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2023 (3) TMI 515
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....to arrive at such conclusion. The case 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 o....
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....dquartered in Bengaluru, the assessee is a platform based Indian cab hailing service company 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....
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....assessee, door to door service, wi-fi access, customer support and cashless payment options. 3.0 The Ld. AR submitted that the entire 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 applica....
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....services of a driver within or outside the limits of a city; vehicle on rent; shared ride; compact vehicle; sedan; luxury vehicle; or an auto. Step 7: Input the Destination: Assuming that the OLA Account holder/ 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 Opt....
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....tested documents like driver's license, proof of address, PAN numbers, bank details, etc. Step 3: Verifying the Driver Documents: These documents are verified by a third party hired by the OLA in accordance with the certain guidelines following the best practices. OLA ensures that the Driver receives a detailed walk through on the 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 mo....
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....as the case may be. The Driver is also entitled to rate the Rider. 4.0 The Ld. AR submitted that what essentially emerges from the above is that the assessee essentially partakes the character of an "aggregator" or an online market place for a Rider to communicate with the TSPs/ Drivers for the purpose of transportation. It was submitted that the term "aggregator" has been defined under the Motor Vehicles Act, 1988 in section 2(1A) to mean a "digital intermediary or a market 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 ....
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....ets allocated to the said Driver, otherwise it disappears from the OLA Partner App on the mobile screen of the Driver who did not accept the same. If the first Driver does not accept the ride, allocation system again fetches nearby cabs (except the Driver who did not accept) and the ride is sent to the next best suited Driver and the process continues till the time ride gets accepted or Rider/ Customer wait time is over. 4.4 It was submitted by the Ld. AR that in case the Driver accepts 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 p....
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.... the Rider/ Customer or Driver, finishes the ride prior to reaching the Destination or, changes the Destination during the course of the Driver providing the transport service to the Rider/ Customer. It was submitted that, thus, the assessee created a completely hassle free and seamless experience for all the parties involved while meeting its objective of connecting Riders/ Customers with Drivers. 4.9 The Ld. AR submitted that in this background, it is to be appreciated that there is no contract/ 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....
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....for the provision of transport services. The Subscription Agreement lays down various terms and conditions in terms of the TSPs using the Portal and the device which enables such TSPs to connect to the Portal for the provision of transport services. 5.4 Our attention was invited to clause XIII of the Subscription Agreement which provides that the TSPs shall operate as and have the status of an "independent contractor" and shall not act, be or construed to be an agent or employee of the assessee. It is also 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 t....
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....e device shall be subject matter of settlement between the TSPs and the assessee. 5.9 The Ld. AR, thereafter, referred to the User Terms, which are applicable to the Riders/ Customers, who use the Portal / OLA App to place a service request and submitted that a Rider/ Customer is not entitled to hail a cab using the Portal unless and until he has been successfully registered on the Portal and has accepted various terms and conditions as emanating in the User Terms. This necessarily implies that all Riders / Customers wishing 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 arg....
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....ies in terms of the Service provided by the TSP/ Driver: 6.3 Further, our attention was drawn specifically to clause 21.1 which provides that the Rider/ Customer clearly understands that the assessee is merely an electronic platform to facilitate aggregation of vehicle and does not in any manner provide transportation service. The Ld. AR reiterated that the terms and conditions, as contained in the Subscription Agreement as well as the User Terms, clearly define that the transportation service and the contract relating to provisions 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". T....
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....port vehicle in any public place, whether or not such vehicle is actually carrying any passengers or goods, except for in accordance with the conditions of the permit granted. Reference was made to Clause 5.5 and it was submitted that it specifically provides that the TSPs/Drivers shall ensure registration of the vehicle at all times and shall hold and keep updated/renewed all Licenses, Insurance and Permit necessary for the use of the Vehicle on the Portal. He submitted that on this ground itself, it would be evident that the assessee, being 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) ....
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....pp and the manner in which the payment is made, it needs to be analysed whether the assessee had any obligation in terms of the provisions of section 194C of the Act. The AO then proceeds to analyse the operation of the OLA App and having recorded his understanding of the facts, proceeds to analyse the transaction. 7.6 The Ld. AR pointed out that the AO next refers to the payment process on page 88 of his order. The Ld. AR submitted that the AO has completely ignored the fact that the payments that were being made to the TSPs/Drivers were actually 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 reiterat....
