TaxTMI 
TaxTMI 
2023 (1) TMI 1243
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....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 between the Appellant and Uber B.V. Uber B.V. and the Driver-Partners and Uber B.V. and Users outlining th....
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....t 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 are under the local laws of respective countries and are distinguishable and also erred in ignoring several favourable judgements. 2. Fact in brief is that assessee is a company engaged in the business of provi....
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....m /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 draft or by any other mode, whichever is earlier deduct an amount equal to 1% where the payment is being made or credit is being given to an individual or Hindu Undivided Family, 2% where the payment is made or credit....
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....ffice. 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 (Ola) has been adjudicated in favour of the assesse. On the other hand, the ld. D.R supported the order of lower authorities and referred decision of ITAT Banglore in the case of Shri Balaji Prasanna Travels Vs. ACIT, Ci....
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.... 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 Driver-Partners about Users who wish to avail of transportation services; b) Putting Users and Driver-Partners in touch so that they could connect, communicate, exchange data/information with each other in real time which would eventually enable the former to u....
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....-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 request for transportation services received from a User via the Uber App or cancel a trip mid-way. Uber B.V. is neither the employer of the Driver-Partners, nor owner of the vehicles through which the transportation services are provided by the Driver-Partners. Further, Uber B.V. does not engage them as a contractor or an....
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.... (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 filed before us. Accordingly, an application dated 14.11.2014 was filed by Deutsche bank on behalf of Uber B.V. to permit UISPL to open a bank account in India to undertake the collection and disbursement function on behalf of Uber B.V. (2) The RBI, after evaluating the business model and the transaction flow outlined, provided its clarification for the use of UISPL'....
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.... 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 responsibility to ensure that insurance is taken for any liability that may arise on account of transportation services and/ or as required by law n) 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 (F) Relevant clauses of the agreement entered into between Uber B.V. a....
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....arned 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. issuing invoices, resolving driver complaints, fixing of price, registering or de-registering driver, conditions of vehicle, etc. (g) Relied on three foreign judgments namely: a) Association professional Elite vs. Uber System Spain (ECJ) b) Barbara Ann vs. Uber Technologies Inc. (Superior Court of California) c) Uber BV vs. Y Aslam (Employment Appeal Tribunal) (London) which in his view held that Uber is a part of the transportation service industry. (h) The advertisement by Uber and the interview of the CEO of UISPL proves that Uber is transportation service provider. (i) Characterisation of U....
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....n 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 applied if the payment is being made by a person other than an individual. And, the provisions of section 194C(4) will become otiose. c) Secondly, if the argument of the Learned DR is accepted then the provisions of section 40(a)(ia) will become otiose as the disallowance under section 40(a)(ia) will not be applicable to the person claiming the expenditure merely because the person making the payment is a different person. Such an interpretation will render the provisions of section 40(a)(ia) superfluous and infructuous. d) Therefore, it is submitted that the interpretation put forward by the Learned DR is incorrect and unsustainable within the scheme of the Act. 2. The bank account from which the payment is being made belongs to UISPL and ....
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....se, 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 receiver. It is submitted that the distinction drawn by the Learned DR is incorrect. Service tax law specifically brought the amendment in 2015 to provide that whenever the aggregator is involved in any manner the service tax liability will not be paid by service provider but by the aggregator involved in the transaction which clearly establishes that Uber B.V. is not a transportation service provider but only an intermediary between the service provider (i.e. the Driver-Partner) and service receiver (i.e. the User). Notification dated 1.3.2015 amending Notification No.30/2012 Contentions of the DR relating to other issues: 7 According to the Learned DR, the substance of the transactions is to be seen as opposed to the form of the transactions as demonstrated in the agreements by the parties. a) With r....
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....omplete 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 User. This shows that Uber B.V. exercises control over the Driver-Partner. a) Even in case of booking a black and yellow cab, the User is not aware about the Driver and similarly, the Driver is also not aware about the User till both of them connect with each other. b) Further, in a case of Uber App, the details of the Driver-Partner and the User are shared with each other only once the Driver-Partner accepts the request. In cases where the Driver-Partner rejects a specific request no details are shared. c) Thus, mere fact that the User and the Driver-Partners does not know each other is not relevant to determine whether Uber B.V. has a control over the Driver-Partner or not. 10 Uber is providing transportation as Uber selects the Driver and the Vehicle and the Rider has no control over it: Uber takes the request for the type of....
