TaxTMI 
TaxTMI 
2023 (1) TMI 1243
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....the impugned order is unsustainable and liable to be quashed: 3. Determining a sum of Rs.113,54,56,072 (including interest under section 201(1A) of the Act amounting to Rs. 11,83,55,112) as demand payable by the Appellant; Preliminary jurisdiction 4. Not disposing off the preliminary jurisdiction issue as to who is the 'person responsible to pay which is against the ratio laid down by the Hon'ble Supreme Court in various judicial precedents 5. Misinterpreting Section 204 of the Act and thereby, treating the Appellant as a "person responsible for paying' under section 204 of the Act without it being a party to any work/service contract (implied or otherwise) with either the Driver-Partners or the Users: 6. Holding that the Appellant is an 'Aggregator and is soliciting Driver-Partners and the Users on its platform, and in not appreciating that the Appellant is a support entity and as part of its support services to Uber B.V. was appointed to collect and remit payments on behalf of and under the instructions of Uber BV only on account of regulatory requirements; 7. Not appreciating the legal agreements entered into ....
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.... entrepreneurs engaged in provision of transportation services and income earned from such business operations is not subject to tax under the provisions of section 44AD of the Act. 19. Not appreciating that the liability to deduct tax is a vicarious liability and the Appellant cannot be treated as an assessee in default without establishing/ ascertaining that the Driver-Partners (all who are residents of India), have any tax liability or have already discharged/ paid applicable taxes on their income; 20. Confirming the applicability of withholding tax at the rate of 20% under section 194C read with section 206AA of the Act, even after providing the bank account details of those Driver-Partners for which PAN were not available with the Appellant. Further, the Learned CIT(A), has erred in not providing an opportunity to the Appellant to submit additional PAN's of the Driver-Partners as collated by the Appellant from Uber B V 21. Referring to and cherry picking various international judgements (referred in context of non-tax cases) to suggest that Appellant is providing service in the field of "transportation" without appreciating that these judgements ....
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.... that while logging in, the agreement of Uber BV appears on the screen and by accepting the same, the driver/vehicle owner become party to the agreement. The customer has the option to make payment either using paytm /credit card or in cash. When a payment is made through paytm or credit card, the same is credited to the account of M/s Uber India System Pvt. Ltd. and when the payment is made in cash the same is handed over to the driver. The payment to the driver is made after deducting a service fees for the use of the app and the quantum of the same is 20% of the fare. The amount which have been collected by the driver in cash are deducted from the payout that are to be made then net amount to be paid. The A.O observed that as per the provisions of Sec. 194C of the Act, any person responsible for paying any sum to any recipient (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or dr....
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.... make payment from its local bank account maintained with Deutsch Bank to Indian partners. Even in the case of any dispute on the issue of payment the contact point for the driver for settlement was the Uber India office. The AO further stated that the entity Uber BV is the name sake entity was which merely is party to an agreement by virtue of a legal fiction which has no connection with the real service provided in India. Therefore, the A.O treated that assessee was deemed to be in default u/s 201(1) for an amount of Rs.102,01,00959/- and also deemed to be default u/s 201(1A) for amount of Rs.11,83,55,112/- for A.Y. 2018-19. 3. The aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse. 4. During the course of appellate proceedings before us at the outset the ld. Counsel submitted that identical issue on similar fact for AY 2016-17 and AY 2017-18 in the case of the assessee itself has been adjudicated by the ITAT, Mumbai vide ITA No. 5862 & 5863/Mum/2018 dated 04.03.2021 in favour of the assesse. The ld. Counsel has also submitted that identical issue on similar fact in the case of ANI Technologies Pvt. Ltd. Vs. DCIT (O....
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....ovides lead generation services to independent Driver-Partners who are interested in providing transportation services to Riders ("Users"). The phrase "lead generation services" as used above merely means the provision of a digital platform/ marketplace where Driver-Partners (who wish to provide transportation services on their own account) can contract with Users (who wish to avail transportation services that are provided by Driver-Partners) and conclude undertake a contract of transport between themselves. Uber Technologies Inc. has granted a license of the Uber App to a company incorporated in the Netherlands namely, Uber B.V. to operate the Uber App worldwide including in India (excluding USA)'. (B) Services provided bv Uber B.V. to Driver-Partners through the App: (1) Uber B.V. provides lead generation services to those Driver-Partners who wish to availof such services through the Uber App and register themselves with the Uber App. As part of the abovementioned service, Uber B.V. encourages potential users to register with it and use the Uber App without any charge. Through the Uber App, Uber B.V. provides the following services:- a) Informing D....