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.... OLA App. It was submitted that this conclusion of the AO is not supported by any terms or conditions of the Subscription Agreement which the TSPs/ Drivers accept. It was argued that the entire basis of the AO to come to this conclusion is unsupported by any material on record and is only surmises and conjunctures or his erroneous understanding of the contractual relationship. 7.9 It was further submitted that on page 92, the AO alleges that the agreement camouflages the real intention of the parties or the substance of the agreement that exists in his 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 th....
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....which the AO has proceeded is against the very concept of 'aggregator", which the law itself has, as recently as now, recognized (Section 2(1A) of the Motor Vehicles Act, 1988). Thus, the law itself has envisaged the concept of an "aggregator" and has not characterized such "aggregator" as TSPs/Drivers. He submitted that it is worth noting that the Motor Vehicles Act 1988, as amended in 2019, now contains a clear demarcation between "aggregator" and Drivers and how the Government is to regulate the two. The term "aggregator" has been defined under the Motor Vehicles 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....
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....justify his erroneous conclusions. He submitted that thus, the understanding of the AO that the assessee controls the Fare (Ride Charge) is completely erroneous, because if that were the case, then there was no requirement to seek permission of the TSP/Driver to revise the fare as per market conditions. He submitted that this itself would show that the AO has merely convoluted the facts to arrive at the conclusion of his liking. This is not supported by the contractual terms between the parties. 7.15 Continuing with the arguments, the Ld.AR submitted that in para (v) at page 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 introdu....
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....oice of logging off, but only when he is logged on, there subsists a contract and when he is at Work, he is under the control and supervision of the assessee. In view of the AO, this conclusion tantamounts to a "contingent contract" under the Indian Contract Act, 1872. The Ld. AR submitted that the AO, obviously, is not aware of what is a contingent contract and has erroneously relied on the same. It was submitted that Section 31 of the Contract Act, 1872 defines the contingent contract as under: "A "contingent contract" is a contract to do or not to do something, if some event, collateral to such 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....
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.... was not the person responsible for making the payment of 'ride charges' so as to attract the provisions of section 194C of the Act. It was further argued that the impugned order was patently wrong on facts as well as in law as the same was based more on perceptions and surmises rather than the facts of the case and the contractual relationships existing between the assessee, the rider and the driver. 8.1 The Ld. AR further argued that the Ld. CIT(A) had erred on facts as well as in law in reaching the conclusion that the ride charges paid to the TSPs / drivers were in pursuance to a contract between the assessee 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 t....
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....e vehicles on a principal to principal basis but only requires the drivers to follow minimum safety standards, maintain personal hygiene and vehicle cleanliness etc. and also give due courtesy and respect to the passengers as the brand name OLA is also associated with the driver. It was submitted that the Ld. CIT(A) had completely failed to appreciate that the assessee could not have contractually entered into a contract providing transportation services as it was neither competent nor had the requisite approval under the Motor Vehicles Act, 1988 to provide any such service. It was submitted that, therefore, the Ld. CIT(A) 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 ....
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....t this invoice has been segregated into two invoices. The first invoice was a driver trip invoice for Rs. 55.45 and the other one was for the convenience fee charged by the assessee amounting to Rs. 15.05. It was submitted that in the driver trip invoice the service tax category shown is 'rent a cab scheme operator' and at the bottom of the invoice it has been mentioned that this invoice has been issued by the driver and not the assessee. It was submitted by the Ld. AR that, on the other hand, the convenience fee invoice clearly states that the same is raised by the assessee and the service tax category is stated to be 'business auxiliary 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 ....
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....between the Riders / Customers and the TSPs / Drivers and it is the TSPs/Drivers who are the lawful recipients of the Ride Charge for providing such services. Mere facilitation of the collection of Ride Charge and routing the same through the assessee to the TSPs / Drivers would not result in legally concluding that the assessee is engaged in the business of providing transportation services, which is being provided by the TSPs/Drivers. 10.1 The Ld. AR submitted that in view of the above, it is prayed that without any other factual evidence and in absence of any material on record, it cannot be concluded that the assessee was providing any transportation 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....
