, debit / credit card, OLA Money Postpaid or OLA Money Wa....
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....he behavioural aspects, cash flow exchange, customer behaviour lectures and safety instructions. Once the submission and verification of the documents are completed, the Driver is provided with a link to download the OLA Partner App (Driver App). Thereafter, there is a third party who is responsible for physical verification of the address shared by the Driver. Step 4: Installing the OLA Partner App: The OLA Partner App is then installed on the smartphone of the Driver. Step 5: Accepting the Subscription Agreement: The Driver is then required to accept the Subscription Agreement, which forms a valid contract as far the obligations of the Driver are concerned. Step 6: Logging into the OLA Partner App: To log into the OLA Partner App, the Driver is required to enter his / her registered mobile number. Step 7: Entering the OTP: The Driver is then required to enter the OTP associated with his / her registered mobile number. Step 8: Switching onto the Online Mode: To receive bookings through the OLA Partner App, the Driver is required to switch onto the online mode using the slider on the landing page. Step 9: Accepting / Rejecting the Offer to Ride: ....
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....t place for a passenger to connect with a driver for the purpose of transportation". 4.1 It was submitted that the assessee is predominantly a technology company but the case of the AO is that the assessee is in the business of transport service that it provides to Riders by subcontracting with the TSPs/ Drivers and hence the Ride Charges disbursed by the assessee to TSPs/ Drivers are exigible to tax deduction at source under section 194C of the Act. It was submitted that the assessee created and operates the OLA App, which connects Riders/ Customers and TSPs/ Drivers, on a click of a button. The Rider/ Customer, who earlier used to get on the road in the hope of finding a cab, can now log on to the App on his / her mobile phone and request OLA to find a cab for it instead, which would then connect a Driver with the Rider/ Customer. 4.2 The Ld. AR emphasised that these Drivers are valid permit holders, duly authorized and verified by transport authorities, to operate a commercial vehicle for carrying passengers from one point to another. For them to be connected with a Rider/ Customer on the OLA App, they have to sign up/ register on the OLA App as well, which works for them in a....
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....cepts the "invitation", an offer for transport service by the Driver to Rider/ Customer is created. Till this point, the Driver does not know the Destination it has to take the Rider to. Once the offer has been made, the Rider/ Customer and Driver are intimated on the OLA App about each other's location and it is for the Driver to reach the pick-up location of the Rider/Customer, for the Rider to enter the cab. The Ld. AR submitted once the Rider/ Customer sits in the cab and verifies his identity by means of an OTP, the Driver gets to know the destination he has to take the Rider/ Customer to. It is now open for the Driver to take his offer back or enter into a contract with the Rider/ Customer (for providing transport service), by accepting the same on the OLA App. 4.5 The Ld. AR submitted that the entire ride is recorded and monitored on the OLA App, providing much needed safety to the Rider/ Customer as well as Driver. 4.6 The Ld. AR further submitted that the revenue model of the assessee works on the "convenience fee" it charges from the Riders/ Customers for providing on-demand cab availing service, GPS tracking, safety features etc. and for collecting such "convenience fe....
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....tract/ sub-contract that the assessee enters into with the Driver. The assessee maintains accounts of all Riders/Customers and Drivers and logs in information about all receivables and payables to each Rider/ Customer and Driver. In case of a dispute regarding payments between the Rider/ Customer and the Driver, the assessee passes relevant "receivable"/ "payable" entries in each of those accounts that are party to such dispute after having verified the veracity of the allegation involved in the dispute as per its own assessment and discretion. In case it is unable to exercise such discretion, it merely endeavours to act as a communication channel between the Drivers and the Riders/ Customers beyond which the assessee does not interfere in the dispute in any manner, thereby rejecting the request for resolving the dispute that may have come to it either by the Driver or the Rider/ Customer. 4.10 The Ld AR also submitted that at times, to promote its business in the highly competitive market that the assessee operates in, the assessee offers trade discounts to the Riders/ Customers, which are adjusted against the "convenience fee" that it charges from the Riders/ Customers. However,....
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....lso provided that the relationship between the parties shall be on a principal to principal basis and such terms and conditions between the parties shall not create any relationship of an employer and employee. It was submitted that sub-clause (ii) of Clause XIII also provides that the TSPs shall not assume or create any obligation or responsibility on behalf or in the name of the assessee. It is also provided that should the TSPs act over and above the duties and responsibilities envisaged in the Subscription Agreement, such acts shall be deemed to be unauthorized, unlawful and the TSPs shall be personally liable for the same. 5.5 Thereafter, the Ld. AR brought to our notice the various details which the TSP is to submit to the assessee and also drew our attention to the various terms and conditions under which the TSPs operate. It was emphasized that the Subscription Agreement defines and identifies the scope of work and duties of both the parties to the Subscription Agreement. The Subscription Agreement also defines a zero tolerance policy which lays down certain broad parameters in terms of which the TSPs/Drivers are required to refrain from asking for tips, maintain personal ....
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.... to avail the cab hailing service necessarily must have an account on the OLA App. It was again reiterated that the term "Service" has been explained in clause 1(xvii) to mean the facilitation of transport service by the assessee through the OLA App. Sub-clause (xxi) of clause I defines a TSP to mean a driver or an operator associated with the assessee offering the service of transporting Rider/ Customer within the city of operation as requested by the Rider/ Customer on the OLA App. 6.0 The Ld. AR submitted that the entire focus of the AO was that it was the assessee who had made the payments to the TSPs for carrying out the transportation service. He argued that the term 'Service' in Clause 4 means only facilitation of transport service by the assessee through the OLA app. While referring at length to the various clauses of User Terms, the Ld. AR argued that the OLA App only permits the Rider/ Customer to avail a transportation service offered by the TSP/Driver. He submitted that the Service Portal only allows the Rider to send a request through OLA App to a Driver on the OLA network and that it is further provided that the Driver has the complete discretion to accept or reject ....