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....Driver-Partner, the fare agreed by them. The Driver-Partners has authorized the use of software to determine the fare on his behalf taking into account various factors such as demand, time of the day etc and this fare (agreed between the Driver-Partner and the User) may be paid by the User to the Driver-Partner either in cash or by using one of the digital payment modes provided on the App. If the User chooses to pay by one of the digital modes, the fare is collected by Uber B.V. on behalf of the Driver-Partner. (5) For providing the aforesaid lead generation services to the Driver-Partners, a percentage (approx. 20%) of the fare for each trip is collected from the Driver-Partners as the fee ("Service Fee") payable to Uber B.V. Till April 2015, all collections on behalf of Driver-Partners were made directly by Uber B.V.in its bank account in the Netherlands and payment to individual Driver-Partners was made from the same bank account to the bank account of Driver-Partners in India. (6) Driver-Partners, since they are offering transportation service on their own behalf, are at liberty to choose when to drive and when not to, and whether to accept or reject a reques....
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....nd (potential) Users and performing certain business support services such as driver verification, documentation relating to registration of Driver-Partners, and other incidental support services. The said verification services are essentially to ensure that Driver-Partners using the Uber App are lawfully entitled to provide transportation services. (4) The aforesaid business model of incorporating a local subsidiary, for the purpose of providing support services is followed worldwide by the Uber group. The diagrammatic representation setting out in brief the flow of transactions between various parties is as under:- (D) Guidelines from Reserve Bank of India (RBI) (1) The RBI issued a Circular dated 22 August 2014 which provided that if the transacting parties i.e. Driver-Partner and User are in India, then any payment cannot be collected by Uber B.V. on behalf of Driver-Partners in a bank account outside India i.e. in Netherlands, and it must necessarily be collected and disbursed through a bank account maintained and operated in India. Lot of correspondences in this regard were exchanged with RBI which are enclosed in pages 799 to 816 of the paper book ....
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....one to receive lead generation services from Uber B.V. If required a mobile phone will be provided by Uber B.V. and its cost will be recovered from the Driver-Partner h) Clause 2.8. - Driver-Partner must provide information regarding his location so as to receive lead generation services from Uber B.V. i) Clause 3.1. - It is the Driver-Partner's responsibility to ensure that he holds a valid license, all permits and approvals under the law and possesses necessary skills to provide a transportation service j) Clause 3.2. - It is the Driver-Partner's responsibility to ensure that the vehicles used for providing service are registered as required by law, maintained in good condition and are lawfully possessed by them k) Clause 4.4.- Uber B.V. will charge a service fee to the Driver-Partner for providing lead generation services which will be a % of ride fare charged by the Driver-Partner to the User l) Clause 4.6.- Uber B.V. will issue a receipt, on behalf of the Driver-Partner, for the money collected for transportation service provided by a Driver-Partner to the User m) Clause 8 - It is the Driver-Partner's responsibi....
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....f the Act. These conclusions were reached by the ld. AO based on the following points:- (a) Uber exercises full control over the selection of the Driver-Partners and on determination of ride fare and on issuance of invoices and making payment to the Driver-Partners. (b) The income earned by Uber is not from use of software application but from the provision of transportation services (despite the Assessing officer accepting that UISPL's income is only 8.5% on cost and Rs. 5,00,000/- per month) and therefore that Uber B.V.'s income is a % of ride fare earned by the Driver-Partner. (c) Uber recruits Driver-Partners, provides training, sets the quality standard, provides rating and has a right to register and de-register. Therefore, it exercises full control over the Driver-Partners. (d) Incentives are provided to Driver-Partner to ensure he keeps availing of service of the Uber App. (e) Agreement with the Driver-Partners cannot be relied upon as the Driver-Partners have no negotiation power. (f) All the clauses of the agreement show that Uber is actively involved in rendition of transportation service by Driver for Eg. iss....