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....hese aspects also point out a dominant position of assessee vis-a-vis drivers where terms of agreement are heavily loaded in favour of assessee. The driver remains under the effective control of assesse as long as he is logged into the App. The arguments of the Ld. CIT DR can be summarised as under:- (i) Selection of Client:- No choice is given to the Driver for selection of client. Although drivers have the freedom to choose when and whereto work, once a driver has logged onto the OLA app, a driver's choice about whether to accept requests for rides is constrained by. OLA. OLA itself retains an absolute discretion to accept or decline any request 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 a....
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....king a ride, a passenger is not offered a choice among different drivers and their request is simply directed to the nearest driver available. Once a request is accepted, communication between the driver and the passenger is restricted to information relating to the ride and is channelled through the OLA app in a way that prevents either from learning the other's contact details. All these terms with the passengers are not as per driver's own free will but only through intervention of digital platform offered by assessee iv) Delivery and monitory of Services :- The fact that drivers provide their own cars does not mean that they have more control. OLA vets the type of 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....
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....m fare in support of its plea that there is limited freedom to choose fare. The argument is flawed. Firstly, reference is made only to Chandigarh city. No evidence has been brought on record to show that such regulatory fare is fixed by any Authority or any other state. Secondly and more importantly, it is the maximum price which is regulated by Chandigarh Authority and OLA is free to fix any price within this maximum fare. (8) The invoice is issued by OLA and has OLA stamp on top. (viii) Assesse is not intermediary or Technology company :- (1) The activities performed by assessee company are not of a pure technology company but of a person engaged actively in transport services (2) The income of assesse is not from use of technology or number of 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&....
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...., such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both. Explanation. For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub section. (2) No deduction under 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 s....
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....d "Salaries" shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: "[Provided thatjn the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.]" (vi) This amendment is effective w.e.f 01.04.2020. A bare reading of this provision reveals that service provided by digital platforms like OLA are brought within purview of TDS. The very fact that Parliament, in its wisdom, has brought such provisions proves that there does exist contractual relationship 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 appea....
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....ers who are approved by Uber London to use the Uber app. Uber argued that, when a ride is booked through the Uber app, a contract is thereby made directly between the driver and the passenger whereby the driver agrees to provide transportation services to the passenger. The fare is calculated by the Uber app and paid by the passenger to Uber BV, which deducts part (20% in these cases) and pays the balance to the driver. Uber characterises this process as collecting payment on behalf of the driver and charging a "service fee" to the driver for the use of its technology and other services. To support its case, Uber relied on the wording of its standard written contracts between Uber BV and drivers and between the Uber companies and passengers. Uber also emphasised that drivers are free to work when they want and as much or as little as they want. In summary, Uber argued that drivers are independent contractors who work under contracts made with customers 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 par....
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....ructure and nature of the service provided to customers and nature of agreement and relationship between the Service provider and Drivers in cases cited supra is very similar to the Indian player (Assessee). The relationship can never be inferred as Principal to Principal basis as the assessee is trying to assert. The relationship can only be inferred as contractual relationship. (B) Reliance was also placed on case of Association Professional Elite Taxi v. Uber Systems Spain SL (C.J.E.U.) ( Judgment by Barcelona Commercial Court (Grand Chamber) on 20 December 2017 and affirmed by EU Court of Justice on 14 Feb 2018 where on similar facts it was held that Uber was providing Service in the field of transport. The following submissions were made in this regard:- (a) In 2014, the Association Professional Elite Taxi (Elite Taxi) brought an action before the Juzgado de lo Mercantil No 3 de Barcelona (Commercial Court No. 3, Barcelona, Spain) for the infringement of the 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 d....
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.... same facts OLA cab service should not be held as 'Service in the field of Transport' and not an intermediary service. Once it is held so, then the relationship between OLA and driver partners have to be construed as contractual service liable for TDS. [C] Reliance was also placed on decision of ITAT Banglore Bench delivered on 25.11.2020 in case of M/s. Sri Balaji Prasanna Travels Vs. ACIT, Circle-6(3)(1) Bengaluru in ITA No.2078/Bang/2019 and following submissions were made:- (a) The assesse is engaged in providing vehicles on hire. The A.O. made a disallowance of Rs.1,26,66,648/- being the vehicle hire charges on which TDS had not been deducted. On appeal, CIT(A) observed that the assessee is liable to deduct TDS u/s 194C of the Income Tax Act,1961 on the vehicle hire charges and since the assessee failed to deduct the TDS, the disallowance made by AO u/s 40(a)(ia) of the Act is justified. Against this, the assessee filed an appeal before ITAT. (b) The assesse carries on the business of providing 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 v....