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.... of such service is between the Rider/ Customer and the TSP/ Driver and in no manner the assessee engages the Driver for the provision of any work which relates to carriage of passengers. He submitted that this itself would be enough to establish that the assessee was not liable under section 194C of the Act, since it was not making any payment for carrying out any work. 7.0 The Ld. AR further submitted that having explained the entire methodology and the contractual terms which emerge out of the "Subscription Agreement" and the "User Terms", it would be apparent that the assessee is not making any payment to the TSPs for carrying out any "work". Thereafter, the Ld. AR referred to the provision of section 194C of the Act (as it stood during the year under consideration) and submitted that it is evident from a plain reading of the provisions that section 194C of the Act only becomes applicable on a person who is responsible for paying any sum to a resident for "carrying out any work" in pursuance of a contract. If none of the conditions are satisfied, then there arises no question of applicability of the said provision. It was submitted that the term "Work" has been defined in Clau....
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....only a market place, was not competent to provide any transportation service in the absence of any Permit in this regard. It was submitted that it would also be well appreciated that in this entire transaction, at no point of time, does the assessee secure any contract for providing transportation services from the Rider/ Customer - as the contract pertaining to provision of transportation services is only entered into between the TSP/Driver and the Customer/ Rider and the assessee has no role to play in it, apart from providing necessary technology for bringing the TSPs/Drivers (service providers) and the Rider/ Customer (service recipients) together. 7.4 It was further submitted by the Ld. AR that in terms of the documents which are referred to, the assessee is only eligible for receiving the "Convenience Fee" which is paid by the Rider/ Customer to the assessee for the use of the Portal/ OLA App. Thus, it would be seen that neither does the assessee have any permit under the Motor Vehicles Act, 1988 to provide any transportation service, nor does it secure any contract for the provision of such Services. It was reiterated that the provisions of section 194C of the Act becomes a....
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....y only being routed through the assessee, being electronic payments, to make the entire transaction between the Riders/ Customers and Driver hassle-free and seamless. He submitted that it is not AO's case, that the assessee had the right to receive such income from the Riders/ Customers in its own capacity for provision of any transportation service. This is apparent because the assessee never provided the transportation services and as such, could not have charged the Riders/ Customers, given that the transportation is provided by the TSPs/Drivers and the Ride Charge legally and contractually belongs to the TSPs/Drivers. It was reiterated that it is only in respect of the electronic payments that the money is routed through the assessee. He submitted that the AO has very conveniently also ignored the fact that in the event of cash payments, the payment is kept by the TSPs/Drivers directly from the Riders/ Customers. 7.7 The Ld. AR made a reference to the judgment of Hon'ble Delhi High Court in the case of CIT vs. Hardarshan Singh (2013) (350 ITR 427) and submitted that while relying on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Cargo Linkers [2008] 218 CT....
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.... perspective. The AO, thus, proceeds to understand and record as to what is his understanding of the transaction and applies various erroneous parameters to arrive at his conclusion of the applicability of the provisions of Section 194C of the Act. It was submitted that the understanding of the AO is not only contrary to the facts but is also in complete violation of all the known principles of contractual law. He submitted that it is the fundamental principle of contractual law that a person should be competent to contract. On the facts of the present case, when under the Motor Vehicles Act, 1988 itself, no Permit is granted to the assessee for the provision of any transportation service, the assessee cannot, by any stretch of imagination, be considered to be competent to provide such service. Thus, it is not clear as to how the AO has come to the conclusion that the Riders/ Customers have contracted with the assessee for the provision of transportation service. Thus, this understanding of the AO is completely erroneous and factually incorrect. 7.10 It was further submitted that in para (ii) on page 92, the AO concludes that the TSP/Driver is actually under the control of the ass....
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....ehicles Act, 1988 (as amended in 2019) as under:- "Section 2: Definitions (1A) "aggregator" means a digital intermediary or market place for a passenger to connect with a driver for the purpose of transportation;" 7.12 It was further submitted that the aggregators are now supposed to get a license/ permit from the Government to operate a digital market place, as per section 93 of the said Motor Vehicles Act, 1988 (as amended in 2019). On the other hand, Drivers are valid permit holders as per section 66 of the Motor Vehicles Act, 1988; and are allowed to enter into contract with Riders for carrying them. In the scenario afore-stated, the vehicle that the Drivers use is called as "contract carriage". The Ld.AR submitted that the Government is authorized to regulate such "contract carriages" under section 95 of the Motor Vehicles Act, 198, which does not contain any whisper of involvement of an aggregator like the assessee. Therefore, section 95 of the Motor Vehicles Act, 1988 covers a cab/ taxi (which is a contract carriage) and a passenger/ Rider/ Customer, but an aggregator like the assessee can neither be covered under "contract carriage" nor under passenger/ Rider/ Custom....
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....96 of the impugned order, the AO also concludes that it is the recipient of the service who makes the payment, acknowledgment of which is provided by the service provider. This has no bearing on the matter since this is completely a technologydriven platform and unlike conventional taxi service provider, who did not issue any bill for the cab fare, the technology and the portal assists the TSP/Driver in generating the invoice. 7.16 Thereafter, the Ld. AR submitted that at this juncture, it would be relevant to point out that vide Service Tax (Amendment) Rules, 2015, the concept of "aggregator" was introduced in the Service Tax Law. Post the amendment, the definition of "aggregator" as contained in Service Tax Rules, 1994 was as follows: "Rule 2 - Definitions 1(aa). "aggregator" means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator" 7.17 It was submitted that post this amendment, it became assessee's responsibility/ obligation to charge and collect service ....