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....which provides for deduction of tax at source under section 194C of the Act. 3.4. We should place on record our appreciation to elaborate arguments made by both the sides on each and every aspect of the assessment and the first appellate order. The various arguments of the ld. DR and its rebuttal by the ld. AR could be summarized in the following tabular form :- Sr. No. Contentions of Learned DR Rebuttal of the Learned AR Supporting Documents (if any) Contentions relating to "person responsible for paying" 1 The provisions of section 194C requires specified person to deduct tax at source and not necessarily the person entering into a contract a) It is submitted that the provisions of section 194C mandate only the person who has entered into a contract with a contractor for carrying out any work, to deduct tax at source as that person is liable under the contract to make the payment for work being carried out at his instance. Therefore, provisions of section 194C cannot be applied to a person other than the one who has entered into the contract. b) If the argument of the Learned DR is to be accepted then the provisions of section 194C(4) cannot be....
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....annot be held as the "person responsible for paying" as that would mean the User who pays the money for transportation service is required to deduct tax at source as the User is the "person responsible for paying." 5 Circular No. 715 does not apply as it is distinguishable and Circular No. 558 is applicable to the facts of the case. a) Circular No. 715 completely covers the instant caseand applying the same logic it can be safely concluded that UISPL is not the person responsible for paying. b) Circular No. 558 does not apply to the instant ease as it contemplates a case where the payer takes the vehicles on hire from the owner and along with it, the owner is under obligation to provide a driver and the vehicles are made available for at least 14 hours a day. In the instant case, UISPL does not own the vehicle, does not have any contract with any vehicle owners for supply of vehicle, etc. Therefore, Circular No. 558 does not apply to the facts of the case. 6 The treatment under the service tax law is irrelevant as section 194C is concerned with the person responsible for paying however, service tax law is concerned with service provider or rece....
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....mitted that the argument of the Learned DR is contrary to the agreement between the parties, the treatment given under service tax law and the proceedings taken in the earlier year. b) Secondly, the argument of the Learned DR is totally incorrect because if there is a sub-contract between Uber B.V. and the Driver-Partner then in the event the vehicle breaks down or the Driver-Partner does not render the service there would be an obligation on Uber B.V. to arrange for another vehicle or Driver-Partner to complete the contract. c) However, that is not so; as in such an event, the User is required to carry out a fresh search on the Uber App or arrange for an alternate transportation on its own which clearly establishes that there is no subcontract between Uber B.V. and the Driver-Partner as there is no obligation on Uber B.V. to complete the contract. 9 User and Driver-Partner don't know each other and they know only Uber B.V.: According to the Learned DR, when a User books a cab from the Uber App, he does not have any information/ details about the Driver-Partner. Similarly, the Driver-Partner also does not have any information/ details about the U....
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....s on record. Refer clause 1.17, 2.2 -2.5 of the agreement between Uber B.V. and Driver-Partner at Page No 55 - 57 of Paper Book 11 Fare is determined by Uber B.V.: The Learned DR has alleged that, since Uber B.V. determines the fare for the ride, Uber B.V. is engaged in the transportation business. Also, the Driver-Partner is not aware about the fare being charged. a) It is submitted that the base price (comprised of Minimum Fare + Rate per Km. + Rate per Minute) of the ride is known to the User and the Driver-Partner. And, when a request is sent to Driver-Partner on the Uber App, the surge price is shown on the screen. Further, on the Uber App. the Driver-Partner can also see in which area the surge pricing is higher and accordingly, place the car where he is more likely to get a higher fare. Therefore, when a Driver-Partner accepts a ride, he is well aware about the fare that he is to receive for providing the transportation services to the User. b) For instance, even in the case of Taxi service provider . registered with Maharashtra State Road Transport Corporation (MSRTC), the fare to be charged by the taxi service provider is fixed by MSRTC and it is....