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.... the parties. It may be oral also, [para 6.1] (e) The facts are quite similar. In the present case under reference, the assessee, OLA, is providing vehicles to customers quite similar to the assesse providing vehicles to Orix company in case cited supra. On the other side of agreement exist drivers cum cab owners in both cases who provide vehicles to the customer/passengers through assessee. The only difference is that in our case it is provided by intervention of a software App whereas in case cited supra it was provided manually by the assessee. The decision of Hon'ble ITAT Bengaluru holding assesse as liable for TDS deduction is squarely applicable to present case 11.5 The Ld. CIT DR submitted that there were points of distinction between Uber Systems India Pvt Ltd's case and the assessee's case as under:- (a) The AR cites the case of Uber systems (UISPL) in his favour. The facts of case of Uber India Systems Pvt Ltd are not applicable to present case. Uber India (UISPL) is a subsidiary of Uber group and its role is only limited to market and promote the use of Uber App in India. The services which the assesse calls in that case as 'Lead Generation S....
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....ued as under:- (a) It is imperative to compare OLA's method of operation and relationship with drivers with digital platforms that operate as booking agents for suppliers of, for example, hotel or other accommodation. There are some similarities. For example, a platform through which customers can book accommodation is likely to have standard written contract terms that govern its relationships with suppliers and with customers. It will typically handle the collection of payment and deduct a service fee which it fixes. It may require suppliers to comply with certain rules and standards in relation to the accommodation offered. It may handle complaints and reserve the right to determine whether a customer or supplier should compensate the other if a complaint is upheld. Nevertheless, such platforms differ from OLA in how they operate in several fundamental ways. (i) Firstly, the accommodation or Airline offered is not a standardized product defined by the platform. Customers are offered a choice among a variety of different hotels or other types of accommodation or Airlines (as the case may be), each with its own distinctive characteristics and location. ....
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....e Truck owners/Drivers. (Refer to Page 114, Para 7.13 of order of CIT(A) (c) Bhopal Sugar industries Vs. STO Civil appeal No. 1135-1138 & 1972 :- (Refer to CIT(A) observation on page 112, Para 7.13 of the order) 11.8 The other cases cited in paper book are also clearly distinguishable on above lines [para 9.1] and factual matrix is entirely different in these cases. 11.9 The Ld. CIT DR also filed written submissions which have been take on record and which will be given due consideration at the time of adjudication. 12.0 The Ld. AR also filed written submissions in response to the Department's arguments which are being reproduced herein under:- "1. At the outset, for the sake of brevity, it is submitted that for applying the provisions of section 194C of the Income-tax Act, 1961 ("ITA") on the facts of the present case, the entire case of the Department rests on the erroneous assumption that the Assessee is in the business of providing transportation services and these services are provided through sub-contract with third party drivers (hereinafter also referred to as "Transport Service Providers" or "TSPs"/ Drivers) (please refer to the definiti....
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....of M/s Uber India Systems Private Limited vs. JCIT, ITA No. 5862/Mum/2018, decision dated 04.03.2021: (a) At the very outset, it was brought to the attention of the Hon'ble Bench that the issue under consideration now stands covered by the decision of the Coordinate Bench of this Hon'ble Tribunal in Uber India (Supra). On identical facts and issues, the Hon'ble Coordinate Bench has held that section 194C of the ITA is not applicable on payments (collected from riders/customers) forwarded by an aggregator/intermediary to "Driver-Partners" and the transportation services are provided by the "Driver- Partners" to the "Users". It has been clearly observed in the said decision that neither Uber B.V. (the owner, operator and manager of the App) nor Uber India Systems Private Limited ("Uber India") (the payment and collection service provider) performed transportation services, which services are performed solely by the "Driver-Partners" (please refer Paras 3.6.2 - 3.6.3, Pages 36 - 37 of the Compilation dated 05.03.2021). Since this issue is common and germane to the entire dispute, given the conclusions drawn in Uber India (Supra), the matter is no longer res-integra. ....