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....h contract, does or does not happen" 7.20 It was submitted that the assessee fails to understand as to how the AO, can arrive at such a conclusion. This entire logic and reasoning of the AO is completely erroneous and is unsupported by any known principles of law. 7.21 The Ld. AR submitted that this "aggregator" concept is relatively a new concept and has gained popularity over the last few years. The whole purpose of this concept was to facilitate the securing of a cab by the Riders/ Customers so that he does not have to stand on the road waiting for a cab. The whole purpose of devising this technology and introducing it in the market was to smoothen the process of making cabs available to Riders/ Customers, while simultaneously generating business for the TSPs/Drivers. This is evident from the fact that being on the Portal/ OLA App, only the Customer/ Rider can place transportation service request and the technology enables such request to transfer to the TSP/Driver who is closest to the Rider's/ Customer's location. The Ld. AR argued that the assessee fails to understand as to how this can be perceived, in any manner, to imply that the assessee is providing any transportation....
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....ee and such TSPs whereas, as had been earlier argued, the assessee was a mere technology platform which brings the TSPs and Riders together by charging a convenience fee whereas, the contract for provision of transport service is between the TSPs and the customers. It was further argued that the Ld. CIT(A) has made a very incorrect observation that the contractual agreements was a mere camouflage to hide the real intention of the parties by use of clever phraseology . 8.2 It was further submitted that the Ld. CIT(A) had reached an entirely wrong conclusion that it was the assessee who exercised control over the drivers in respect of the provisions of transport services whereas, the contract was between the driver and the customer. It was further argued that the Ld. CIT(A) had reached a wrong conclusion that since the TSPs and the riders could not exercise control in terms of the choice for TSPs and / or drivers, it was the assessee who was, in effect, contractually providing the transportation service. 8.3 The Ld. AR further submitted that the Ld. CIT(A) had erroneously concluded that it was the assessee who determined the fare whereas the estimated fare was solely based on the d....
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....had erroneously re-characterized the assessee company as a transport service provider which was contrary to the provisions of the Motor Vehicle Act, 1988 under which a transport service provider is required to hold a valid registration and requisite permits in terms of section 66 read with sections 74 and 88 (9) of the Motor Vehicles Act, 1988 which was completely lacking in the present case. 8.7 It was further submitted by the Ld. AR that the Ld. CIT(A) had also ignored a very vital fact that the assessee did not own any vehicles and, hence, could not hold a valid permit for plying commercial transport vehicles in public places in terms of the provisions of Motor Vehicles Act, 1988. 8.8 The Ld. AR further argued that the Ld. CIT(A) had not appreciated that the assessee was only an intermediary qua the ride charges and it was the rider who was liable to pay charges and not the assessee and as such in terms of section 194C (4) of the Act, the individual customer, who is also the person making the payment of the ride charges was specifically exempted from any withholding obligations and, therefore, in the absence of any such provisions, the liability for deduction of tax could not ....
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....ary services'. It was submitted, thus the assessee only as an intermediary for the transportation services and further the service tax on the total fee is collected and remitted by the assessee in the capacity of the aggregator. 9.3 The Ld.AR also drew our attention to notification No. 5/2015 dated 01.03.2015 issued by the Ministry of Finance, wherein, it was pointed out that the term "aggregator" has been defined as a person, who owns and manages a web-based software application, and by means of the application and communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator. 9.4 Our attention was also drawn to another Notification No. MVR 0315/CR109/TRA-2 dated 04.03.2017 issued by the Government of Maharashtra to again demonstrate that the total ride fee, including driver's fare, is regulated by the State / Regional Transport Authorities in terms of the directions issued to them by the State Government as per section 67(1) of the Motor Vehicle Act, 1988. 9.5 The Ld. AR also submitted that other digital platforms like booking agents for hotels or suppliers or airlines were....
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....ansportation service that it had sub-contracted to the TSPs / Drivers. The Ld. AR prayed that the impugned order may be set aside. 11.0 Per contra, the Ld. CIT DR submitted that as per the provisions of Section 194C of the Act - any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the resident and a specified person shall, at the time of credit of such sum to the account of the resident or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family. It was submitted that the assessee is making payments to drivers or vehicle owners for carrying out passenger transport services and, therefore, is liable to deduct tax at source @ 1% on the amount that has been paid. Further, the deduction needs to be done at 20% of the amount paid in case the payment has been made to persons without obtaining PAN as prescribed under section 206AA of the Income Tax Act. It was submitted th....
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....st for a ride. A ride is offered to a driver through the OLA app only and OLA exercises control over the acceptance of the request by the driver. OLA controls the information provided to the driver. Notably, the driver is not informed of the passenger's destination until the passenger is picked up and, therefore, has no opportunity to decline a booking on the basis that the driver does not wish to travel to that particular destination. He submitted that if at all he wants to choose another client, he has to cancel the ride at the risk of downgrading his rating. Even the next client after cancellation is also chosen through OLA App. (ii) Remuneration or Payment to drivers:- The remuneration paid to the drivers for the work they do is fixed by OLA and the drivers have no say in it (other than by choosing when and how much to work). For rides booked through the OLA app, it is OLA that sets the fares and drivers are not permitted to charge more than the fare calculated by the OLA app. The notional freedom to charge a passenger less than the fare set by OLA is of no possible benefit to drivers, as any discount offered would come entirely out of the driver's pocket and the ....