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....ugh a receipt. In the case of an Uber ride, the receipt to the passenger is issued by Uber B.V. and not by the Driver. The fact that Uber B.V. is giving the receipt to the passenger implies that the service of transportation has been provided by Uber B.V. to the Users. c) It is submitted that the invoice for the ride is issued by Uber B.V. on behalf of the Driver-Partner.The same is specifically mentioned on the invoice. In fact an added service is being provided by Uber B.V. to the Driver-Partner to enable them to issue an e-invoice to the Users and avoid any hassle of issuing manual receipts. Sample copy of invoices are provided at Page No 77 of Paperbook. 14 Uber sets the Quality standard for Driver and Vehicles: Uber has set the quality standards for the Drivers and the vehicles and that's not the job of a technology company. If it was not the transportation provider, why would it be bothered about the standard of the vehicle or the driver? That's a contract between the driver and the rider/ user and they should be bothered about it. It is submitted that quality standards such as Car has to be clean, Driver-Partner shall be appropriately dr....
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....Uber launches in the market is not the different software applications but the different types of cars and rides a) It is submitted that Uber BV is a technology company and has created the digital marketplace for the transportation industry. Further, it continuously updates the App through which the digital marketplace is accessed by the Rider and the Driver. It is submitted that the mere fact that the service fee is payable on the basis of fare would not convert Uber B.V. to a transportation service provider from a lead generation provider. b) It is submitted that different types of cars and rides are launched in the App based on the consumer demands (like UberGo, Premier, UberXL, Hire Go, Hire XL, UberMoto, Uber Auto) thereby providing various alternate means of transportation, and meeting the demands of the consumers, This helps Uber increase the overall use of its App, which in turn increases the business and revenue of Uber. c) Therefore, the contention of the Learned DR is incorrect and cannot be the basis of holding that provision of section 194C are applicable. 17 Drivers are recruited by Uber: The recruitment of the driver is another activity that ....
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....: A) Adonis Biafore vs. Uber Technologies (Commercial Arbitration Tribunal) (California) B) Randolph Scott Dorr vs. Uber Technologies (Arbitrator Award) (California) C) Robert Gollnick vs Uber Technologies Inc. (Superior court of California) D) News article stating that Sao Paulo ruling by lower court considering Uber as an employer has been reversed by the Higher Court Copy of the Judgments and news article has been handed over during the course of the Hearing 3.5. Person responsible for payment We find that the ld. AR vide Ground Nos. 6 to 13 had argued on the preliminary jurisdiction point that UISPL is not the "person responsible for payment" as per section 194C read with section 204 of the Act. For the sake of convenience, the relevant extract of section 194C of the Act is reproduced hereinbelow:- Section 194C "(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person... " 3.5.1. Hence it could be evident tha....
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....eported in 281 ITR 305 (SC). 3.5.4. We find that the provisions of section 194C of the Act requires the person responsible for paying to a contractor, for "carrying out any work in pursuance of a contract", to deduct tax at source at 1% from the sum payable to individual contractor. We find that the UISPL is not "the person responsible for paying" for the transactions that are facilitated between a User and a Driver-Partner through the Uber App. Since the amount paid in cash is directly paid by user to the Driver-Partner and UISPL is not involved in the transaction at all, UISPL cannot be treated as a person responsible for paying when the amount is directly paid by the user to a Driver-Partner. When UISPL cannot be held as a person responsible for payment when cash is directly paid by the User to the Driver-Partner, then how the very same UISPL could be treated as a person responsible for payment when the User decides to make payments through digital means. We find that the role of UISPL is limited to act as a payment and collection service provider of Uber B.V. whereby the ride fare is collected byUISPL in its bank account on behalf of Uber B.V. and thereafter payments a....