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....ot the Assessee. Even under the applicable laws [Motor Vehicles Act, 1988 ("MVA")], there is a specific prohibition to provide transportation services, unless a permit/license has been obtained. It is not the case of the Department that the Assessee possesses a permit/license to provide transportation services under the MVA. The facts speak for themselves, that it is only the TSPs/Drivers, who have the necessary permits/licenses to provide the transportation services. During the course of the hearing before the Hon'ble Bench, the various clauses of the Subscription Agreement dated 01.11.2016 ("Subscription Agreement") and the User Terms dated 08.03.2018 ("User Terms") were pointed out to evidence the clear understanding between the parties that it is the TSPs/Drivers, who will provide the transportation services to the Customer. Kind attention is invited to the various clauses as separately referred to in Annexure A to this note. 5. Change in accounting/invoicing/taxing treatment from AY 2016-17: To reach its conclusion, the Hon'ble Tribunal in Uber India (Supra), took categorical note of the recognition of an "aggregator" for Service Tax purposes, on whom the liability to....
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....because a position has been taken on a conservative basis, no obligation can be imposed on the Assessee, where none exists. Reliance in this regard is placed on the decision in CIT vs. V. MR P. FIRM MUAR, [1965] 56 ITR 67 (Supreme Court). 6. Operation of section 194C(4) of the ITA: (a) It is the case of the Assessee that its facts are on a better footing than Uber India (Supra). The Convenience Fee, which is the effective income of the Assessee herein, is payable to it by the Customer placing a "Service Request" on the "Portal" (please refer to the definition of "Convenience Fee" in the Subscription Agreement on Page 124 and in the User Terms on Page 144 of the Paperbook dated 30.09.2020). Furthermore, such Customer is entitled to use the Portal only for personal use (please refer Clause 4.3(i) in the User Terms on Page 147 and Clause 14.1 in the User Terms on Page 156 of the Paper book dated 30.09.2020). On the other hand, the "Service Fee", which is the effective income of Uber B.V., is payable to it by the Driver-Partners (please refer Clause 4.4 at Page 14 and Clauses 4.4 and 4.5 at Page 35 of the Compilation dated 05.03.2021). Consequently, in the present cas....
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....of the Paperbook dated 30.09.2020), the Department is seeking to invoke section 194C of the ITA. This is sure to have unintended consequences of subjecting Fare in the hands of the TSPs/Drivers to differential treatment, based wholly on invalid considerations. Incidentally, the absurdity of divergent stances in respect of cash and electronic payments was recognized in the decision in the case of Uber India (Supra) as well (please refer Paras 3.5.3 - 3.5.4, Pages 29 - 30 of the Compilation dated 05.03.2021). (b) Even otherwise, given that the Customer is specifically exempted from any withholding obligations under the provisions of section 194C(4) of the ITA, in the absence of specific provision in law, how this obligation is being hoisted upon the Assessee is unclear. 8. Control an irrelevant consideration for section 194C purposes: The aspect of "control" emphatically emphasized upon by the Ld. Departmental Representative so as to be determinative of a contract for "carrying out work" and to trigger applicability of 194C of the ITA, is an irrelevant consideration, in view of the decision in CIT vs. Career Launcher India Ltd., [2013] 358 ITR 179 (Delhi High Court)....
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....Maharashtra amongst many more, have come up with similar notifications (please refer to Notification by the Governor of Maharashtra, dated 04.03.2017, annexed hereto as ANNEXURE - B). 9. Concept of "aggregator" under the MVA: It is also the case of the Assessee that the Assessee is now defined under a separate head within the MVA, i.e., section 2(1A) of the MVA, as an "aggregator", and is supposed to obtain a specific license to provide services of an aggregator [pursuant to section 93(1)(iii) of the MVA]. On the other hand, the TSPs/Drivers are valid permit holders as far as "contract carriage" is concerned [pursuant to section 2(7) read with section 66 of the MVA], and are therefore, the only category under the MVA, permitted to enter into contract with the Customer for carrying the Customer. The State Government is authorized to regulate such contract carriages [pursuant to section 95 of the MVA], which does not contain any whisper of involvement of an aggregator like the Assessee. Therefore, when the Assessee is specifically barred from providing contract carriage services, there can be no occasion for it to enter into a contract/sub-contract to offer the provision of ....