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.... 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 binding on the rider and the service provider, the driver and car is also allotted by MSRTC, a fee is charged by MSRTC for facilitating this service, however, that does not in anyway make MSRTC a transportation service provider who is entering into a contract with a rider. It continues to act as a facilitator as against a transportation service provider. c) Secondly, even in the case of a public transport taxis, the fare is fixed by the State Government that would not mean that the transportation service is provided by the State Government. Therefore, the argument of the Learned DR is incorrect and does not make provisions of section 194C applicable to UISPL. Refer Page No. 131 of Paperbook  ....
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....e 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 dressed, Driver-Partner shall drive the car safely, Driver-Partner should conduct himself properly, etc., are the same as the quality standards set under the Motor Vehicles Rules, 1987. Therefore, the clauses in the agreements are a reiteration of rules to which a Driver-Partner is legally bound to follow. Therefore, the argument of the Learned DR that quality standards are set by Uber is factually incorrect and contrary to the facts on record. 15 Switching on the Uber App leads to entering into contingent contract between Uber and Driver-Partner Once the Driver-Partner switches on the Uber App, he automatically enters into a contingent contract with the Uber for rendering the transportation service. a) Section 31 of the Indian Contract Act, 1872 defines the term 'Contingent Contract' as ' If two or more parties enter into a conflict to do or not do something, if an event which is collateral to the contract does or does not happen, then ....
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....correct 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 Uber does which is done in the process called "onboarding." The process involves the KYC and police verifications. These are not tasks that the technology company performs. a) Neither the assessee nor Uber B.V. recruits any Driver-Partner. The Driver-Partners can themselves register on the Uber App for the purpose of availing lead generation services from Uber B.V. The activity of on-boarding involves undertaking the KYC compliance and police verification to ensure that the Driver-Partners are trustworthy and there may not be any lapse in the system which can hamper the business operations of Uber B.V. It is also done from the User safety and security perspective as well, which is an utmost necessity for Uber to increase its App usage among the Riders. 18 Uber pays incentives to Drivers to ensure better service is provided by them: The incentives are paid because that would attract drivers for performing trips and initiating others into the same as well and to ensure that the drivers a....
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....y work) in pursuance of a contract between the contractor and a specified person... " 3.5.1. Hence it could be evident that on a bare reading of the aforesaid section, the following three conditions are required to be fulfilled in entirety for the department to conclude that UISPL is required to withhold taxes under Section 194C of the Act on disbursements to Driver-Partners:- (1) UISPL should be the 'person responsible for paying' as per provisions of Section 204 of the Act; (2) The disbursements to be made to the Driver-Partners should be in pursuance for carrying out any work by the Driver-Partners for UISPL; and (3) There is a contract entered into between the Driver-Partners and UISPL for the said work. 3.5.2. We find from the primary facts narrated hereinabove that UISPL does not satisfy any of the 3 conditions prescribed undersection 194C of the Act in view of the following facts:- a) UISPL makes the payment on behalf of Uber B.V. therefore UISPL is nota person responsible for paying. b) The amount paid by UISPL is not for the purpose of carrying out any work for UISPL. c) There is no contract between UISPL and a Driver-Partner. 3.5.3. Hence we fi....
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....count on behalf of Uber B.V. and thereafter payments are made, on the instruction of Uber B.V., to Driver-Partners. 3.5.5. We find that the UISPL was brought in to the picture due to the restriction placed by the RBI vide Circular dated 22.8.2014 as detailed supra which prohibited Uber B.V. from collecting the ride fare on behalf of Driver-Partners through its bank account in the Netherlands, and was mandated to collect and disburse the rider fare to Driver-Partners through an Indian Bank Account. Pursuant to the above circular, an agreement dated 1.10.2014 was entered into between Uber B.V. and UISPL wherein UISPL was appointed as its payment and collection service provider. An application was also made by Deutsche Bank proposing to open a bank account in the name of UISPL (but on behalf of Uber B.V.) wherein ride fare and other charges will be collected by UISPL and thereafter the disbursements will be made by UISPL to Driver-Partners on behalf of Uber B.V.. We find that the ld AR also drew our attention to the relevant page nos. 817 & 818 of the paper book filed before us to prove that the bank account pursuant to the approval of the RBI is operated by Uber B.V. and none of th....