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.... car that may be used. Moreover, the technology which is integral to the service is wholly owned and controlled by OLA and is used as a means of exercising control over drivers. Thus, when a ride is accepted, the OLA app directs the driver to the pickup location and from there to the passenger's destination. The quality standards are fixed by OLA which is not the job of a technology company. OLA monitors the performance of driver on each ride. [Refer to zero Tolerance policy on page 103 of CIT (A) order- para 7.3] v) On boarding. Training and Off boarding of Drivers: Recruitment of drivers is done by OLA. OLA also conducts training program for drivers for delivery of services. OLA monitors driver acceptance and cancellation rates for trips. A further potent method of control is the use of the ratings system whereby the passengers are asked to rate the driver after each trip and the failure of a driver to maintain a specified average rating results in warnings and ultimately in termination of the driver's relationship with OLA. The ratings are used by OLA as an internal tool for managing performance and as a basis for making termination decisions where customer feedbac....
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.... clicks but directly proportional to number of rides performed. The earnings are from provision of vehicles on hire to the passengers. (3) Advertisements - The advertisements by assessee are aimed to create a brand name of itself in the field of provision of quality transport services in India. The cabs are all painted as OLA cabs. All the advertisements such as Save the day, Join the Revolution' make customers identify these rides as OLA rides. (4) The whole web of transactions from booking to supervision, monitoring, payment, execution, and settlement of accounts is managed by OLA. (5) Owning of vehicles is not necessary. In many contracts the person providing services gets work done by some other subcontractors using their own plant and machinery. 11.3 The Ld. CIT DR also argued as under:- (i) Reliance is also placed on Circular/0.M. issued by CBDT dated 14.10.2019 F.No 275/02/2019-IT [refer to remand proceedings mentioned on page 85 of Commissioner of Income Tax (Appeals] order Para 5(4). (ii) OLA has followed dual invoice concept under aggregator model where in it has deducted tax on the first type of invoices also, it means TDS has been deducted on ride ch....
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....nder sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has Written submissions in the case of M/s AN I Tech. (P) Ltd., A. Y. 2018 19 furnished his Permanent Account Number or Aadhaar number to the e-commerce operator. (3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deductei by the e-commerce operator under sub section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter: Pro rided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable 'by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1). (4) If any difficulty arises in giving effect ....
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....lationship between the assessee and the drivers. 11.4 The Ld. CIT DR placed reliance on the following judicial precedents: (A) Reliance was placed on a foreign judgment on similar facts; Uber BV and others (Appellants) v Aslam and others (Respondents) [2021] UKSC 5 On appeal from: [2018] EWCA Civ 2748 and following submissions were made. (a) This Judgment concerns the employment status of private hire vehicle drivers who provide their services through the Uber smartphone application (the "Uber app"). The main question raised in this case is whether an Uber driver is a "worker" for the purposes of employment legislation which gives "workers" rights to be paid at least the national minimum wage, to receive annual paid leave and to benefit from certain other protections. The Hon'ble Supreme Court also considered the related question of what time counts, if drivers are "workers", as working time for the purpose of the relevant rights. (b) Uber BV is a Dutch company which owns the technology behind the Uber app. Uber London Ltd is a UK subsidiary licensed to operate private hire vehicles in London. The claimants, Mr Aslam and Mr Farrar, at the relevant times were licensed ....
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....ustomers and do not work for Uber. (g) The Hon'ble Supreme Court disagreed. As on the facts there was no written contract between the drivers and Uber London, the nature of their legal relationship had to be inferred from the parties' conduct and there was no factual basis for asserting that Uber London acted as an agent for drivers [50 - 56]. The correct inference was that Uber London contracts with passengers and engages drivers to carry out bookings for it [54 - 56]. The judgment emphasizes five aspects of the findings made by the Employment Tribunal which justified its conclusion that the claimants were working for and under contracts with Uber [93]. (h) First, where a ride is booked through the Uber app, it is Uber that sets the fare and drivers are not permitted to charge more than the fare calculated by the Uber app. It is therefore Uber which dictates how much drivers are paid for the work they do [94], Second, the contract terms on which drivers perform their services are imposed by Uber and drivers have no say in them [95]. Third, once a driver has logged onto the Uber app, the driver's choice about whether to accept requests for rides is constrained by ....
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....e National Law on Taxi Services and the carrying out of misleading practices and acts of unfair competition by Uber Systems Spain SL (Uber). The two parties in the main proceedings were Elite Taxi, a taxi drivers' association in Barcelona, and Uber, a company related to Uber Technologies Inc. In the proceedings, Uber argued that its smartphone app constituted only a technical platform and should be regulated as an "information society service," subject to EU law. However, the Court ruled against Uber and found that it was providing a "service in the field of transport," making the company subject to potentially more stringent regulations of individual EU member states. (b) EU Court Of Justice (ECJ) held that Uber Is Transport Services Company. The ECJ delivered its judgment in response to a request for a preliminary ruling from the Barcelona Commercial Court in a dispute between Association Professional elite Taxi ("Elite Taxi"), a professional taxi drivers' association in Barcelona, and Uber Systems Spain SL ("Uber"), a smartphone and technological platform interface and software application provider acting, for profit, as an intermediary between the owner of a vehicle ....