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....eposits tax under section 194C of the ITA on the incentives paid by it to TSPs/Drivers. Incentives is one of the heads of income under the Commercial Terms Segment (please refer Exhibit - C to the Subscription Agreement dated 01.11.2016 on Page 141 of the Paperbook dated 30.09.2020), taxability whereof has no relevance as far as the taxability of Fare forwarded by the Assessee to the TSPs/Drivers on behalf of the Customer is concerned. Be that as it may, the fact of Assessee deducting tax at source under section 194C of the ITA on the incentives cannot and would not act as estoppel to saddle the Assessee with a liability to deduct tax at source under section 194C of the ITA on Fare forwarded to TSPs/Drivers [please refer V. MR P. FIRM MUAR (Supra)]. 13. Applicability of section 194-O of the ITA: With effect from 01.10.2020, the law has imposed withholding obligations on e-commerce operators, such as the Assessee, to withhold tax on payments to be made to e-commerce participants such as the TSPs/ Drivers. The Assessee has been complying with the withholding obligations imposed on it with effect from 01.10.2020. It is the submission of the Assessee that the Legislature has, ....
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....bility of section 194C was examined on the vehicle hire charges paid by the Assessee Company therein to third party drivers, who along with the Assessee therein, had provided the relevant services. As can be clearly discerned from the facts of the said case, the Assessee therein itself was in the business of providing transport service and that it had further sub-contracted it to third party drivers. As per the facts of the case in hand, the Assessee is not in the business of providing transport services and therefore, strictly as per law (more specifically the MVA), cannot sub-contract the said services. Therefore, this decision is not applicable in the present case. More importantly, as has already been submitted, on identical facts, Coordinate Bench of this Hon'ble Tribunal in Uber India (Supra), has already decided the issue of applicability of section 194C favourably. In light of the above, the Assessee most humbly submits that the Fare routed/facilitated by the Assessee to TSP s/ Drivers are not in respect of any transportation services provided by the TSPs/Drivers to the Assessee and consequently, do not attract the provisions of section 194C of the ITA. The Assesse....
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....iate place later in this order. 12.2 The other relevant/key factor that the AO and the Ld. Commissioner (Appeals) have taken pains to bring out is the degree of control exercised by the assessee over the Driver. This degree of control also has become a key factor for the lower authorities to conclude that Driver is under absolute control of the assessee and provides the transportation services under a sub-contract from the assessee. 12.3.0 It will be worthwhile to refer to the various clauses of the Subscription Agreement before we proceed to adjudicate the issue at hand. As per the recitals of the Subscription Agreement dated 01.11.2016 entered between the assessee and the Driver, the assessee is stated to be an online marketplace called "OLA" that lists and aggregates Drivers. On the other hand, a transport service provider has been stated to be either a fleet operator, or a Driver who are/is already licensed to provide transportation services as per the applicable law and who are desirous of listing themselves on OLA app. As per clause IV.1, it has been agreed upon by the Driver that the role of the assessee is limited to (a) managing and operating the app, (b) being an on....
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.... including for example, providing transportation services to the Rider in a courteous, effective, and timely manner. In clause 5.14, it has been stated that, in the event the Rider pays by cash, the Driver shall collect so and remit the Convenience Fee to the assessee. 12.3.6 The Zero Tolerance Policy in the Subscription Agreement lays down the instances of breach on the part of the Driver such as rude and abusive behaviour, rejection of booking, asking for tips, wasting Rider's time, personal hygiene, vehicle cleanliness etc. The Ld. AR for the assessee has also placed on record Advisory for licensing, compliance and liability of on-demand information technology-based transportation aggregator issued by the Ministry of Road Transport and Highways. In the said Advisory, it has been stated that the aggregators are required to mandatorily ensure that a zero-tolerance policy is established for discrimination or discriminatory conduct while the Driver is logged onto the OLA App. Discriminatory conduct has been defined to include refusal of service, using derogatory or harassing language directed at the Rider or rating a Rider based on sex, race, caste, creed, religion, or nationalit....