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....8.6.1987 wherein the Board had clarified that workers employed to manufacture bidi through a medium of agency such as Munshis who manufacture bidis and after bringing bidi to factory for quality check and get the payments from Munshis, are not required to deduct tax at source while making payment to such workers. (b) Similar clarification was issued vide Circular No. 715 dated 8 August 1995 (Question No 7), wherein it was clarified that a travel agent issuing tickets on behalf of the airlines is not required to deduct tax at source as he acts on behalf of the Airlines. (c ) Further, the Board vide Circular No.5/2002 dated 30 July 2002 (Question No 6 & 7)once again clarified that when an individual makes payment to a travel agent for the purchase of a ticket is not subject to tax deduction at source as the privity contract isbetween the Individual passenger and the airline. 3.5.9. It is well settled that the Circulars issued by the CBDT are binding on the tax authorities. Hence taking a view contrary to what is already stated in the CBDT Circulars is not appreciated and accordingly even on this count, the assessee company i.e. UISPL cannot be treated as a person responsible ....
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..... 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 location so as to receive lead generation services from Uber B.V.. h) 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. i) 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. j) Clause 4.4. - Uber B.V. will charge a service fee to the Driver-Partner....
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....r, 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 to Uber B.V. Therefore, it is clear that UISPL is not a part of the contract and no payment obligation is imposed either under the agreement with the Driver-Partner or under the agreement with the User. (emphasis supplied by us) 3.6.3. Hence it could be safely concluded that the provisions of section 194C of the Act are not applicable in the instant case of the assessee as - a) UISPL is not the person responsible for making payment b) UISPL has not entered into any contract with the Driver-Partners c) no 'work'is carried out by the Driver-Partners for U....
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....15 and AY 2015-16, when the payment was collected and disbursed directly by Uber B.V. from an account outside India, Department has not invoked provisions of section 194C of the Act for the payments made to Driver-Partners in those years. 3.8.2. Therefore, the Department has been consistently taking a view that the provision of section 194C of the Act are not applicable in the hands of UISPL and has assessed UISPL as a marketing and support service provider to Uber B.V. without making any disallowance under section 40(a)(ia). Hence, in the absence of any change in the facts and circumstances of the case, the department is not permitted to take a different view in the matter for the years under consideration. 3.9. We find lot of force in certain examples quoted by the assessee as under who operate on the similar model as employed by Uber B.V. :- (a) Similar comparison can be made with a nursing bureau (wherein nursing bureau would also get the background checks done before letting the nurse register on their portal), wherein the person interested in availing the service of a nurse and the nurse willing to render the service are put in touch by the nursing bureau. However, nurs....
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.... and that the said provision was always there in the statute, then there would be absolutely no necessity for the parliament to even introduce this amendment by way of insertion of clause (v) in section 204 of the Act in the Finance Act 2020 with effect from 1.4.2020. In other words, if the contention of the revenue is to be accepted for the years under consideration before us, then the entire amendment inserted by Finance Act 2020 in section 204 of the Act would become redundant and would be otiose. Hence even the subsequent amendment brought in section 204 of the Act with effect from 1.4.2020 by way of insertion of clause (v) thereon, would strengthen the stand and various contentions taken by the assessee for the years under consideration. 3.11. From the aforesaid elaborate observations in the facts and circumstances of the instant case, it could be safely concluded that UISPL cannot be treated as a 'person responsible for paying' for the purpose of section 194C read with section 204 of the Act, for more than one reason and also the provisions of section 194C of the Act cannot be made applicable thereon. Hence the assessee company i.e. UISPL cannot be treated as an assessee in....