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....oviding vehicles to one M/s. Orix Infrastructure India Pvt. Ltd. The assessee is an aggregator of vehicles and thus itself does not own sufficient number of vehicles required for fulfilling its obligations under the Service Contract entered with Orix Company. It necessarily has to co-opt other third party vehicle owners to fulfill its obligations under the Service Agreement and accordingly it entered into an understanding with several vehicle owners, who are invariably driver cum owners, for fulfilling its obligations. The amounts paid to such third party vehicle owners amounted to Rs.5,75,07,494/-. (c ) The assessee argued that there is no privity of contract between Orix Company and such third party vehicle owners and, thus, there cannot be any subcontract to invoke the provisions of section 194C of the Act. The revenue derived by the assesse is shared between the assessee and such third party vehicle owners, who are themselves carrying on the business of transport operators. The assesse further argued that the arrangement between the appellant and such third party vehicle owners is neither in the nature of a sub-contract nor in the nature of hire. It is more a case of a Joint....
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....ited to market and promote the use of Uber App in India. The services which the assesse calls in that case as 'Lead Generation Services' are provided by Uber BV, a Netherland company. The Indian counterpart is getting only a remittance of cost plus 8.5% from its holding company. The App is owned and operated by the parent company and, thus, agreements are between parent company and Driver partners. Uber India's role is only to promote use of App amongst Indian customers. [Page 10-11 of the ITAT order] therefore there was no question of examining the relationship between Uber India and Driver Partners (as there is no agreement). (b) However, in case under reference we are examining the relationship between assessee and the Driver partners where an agreement exists. There are four players in the Uber case and as stated the services are provided by Netherlands company and not Indian counterpart. The ITAT was concerned only with the relationship between (UISPL) (Indian company) and drivers and decided that relationship was not one of Contract. The relationship between the actual service provider, i.e. Uber BV and drivers was never decided. The assessee in the present cas....
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....or Airlines (as the case may be), each with its own distinctive characteristics and location. (ii ) Secondly, Suppliers/Hoteliers/Airlines are also responsible for defining and delivering whatever level of service in terms of comfort and facilities etc they choose to offer. (iii) Thirdly, apart from the service fee, it is, crucially, the supplier and not the platform which sets the price. (iv) Fourthly, the platform may operate a ratings system but the ratings are published in order to assist customers in choosing among different suppliers; they are not used as a system of internal performance measurement and control by the platform over suppliers. (v) Fifthly, nor does the platform restrict communication between the supplier and the customer or seek to prevent them from dealing directly with each other on a future occasion. (vi) Sixthly, it is the suppliers who offer the incentives/discounts to digital platform rather than other way round. In assessee's case it is the assessee (so called digital platform) offers incentives to Driver partners (equated with suppliers for other platforms). (vii) Lastly, the economic freedom of the partners in these cases is enti....
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....definition of "Driver" at Page 124 and Clause 1(ix) at Page 144 of the Paperbook dated 30.09.2020). It is also the case of the Department that these TSPs/Drivers perform the transportation services under total control and supervision of the Assessee, thereby attracting withholding obligations under section 194C of the ITA. This aspect forms a common theme in the orders passed by the Assessing Officer ("AO") as well as the Commissioner of Income Tax (Appeals) ["CIT(A)"], so as to hold the Assessee to be an assessee-in-default under section 201 of the ITA. Needless to state that the Department has completely failed to appreciate the way business is done by technology companies, which failure has led them to arrive at erroneous conclusions. 2. It is the case of the Assessee that it is a technology company (please refer the Memorandum of Association at Pages 104 - 112 as well audited financials of the Assessee at Pages 302 - 347 of the Paperbook dated 30.09.2020), which has revolutionised and organised hailing taxi in India. The Assessee owns, operates and manages an Application known as the "Ola" App. The Assessee acts as an aggregator/intermediary/marketplace, and facilitates the ....
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....relevant to bring to the kind attention of the Hon'ble Bench that the AO/CIT(A), in the impugned order(s), have placed reliance on the orders in the case of Uber India, which now stand overruled by this decision. Needless to state, given the favourable decision by the Corordinate Bench of the Hon'ble Tribunal, the Department now wishes to change tracks so as to disassociate itself from Uber India's case. The Department cannot be allowed to blow hot and cold in the same breath [please refer Pages 175 - 176 of the Paperbook dated 30.09.2020, containing remand report dated 12.12.2019 of the AO filed before the CIT(A)]. The approach has to be decried. (c) In view thereof, it is most humbly submitted that given the binding decision of the Hon'ble Coordinate Bench in Uber India's case, the Assessee's appeal deserves to be allowed on this ground alone. 4. Principles governing construction of contracts: As brought to the attention of the Hon'ble Tribunal during the course of the hearing, the commercial arrangements in the present case (which are between unrelated parties) have been discarded by the Department, terming it as "clever phraseology". There is a clear mandate of the Hon'bl....
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....d, by virtue of Notification No. 7/2015 dated 01.03.2015, issued by the Central Board of Excise and Customs (please refer Para 3.7, Pages 37 - 38 of the Compilation dated 05.03.2021). At this juncture, it is relevant to point out that to comply with its obligation to charge, collect and deposit Service Tax on behalf of the TSPs/Drivers, the Assessee revamped the manner in which accounting treatment and invoicing was undertaken by it. Since it became important for the Assessee to know the exact amounts on which it was to discharge Service Tax liability from time to time, it raised invoices on the Customer through its own system, so as to not fall foul of the Service Tax laws. A perusal of the sample invoices issued by the Assessee would reveal that whereas the "Convenience Fee" invoice has the "OLA" logo (please refer Page 364 of the Paperbook dated 30.09.2020), the said logo does not form a part of the "Driver Trip Invoice". In fact, there is a specific disclaimer therein to say that the Driver Trip Invoice is issued by the TSP and that the Assessee is only an aggregator (please refer Page 363 of the Paperbook dated 30.09.2020). Furthermore, owing to this distinction having been ma....