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....hen choosing the electronic mode, such payment is made to the assessee. 12.4.0 During the course of the hearing, the Ld. AR has clarified that initially only an estimated fare is communicated to the Rider when such Rider places a service request on the OLA portal operated by the assessee. In addition, in the context of surge pricing, it was clarified that even surge pricing was regulated by law. This was all in context of the submissions that the assessee was not providing any transport services to the Rider and the contract for providing such service was between the Rider and Driver. 12.4.1 It was also brought to our attention by the Ld. Counsel on behalf of the assessee that the AO, in the remand report before the CIT(A), has contradicted her stand by stating that the provisions of the Motor Vehicles Act, 1988 were not applicable to the assessee. It was emphasised that the operations of transport vehicles for carriage of passenger and goods are regulated by the Motor Vehicles Act, 1988, which mandate the person providing such service to be a valid permit holder. Our attention was invited to the definition of "contract carriage" as defined in section 2(7) as well as the prov....
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....he assessee to the Driver, ought to have been subjected to tax deduction at source under section 194C. On the other hand, the assessee's contention is that it is a technology company, working merely as an intermediary/ aggregator between the Driver and the Rider on the online mobile app called "OLA". It is also the contention of the assessee that the transportation services in question are independently performed by the Driver and that there exists no sub-contract between the assessee and the Driver in connection therewith. 12.5.0 Section 194C requires the person responsible for paying any sum to a contractor, for carrying out any "work" in pursuance of a "contract", to deduct 1% therefrom. The definition of "work", for the purposes of attracting the rigours of section 194C, includes, "carriage of goods or passengers by any mode of transport other than by railways" or simply put, "transportation services". 12.5.1 In our considered view, section 194C would be applicable where the payments in question are made by the person responsible for paying, under a contract, to another person called the "contractor". In the present case, it is clear from the contracts between the assesse....
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....to pay Service Tax in relation to a service provided or agreed to be provided by a person that involves such aggregator. 12.5.4 Pursuant to the said Notification, since the obligation to pay Service Tax shifted from the provider of service to the aggregator, the assessee could no longer route the money received from the Rider through its profit and loss account, being an intermediary. After such change in law, the assessee stopped recognising the money received from the Rider as its revenue and the money disbursed to Driver as expenditure. It is for this reason, that two separate invoices are raised on the Rider through the portal of the assessee, so that the assessee keeps a track of amount on which the assessee must discharge its Service Tax liability as an "aggregator" qua the transportation services rendered by the Driver as well as the "provider" of platform, for which it receives Convenience Fee. 12.6.0 It has also been submitted before us that prior to such change in law, the assessee was deducting tax at source under section 194C on the Fare being disbursed to the Driver. However, since this change in law necessitated change in accounting treatment, the assessee stopp....
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....ame. However, now that the Coordinate Bench has set aside the findings of the lower authorities, the Ld. Departmental Representative has sought to distinguish the facts in the case of Uber India with that of the assessee. 12.6.4 The Ld. Departmental Counsel, in his arguments has also contended that in Uber India's case, there are four players namely, Uber B.V., a company incorporated in Netherlands, which owns and operates the mobile app called "Uber", Uber India, which was engaged in promoting the said app, rider, and driver. It has been contended that the Coordinate Bench did not decide the actual relationship between Uber B.V. and driver and that since the assessee in the present case stands on the same footing as Uber B.V., the decision of the Coordinate Bench in Uber India (supra) was distinguishable on facts. However, we find that the Coordinate Bench in the case of Uber India (supra) has examined the agreement between Uber B.V. and driver and Uber B.V. and rider and has held that neither Uber B.V., nor Uber India were performing transportation services as under:- "3.6 Applicability of provisions of section 194C of the Act. We find that the Driver-Partner....
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....river-Partner's responsibility to ensure that insurance is taken for any liability that may arise on account of transportation services and/or as required by law. (m) Clause 13.1. - Uber B.V. acts as an agent of the Driver-Partner for the limited purpose of collecting the payment from the User. The Driver-Partner is not an employee, agent, etc. of Uber B.V. and there is no partnership or Joint venture between 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....
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....India. Correspondingly, Rule 2(1)(d)(ii) prescribed person providing service as a Person liable for paying service tax. Section 68(2) of the Finance Act, 1994 provides that on specified services the service tax shall be paid by prescribed person. In March 2015, Central Board of Excise and Customs vide Notification No. 7/2015 dated 1-3-2015 notified that whenever an aggregator is involved in any manner in the transactions, then the person 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 aggr....