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....ated supra. 3.5.7. We find that the reliance placed by the ld AR on the following decisions are very well founded and directly supports the view that a person being a mere remitter of money cannot be held to be a person responsible for making payment:- a) Decision of Hon'ble Punjab and Haryana High Court in the case of Baldeep Singh vs. UOI reported in 199 ITR 628 (P&H). b) Decision of Hon'ble Delhi High Court in the case of CIT vs. Cargo Linkers reported in 179 Taxman 151 (Del.). c) Decision of Hon'ble Delhi High Court in the case of CIT vs. Hardarshan Singh reported in 216 Taxman 283 (Del.). d) Decision of Co-ordinate Bench of this Tribunal in the case of DCIT vs. Movies Stunt Artist reported in 6 SOT 204 (Mum.). e) Decision of Co-ordinate Bench of Indore Tribunal in the case of Chief medical Officer vs. ITO reported in 40 taxmann.com 156 3.5.8. We also find that the above views and propositions are also supported bv the circulars issued by the Central Board of Direct Taxes clarifying that an intermediary is not required to deduct tax at source. Few circulars issued in this regard are as follows:- (a) Circula....
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.... is restricted to payment made by DDO on behalf of the Government and the same cannot be extended to other payments made by outsiders. 3.5.12. Hence UISPL (i.e. the assessee company) being a mere remitter of collections made on behalf of the Driver-Partner at the direction of Uber B.V. cannot be held as the 'Person responsible for paying' within the meaning of section 194C read with section 204 of the Act. 3.6. Applicability of provisions of section 194C of the Act We find that the Driver-Partners enter into only one agreement i.e. with UberB.V. for availing the 'lead generation service'. The relevant clauses of the said agreement which are enclosed in pages 55 to 66 of the paper book filed before us are summarised as under: a) Clause 1.14 and 1.17 - Transportation service is provided by the Driver-Partner to the User and Uber B.V. merely provides lead generation services to the Driver-Partner. 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....
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.... B.V. and the Users which are enclosed in pages 69 to 75 of the paper book are summarized as under:- a) Clause 2 - Uber B.V. provides a technology platform to the User and the User agrees that the transportation service is not provided by Uber B.V.. Uber B.V. does not control third party transportation services availed by the User. b) Clause 3 - User must create an account for using the technology platform provided by Uber B.V. c) Clause 4 - After User receives transportation services from the Driver-Partner, Uber B.V. may, if so required by the User, facilitate the payment to be made by the User to the Driver-Partner. It is open to the User by exercise of an option at will, not to avail of this facility provided by Uber B.V. and to pay the Driver-Partner directly for the transportation service availed by remitting cash payment to the Driver-Partner. d) Clause 5- Uber B.V. has no responsibility or 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 ....
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.... service tax if he is involved in the transaction in any manner. These documents are enclosed in page 90 of the paper book filed before us.Accordingly, later on, vide letter dated 27.4.2015, Uber B.V. intimated the service tax authorities that Uber B.V. has discharged its liability of service tax as an aggregator. Evidences in this regard are enclosed in Pages 82 and 88 of the Paper book filed before us. 3.7.1. From the above, again it becomes very clear that one wing of the legislature has recognized Uber B.V. as an aggregator and not a service provider which again brings us to the same point that the transportation service is provided by Driver-Partner to Users directly for which User is making the payment and it is the User who is the person responsible for making payment. And, Uber B.V. and UISPL are not a party to the contract of transportation entered into between a User and a Driver-Partner. 3.8. Principle of Consistency in the assessment made bv the Department We find that the ld. AO while passing the assessment order under section 143(3) of the Act for the Asst Year 2016-17 dated 8.12.2018 had duly accepted the fact that UISPL is an entity engage....
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....(i) ................ (ii) ................ (iii) ................ (iv) ................ (v) in the case of a person not resident in India, the person himself or any person authorized by such person or the agent of such person in India including any person treated as an agent under section 163. 3.10.1. We find that the insertion of clause (v) in section 204 of the Act is effective only from 1.4.2020 i.e. applicable from Asst Year 2020-21 onwards and not earlier. We find that this amendment makes it very clear that any person who is authorized to make payment on behalf of a non-resident will be covered within the purview of section 204 of the Act and will be required to deduct tax at source. It is not the case of the revenue that the assessee company need to be taxed as an agent of non-resident in terms of section 163 of the Act. It is the case of the revenue that UISPL is making payment to Driver-Partners on behalf of Uber B.V. ( non-resident entity). This amendment has been specifically brought into the statute only with effect from 1.4.2020 by the Finance Act 2020 and cannot be made applicable for earlier years. This amendment cannot be....