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....ssee in fact works solely for the benefit of the Customer, not the TSPs/ Drivers. This view is further fortified by the fact that the Assessee, in its discretion, endeavors to arrange for a "Vehicle" in the event of a breakdown on best effort basis for the benefit of the Customer. Therefore, "person responsible", as envisaged under section 204(iii) of the ITA, for the purpose of applicability of section 194C of the ITA ought to be the Customer making payment to the Assessee, which payment is anyway not exigible to tax under section 194C of the ITA, in view of section 194C(4) of the ITA. (b) It is worth noting that the source of the Convenience Fee as well as the "Fare" (please refer to the definition of "Fare" at Clause 1(xi) on Page 144 of the Paperbook dated 30.09.2020) for the "Ride" offered by the TSPs/Drivers is the Customer (please refer to Clauses 6.1 and 6.3 in the User Terms dated 08.03.2018 on Page 150 of the Paperbook dated 30.09.2020). Therefore, where the source itself is not liable to deduct tax under section 194C of the ITA, in view of section 194C(4) of the ITA, the action of bringing the aggregator, being a mere intermediary through whom electronic payments are ....
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....ed only to ensure proper compliance of arrangements, mutual rights and obligations to ultimately protect the interests of both the sides, thereby ensuring smooth functioning of business arrangements. The Hon'ble Court further went on to hold that composite transactions involving some element of work cannot be brought within the purview of section 194C of the ITA, where the same have ostensibly been undertaken amongst independent parties, mutually desirous of undertaking a profit-making activity basis collective effort. The Hon'ble Court eventually concluded that section 194C of the ITA was inapplicable on the facts of the case before it (please refer Paras 22 - 42, Pages 48 - 55 of the Compilation dated 05.03.2021). Reliance is also placed on the decision in Bhopal Sugar Industries Limited vs. Sales Tax Officer, Bhopal, [1977] 3 SCC 147 (Supreme Court), wherein it was held that merely because some restrictions are imposed in terms of fixation of price, submission of accounts, selling in a particular area or territory and so on, the same would not have the impact of converting a contract of sale into one of agency, given that such restrictions are imposed as a measure to protect goo....
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....of attracting section 194C of the ITA. Reliance in this regard is placed on the decision in ITO vs. Bal Kishan Gupta, [2013] 36 taxmann.com 518 (Income Tax Appellate Tribunal, Mumbai) (please refer Para 15, Page 70 of the Compilation dated 09.10.2020). 10. Pricing not Assessee's discretion: When a Customer places a Service Request on the Portal, an estimate of the Total Ride Fare is communicated to the Customer. This may differ from the actual Total Ride Fare upon completion of the Service. In view of section 67(1) of the MVA, State Government is required to make regulations and issue directions to the State Transport Authorities or Regional Transport Authorities in respect of cab fares. It is in terms of this power that "Surge Pricing" is controlled by the State Governments. Copy of the Notification No. 2/3/20-HIII(7)- 2013/, issued by the Chandigarh Administration is already placed on record as an illustration (please refer Pages 192 - 195 of the Compilation dated 05.03.2021). Needless to add, the notification afore-stated by the Chandigarh Administration is only an illustration, being the most relevant one. Other states, including Maharashtra amongst many more, have come up w....
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.... amendment. Accordingly, it filled the void, thereby indicating that none of the preexisting provisions relating to tax deduction at source obligations could be pressed into operation qua the technologically advanced business models, such as that of the Assessee. 14. Decisions relied upon by the Departmental Representative during the course of the hearing of the subject appeal: (a) Uber BV and others vs. Aslam and others, [2021] UKSC 5: The issue involved in the said case was rights of the drivers under the National Minimum Wage Act, 1998 (United Kingdom) based on the evidences adduced before the Court. The discussions/ observations therein has nothing to do with the income tax liability of the TSPs/Drivers or any withholding obligation, like in the present case, and is therefore, completely irrelevant for the adjudicating the issue in the present case. At best they echo the "control" aspect, which in terms of the Hon'ble Supreme Court and Delhi High Court view, is not a relevant factor for the applicability of section 194C of the ITA. (b) Asociación Profesional Elite Tax vs. Uber Systems Spain SL, [In Case C-434/15, Judgment Of The Court (Grand Chamber) decision da....
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....ival submissions and have also meticulously gone through the records including relevant contracts between the assessee and the Driver and assessee and the Rider. The assessee owns, operates, and manages a mobile app called "OLA", which brings together the Rider desirous of availing transportation services and the Driver, desirous of providing such service. For the use of the OLA app by the Rider, the Assessee charges a Convenience Fee of approximately 20% of the Total Ride Fee. The Total Ride Fee includes Convenience Fee of the assessee and Driver's Fare. The Total Ride Fee may be paid by the Rider in cash directly to the Driver or by electronic mode to the assessee. Thereafter, the Driver and the assessee inter-se settle accounts. There is no dispute as to these basic facts. 12.1 However, the dispute, which has arisen between the AO and the assessee is primarily on the issue as to who is responsible for providing the transportation services to the Rider i.e., the Driver, who has the necessary approvals and the vehicle or the assessee, who owns the app? The entire case of the AO is that it is the assessee who is contractually obligated to provide such transportation services to th....