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....the assessee's Convenience Fee, Driver's Fare and the "person responsible" under section 204(iii), for invoking section 194C here, is the Rider. The Rider is entitled to use the assessee's platform or avail transportation services only for personal use, as per the User Terms and Subscription Agreement respectively. Since such personal use by the Rider is exempt from liability to deduct tax, as per section 194C(4), no liability can be fastened on the assessee, a mere intermediary. 12.6.8 We find force in this contention as well. We have already held that the assessee merely acts as an intermediary between the Driver and the Rider. Therefore, when the Rider itself is exempt from deducting tax at source for such personal use, we see no reason why an intermediary such as the assessee, be forced to deduct tax at source at the time of disbursement of Fare to the Driver after collecting it in electronic mode from the Rider. 12.6.9 We are also unable to reconcile the contradictory legal stands with respect to Fare collected by the Driver from the Rider directly and Fare involving electronic payment that is merely routed through the assessee, when the service is undisputedly the same.....
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....) Motor Vehicles Act, 1988, a distinction between license of an aggregator and Transport Service Provider [for "contract carriage" under section 2(7) read with section 66 of the Motor Vehicles Act] like Driver has been carved out. Therefore, since an aggregator, like the assessee, is not entitled to obtain a license in respect of a contract carriage, it cannot be said to have sub-contracted work in respect of such contract carriage to any Driver. 12.9.0 The Ld. Departmental Representative has pointed that until AY 2015-16, the assessee had deducted tax under section 194C for payment of Fare to the Driver and, therefore, mere recognition as an "aggregator" under Service Tax laws should not absolve the assessee of its liability under Income Tax laws. This aspect has also been addressed in Uber India (supra) in the favour of the assessee. Further, we find reason in the justification given by the Ld. AR that owing to the distinction carved out by the Legislature between an "aggregator" and "Service Provider", the assessee revamped its accounting and did not route amounts of Fare to be forwarded by it to the Driver through its profit and loss account. Therefore, from AY 2016-17, the ....
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.... the AO/ CIT(A)/ Ld. Departmental Representative that the assessee controls the pricing. 12.11.0 The Ld. Departmental Representative has also contended that the Fare which appears on the OLA App and what Driver receives may be different due to discounts/ incentives offered by the assessee and therefore, it is the assessee who controls the Driver and the transportation service. However, from the Audited Financials of the assessee, we note that the assessee records Convenience Fee, i.e., its effective revenue, net of discounts. The discounts offered by the assessee have no bearing on the Driver's Fare. As far as incentives provided by the assessee to the Driver is concerned, on which tax is deducted at source by the assessee under section 194C, we are inclined to agree with the Ld. AR that it is merely one of the heads of income for the Driver under the Subscription Agreement, taxability of which has no bearing on the taxability of the payment of Fare to Driver. Even otherwise, as has been explained, it is a cost borne by the assessee out of Convenience Fee, i.e., its effective revenue. 12.12.0 The Ld. Departmental Representative also sought to draw a distinction between suppli....
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....mental Representative has relied on the decision in M/s Sri Balaji Prasanna Travels vs. ACIT, ITA No. 2078/Bang/2019, decision dated 25.11.2020. We note that the assessee therein was engaged in providing vehicles on hire. It provided such vehicles to M/s. Orix Infrastructure India Pvt. Ltd, which was also in the business of providing vehicles on hire. The Coordinate Bench examined the applicability of section 194C on the vehicle hire charges paid by the assessee to third party drivers, who along with the assessee provided the relevant services. The assessee therein was also in the business of providing transportation services and it had further sub-contracted it to third party drivers. Therefore, the said decision of the Coordinate Bench is inapplicable to the facts of the present case. We find that the term "aggregator" used in the decision is not an "aggregator" as defined under the Motor Vehicles Act, 1988 or the Service Tax laws. It is used in the context of accumulating sufficient vehicles for discharge of obligation by the assessee. 12.16.0 Further, the Ld. Departmental Representative has relied on the decision in Uber BV and others vs. Aslam and others, [2021] UKSC 5. We ....