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....ough e-wallet to facilitate transaction between the Driver and the Rider. As per clause IV.3., the assessee has disclaimed all liabilities, whether civil, criminal, tortious or otherwise, that may accrue because of a breach by the Driver of the (a) applicable laws in respect of transportation service, (b) terms of applicable licenses issued by transport authorities, (c) terms of the Fleet Operators terms and conditions or (d) duty of care the Driver owes to the Rider. 12.3.1 As per clause IX, it is the Driver who is held to be solely liable for any accident/ incident involving the vehicle, while providing taxi services, and the assessee has been stated to be not liable for any such incident. All miscellaneous expenses pertaining to the Vehicle such as maintenance expenses, penalty for violation of traffic rules etc. are to be borne solely by the Driver. 12.3.2 Further, Clause XIII states that the assessee and the Driver are independent contractors and that their relationship is on a principal-to-principal basis. It has also been stated therein that the Driver does not have the authority to create, modify or terminate a contractual relationship between the assessee and a third par....
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....ee has taken steps to ensure that the Zero Tolerance Policy is adhered to. 12.3.7 According to Exhibit-D to the Subscription Agreement dated 01.11.2016, the Driver desirous of listing on OLA App is mandatorily required to have a commercial driving license as required under the Motor Vehicles Act, 1988. Therefore, a person driving his personal car under a non-commercial license cannot list himself/ herself on assessee's online app. 12.3.8 As per clause 1(ix) of the User Terms between the assessee and the Rider, the term "Driver" has been specifically defined to mean individuals who provide transportation service on their own, using their own vehicle and who have the necessary city taxi permits and other applicable transport vehicle permits and licenses to provide transportation services. It has been stated in clause 4.1 that online app allows the Rider to send a request to the Driver on the network. If the Driver accepts such request, the assessee is required to notify the Rider and provide information regarding the Driver including Driver's name, vehicle registration number etc. Clause 4.13 states that the assessee does not bear any responsibility for delays and losses suffered b....
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....6, which mandates the necessity for permits for providing contract carriage services. 12.4.2 As regards the issue of pricing, it was submitted that a when the Rider places a service request on the OLA App operated by the assessee, an estimated fare is communicated to such Rider. This fare is calculated by the portal basis the rates prescribed by the Regional Transport Authorities. Our attention was also drawn to section 67 of the Motor Vehicles Act, 1988, which specifically empowers the State Governments to make regulations and issue directions to the State Transport Authorities and Regional Transport Authorities regarding pricing of cab fares. It is in terms of this power exercised by the State Transport Authorities and Regional Transport Authorities, even the surge pricing is monitored and controlled. 12.4.3 To give an illustration, the Ld. Counsel on behalf of the assessee submitted that in exercise of powers provided for in section 67(1) of the of the Motor Vehicles Act, 1988, for UT of Chandigarh, a notification was issued as early as in 2013, which prescribes the rates including night charges, waiting charges for taxis. Thus, he submitted that the allegation of the AO that ....
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....sessee merely facilitates the entire process on its OLA App. The payment in question is the Fare that the Driver is entitled to for rendering transportation services to the Rider and, accordingly, in our view, the person responsible for paying in such a case is the Rider alone and not the assessee who merely acts as an intermediary to facilitate electronic mode payments. We are supported in the above conclusion by the fact that on the cash payments made by the Rider to the Driver, it is not the case of the AO that section 194C is applicable. 12.5.2 We have also perused a sample invoice placed before us wherein the Rider has paid INR 71/- to the Driver. We find that this invoice has been segregated into invoices. The First invoice is a Driver Trip Invoice for INR 55.45/- and the other one is for the Convenience Fee of the assessee of INR 15.05/-. In the Driver Trip Invoice, the Service Tax Category has been stated to be a Rent-a-cab scheme operator and at the bottom of the invoice it has been stated that the invoice has been issued by the Driver and not assessee. Further, it has been stated the assessee only acts as an intermediary for the transportation services and that Service T....
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....In any case, we find that after the change of law as described above, the assessee for the year under consideration has not claimed this disbursement made to the Driver as an expenditure. As per the financials of the assessee for the year under consideration, the assessee has only recognised revenue to the extent of its Convenience Fee. 12.6.1 On a query by the Bench the Ld. Counsel on behalf of the assessee stated that the fact that the assessee adopted a different accounting and tax position in preceding years cannot operate as estoppel against the assessee. 12.6.2 We agree with the Ld. AR's submissions that because of the change in Service Tax law, the assessee could not have routed the money received from the Rider and disbursed to the Driver through its profit and loss account anymore, since it purely acted as an intermediary. The Ld. AR has relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v. Truck Operators Union (2012) 20 taxmann.com 848 and the Hon'ble Delhi High Court in CIT v. Cargo Linkers (2009) 179 Taxman 151 wherein the Hon'ble Courts have expressed that section 194C cannot be applied on intermediaries. In our considered view, the principle l....
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....before us are summarised as under: (a) Clauses 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. (b) Clause 2.2. - The Driver-Partner provides transportation services to the User at his own expense and the Driver-Partner is responsible for the transaction between them and the User. (c) Clause 2.3. - Transportation service provided by the Driver-Partner to a User creates a legal and direct business relationship between them and Uber B.V. is not responsible for any action, inaction or lack of proper services of the Driver- Partner. (d) Clause 2.4. - Uber B.V. does not 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. (e) Clause 2.5. - Driver-Partner is responsible for all obligations and liabilities that arise out of providing transportation service to the User. (f) Clause 2.7.1. - Driver-Partner must use a mobile phone to receive lead generation services from Uber B.V.. (g) Clause 2.8. - Driver-Partner must provide information regarding his locat....
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....vailed by remitting cash payment to the Driver-Partner. (d) Clause 5 - Uber B.V. has no responsibility or liability related to transportation service provided by the Driver-Partner to the User. 3.6.2 From the aforesaid clauses in the relevant agreements, it could be safely concluded that Uber B.V. is involved in rendering lead generation service to the Driver-Partner and transportation service is not provided by Uber B.V. or UISPL. The transportation service is provided by the Driver-Partner to the User for which the car is arranged by the Driver-Partner, all the expenses are incurred by the Driver-Partner, necessary permits and licenses are obtained by the Driver-Partner and the liability arising out of the transaction of transportation service is assumed by the Driver- Partner. Uber B.V. is neither responsible for providing transportation service nor any liability arising out of the transportation service provided by the Driver- Partners. The transportation service provided by the Driver-Partner to Users is a contract between them to which Uber B.V. is not a party. For providing lead generation service, the Driver-Partner pays a percentage of the ride fare as a service fee ....
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....User and a Driver-Partner." 12.6.5 In our considered view, the Coordinate Bench has analysed the contract between Uber B.V. and the drivers and concluded that neither Uber B.V. nor Uber India could be held to be the "person responsible for making payment" for the purposes of section 194C. 12.6.6 We further find that in the present case, the clauses of the Subscription Agreement dated 01.11.2016 between the assessee and the Driver and Terms of Use between assessee and the Rider are substantially identical to the clauses analysed by the Coordinate Bench in Uber India's case. On a wholistic reading of both the contracts, we are of the view that the assessee in the present case, much like Uber B.V./ Uber India, the assessee only provides the mobile app "OLA" on which the Driver lists himself/ herself to provide transportation services to the Rider. We find that the contracts in question clearly bring out that it is the Driver that will provide transportation service to the Rider and not the assessee. Even the invoices raised on the Rider clearly demarcate this distinction. Therefore, we are not in agreement with the Ld. Departmental Representative that the Coordinate Bench did not e....
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....here cannot be any divergent stand that could be taken for a User who decides to make payment in Cash directly to the Driver-partner and for a User who decides to make digital payments." 12.7.0 The Ld. CIT DR has contended use of 'clever phraseology' to camouflage the substance of the transaction, which is, exercise of control by the assessee on the Driver. We find that since control itself is an irrelevant consideration for section 194C purposes, as per the decision of the Hon'ble Delhi High Court in CIT vs. Career Launcher India Ltd., [2013] 358 ITR 179, this aspect of the matter does not warrant further deliberation. We are not impressed by the submission advanced by the Ld. CIT DR that the said decision is inapplicable to the facts before us, solely on the ground of the same being in the context of Franchise Agreements. Even otherwise, the terms of the relevant agreements make it clear that in the present case, transportation services are being performed by the Driver, not the assessee. The unequivocal terms of the relevant agreements cannot be disregarded as per the decisions of the Hon'ble Supreme Court in Bank of India vs. K. Mohandas, (289) 5 SCC 313 and Nabha Power Limit....
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....that the assessee controls the price charged to Rider including surge pricing and therefore, the assessee is the one who is providing transport services to the Rider. On the other hand, the Ld. AR has stated that the Total Ride Fee, including Driver's Fare, is regulated by the State/ Regional Transport Authorities in terms of directions issued to them by the State Government, as per section 67(1) of the Motor Vehicles Act, 1988. We agree with the Ld. AR that section 67 of the Motor Vehicles Act, 1988 empowers only the State Governments to control road transport including fixing of fares for contract carriage. For this purpose, we have perused Notification No. 2/7/212-H-III(7)-2017/ issued by the Chandigarh Administration as well as Notification No. MVR 0315/CR109/TRA-2 dated 04.03.2017 issued by the Governor of Maharashtra, both of which were placed on record by the Ld. AR. The Ld. Departmental Representative in his written submission has contended that such notifications only fix the maximum price, and the assessee is free to fix any price within this maximum price. However, this contention does not take the case of the Revenue any further. We find that in both the notifications p....
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....tings are at the disposal of the customers; there exists no restriction on communication between the supplier and the customer; suppliers offer incentives/ discounts to platforms; and suppliers enjoy economic freedom. In our considered view, each case must turn on its own facts and generalities cannot be accepted as valid legal propositions. We have already expressed our view that according to the contracts in place and the conduct of assessee, the assessee is an aggregator/ intermediary. The transportation services in question are provided by the Driver to the Rider and, therefore, the Driver's Fare is payable by Rider either directly or through the assessee. There cannot be any liability on the assessee under section 194C since it is a mere intermediary. The Hon'ble Jurisdictional High Court in CIT v. Truck Operators Union (2012) 20 taxmann.com 848 and the Hon'ble Delhi High Court in CIT v. Cargo Linkers (2009) 179 Taxman 151 have also expressed the opinion that section 194C cannot be applied on intermediaries. 12.13.0 The Ld. Departmental Representative has further contended that if the Rider cancels a trip request after the Driver has accepted it and has reached Rider's locati....
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....xt of deciding whether Respondents classified as "workers" not "agents", that too, under laws of a foreign jurisdiction. Therefore, the said case cannot be said to be similar to the present case. At most, the decision seems to highlight that Uber B.V. exercises control over driver, but, as has been held by us, control is an irrelevant criterion for deciding applicability of section 194C. The Ld. AR has pointed out that the said decision involves private vehicle drivers, not taxis and that there is a specific finding in the said decision that fares for taxis in London are set by regulators, not Uber. Therefore, the reliance of the Ld. Departmental Counsel on this decision is completely misplaced. 12.17.0 The Ld. Departmental Representative also relied on the decision in Asociación Profesional Elite Tax vs. Uber Systems Spain SL, [In Case C-434/15, Judgment Of The Court (Grand Chamber) decision dated 20 December 2017]. The issue involved in the said case was whether provision of "intermediation services", i.e., transfer of information about booking of a transportation service between a passenger and a non-professional driver (private vehicle driver) through a platform, also c....