TMI Blog2021 (3) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... and disbursing the same toDriver-Partner after deducting its Service Fee, if so required on an each trip basis by the User. This enables Users to electronically effect payment to the Driver-Partner for the transportation services rendered by the latter to the former. It is pertinent to note here that the Users can equally choose to pay by cash, which is paid directly to the Driver-Partners upon completion of the trip. The legislature in its wisdom had duly provided for the relevant provisions in the Act by specifically mentioning mere remitter of money to deduct tax at source as is provided in section 204(iv) of the Act, wherein, Drawing and Disbursing Officer (DDO) i.e. the remitter of money for Government, wherever required, need to deduct tax at source being person responsible for paying. The said provision is restricted to payment made by DDO on behalf of the Government and the same cannot be extended to other payments made by outsiders. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 engaged in the business of providing marketing and support services to Uber B.V. and not in the business of providing transportation service. Accordingly, no disallowance u/s 40(a)(ia) of the Act was made thereon. Even for earlier assessment years, i.e., AY 2014-15 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. 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. Conclusion : - UISPL cannot be treated as a person responsible for paying for the purpose of section 194C read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and explanation of the Appellant and that too on assumptions, presumptions, surmises and conjectures and hence the impugned order is unsustainable and liable to be quashed; 3. Erred in determining a sum of ₹ 24,92,16,591 (including interest under section 201(1 A) of the Act amounting to ₹ 5,26,54,612) as demand payable by the Appellant; Principles of natural justice 4. Erred in not appreciating that the Learned Assessing Officer ('Learned AO') has not provided sufficient opportunity of being heard before passing the order under section 201/201(1A) of the Act; Enhancement of assessment in violation of law 5. Erred in not giving an opportunity (reasonable or otherwise) of being heard in terms of section 251(2) of the Act, before giving directions to the Learned AO to enhance the assessment after taking into consideration provisions of Section 206AA of the Act, which is completely bad in law and against the principles of natural justice; Preliminary jurisdiction 6. Erred in not disposing off the preliminary jurisdiction issue as to who is the 'person responsible to pay' which is against the ratio laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to deduct tax as per the provisions of section 194C of the Act from ride fare and incentive remittances to Driver-Partners; 15. Erred in concluding that Driver-Partners have carried out 'work' for the Appellant; 16. Erred in not appreciating that there is no contract (implied or otherwise) of the Appellant with Driver-Partners / Users and therefore, question of Section 194C of the Act does not arise at all; 17. Erred in misinterpreting the Central Board of Direct Taxes (CBDT) Circular No. 715 dated 18 August 1995 and thereby concluding that the principles outlined therein in the context of payments made to travel agents does not apply to the fact pattern of Appellant; 18. Erred in relying on Circular No 558 dated 28 March 1990 issued by the CBDT which in fact does not apply in Appellant's fact pattern 19. Erred in not considering the exemption thresholds provided under the Act for applicability of section 194C of the Act 20. Erred in including the collections in cash by the Driver-Partners while computing liability under section 194C of the Act, which is paid directly by the Users to the Driver-Partner 21. Erred in not appreciating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 utilize the transportation services provided by the latter; c) Offering an option to collect fares on behalf of Driver-Partners through a convenient digital mode; d) Disbursing the collections made on behalf of Driver-Partners from Users to the ) Driver-Partners. (2) The Uber App facilitates a contract between the Driver-Partners and Users for the transportation services offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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 agent. Uber B.V. merely provides lead generation services to the Driver-Partners on a principal to principal basis, for which a service fee is charged by it to the Driver-Partners. (7) As mentioned above, as a further service, Uber B.V. (through Uber India Systems Private Limited ( UISPL ), acting as its limited payment and collection service provider), also acts as the Driver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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's bank account (resident) for collection and disbursement for and on behalf of Uber B.V. (non-resident) and also considered that any disbursement by UISPL to Uber B.V. (i.e. net of amount payable to service providers i.e. Driver-Partners in India) is a permissible current account transaction. A copy of the said RBI clarification is enclosed at Page 50 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice 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. and the Users : Similarly, it is also admitted and undisputed that the Users wishing to avail of Uber B.V. s services enter into agreements/ contract with Uber B.V. Relevant clauses of the agreement entered into between Uber B.V. and the Users are captured herein below:- a) Clause 2- Uber B.V. provides a technology pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Uber B.V. as an aggregator under service tax law is not relevant to decide the liability under section 194C of the Act. (j) UISPL is the face of Uber B.V. in India as everything outside the App is done by UISPL. (k) UISPL is the person responsible for making payment and deducting tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The bank account from which the payment is being made belongs to UISPL and is shown as its bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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). N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-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. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 binding on the rider and the service provider, the driver and car is also allotted by MSRTC, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt to the passenger implies that the service of transportation has been provided by Uber B.V. to the Users. c) It is submitted that the invoice for the ride is issued by Uber B.V. on behalf of the Driver-Partner.The same is specifically mentioned on the invoice. In fact an added service is being provided by Uber B.V. to the Driver-Partner to enable them to issue an e-invoice to the Users and avoid any hassle of issuing manual receipts. Sample copy of invoices are provided at Page No 77 of Paperbook. Uber sets the Quality standard for Driver and Vehicles: Uber has set the quality standards for the Drivers and the vehicles and that's not the job of a technology company. If it was not the transportation provider, 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. a) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the driver trips. The product that Uber launches in the market is not the different software applications but the different types of cars and rides a) It is submitted that Uber BV is a technology company and has created the digital marketplace for the transportation industry. Further, it continuously updates the App through which the digital marketplace is accessed by the Rider and the Driver. It is submitted that the mere fact that the service fee is payable on the basis of fare would not convert Uber B.V. to a transportation service provider from a lead generation provider. b) It is submitted that different types of cars and rides are launched in the App based on the consumer demands (like UberGo, Premier, UberXL, Hire Go, Hire XL, UberMoto, Uber Auto) thereby providing various alternate means of transportation, and meeting the demands of the consumers, This helps Uber increase the overall use of its App, which in turn 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal laws in the overseas jurisdictions. a) It is submitted that there are other favourable orders of other authorities which have clearly held that Uber B. V. is just an intermediary and does not control the Driver-Partner. The Judgements are as follows: A) Adonis Biafore vs. Uber Technologies (Commercial Arbitration Tribunal) (California) B) Randolph Scott Dorr vs. Uber Technologies (Arbitrator Award) (California) C) Robert Gollnick vs Uber Technologies Inc. (Superior court of California) D) News article stating that Sao Paulo ruling by lower court considering Uber as an employer has been reversed by the Higher Court Copy of the Judgments and news article has been handed over during the course of the Hearing 3.5. Person responsible for payment We find that the ld. AR vide Ground Nos. 6 to 13 had argued on the preliminary jurisdiction point that UISPL is not the person responsible for payment as per section 194C read with section 204 of the Act. For the sake of convenience, the relevant extract of section 194C of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amous legal maxim would come to the rescue in this regard LEX NON COGUT AD IMPOSSIBLIA meaning thereby that a law cannot compel a person to perform an act which he could not possibly perform. This legal maxim has been further approved in the decision of Hon ble Supreme Court in the case of Krishnaswamy Bros reported in 281 ITR 305 (SC). 3.5.4. We find that the provisions of section 194C of the Act requires the person responsible for paying to a contractor, for carrying out any work in pursuance of a contract , to deduct tax at source at 1% from the sum payable to individual contractor. We find that the UISPL is not the person responsible for paying for the transactions that are facilitated between a User and a Driver-Partner through the Uber App. Since the amount paid in cash is directly paid by user to the Driver-Partner and UISPL is not involved in the transaction at all, UISPL cannot be treated as a person responsible for paying when the amount is directly paid by the user to a Driver-Partner. When UISPL cannot be held as a person responsible for payment when cash is directly paid by the User to the Driver-Partner, then how the very same UISPL could be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of section 194C read with section 204 of the Act.Hence it could be safely concluded that UISPL cannot be treated as a person responsible for paying within the meaning of section 194C read with section 204 of the Act as it has not entered into any agreement with the Driver-Partners as stated supra. 3.5.7. We find that the reliance placed by the ld AR on the following decisions are very well founded and directly supports the view that a person being a mere remitter of money cannot be held to be a person responsible for making payment:- a) Decision of Hon ble Punjab and Haryana High Court in the case of Baldeep Singh vs. UOI reported in 199 ITR 628 (P H). b) Decision of Hon ble Delhi High Court in the case of CIT vs. Cargo Linkers reported in 179 Taxman 151 (Del.). c) Decision of Hon ble Delhi High Court in the case of CIT vs. Hardarshan Singh reported in 216 Taxman 283 (Del.). d) Decision of Co-ordinate Bench of this Tribunal in the case of DCIT vs. Movies Stunt Artist reported in 6 SOT 204 (Mum.). e) Decision of Co-ordinate Bench of Indore Tribunal in the case of Chief medical Officer vs. ITO reported in 40 taxmann.com 156 3.5.8. We also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in section 204(iv) of the Act, wherein, Drawing and Disbursing Officer (DDO) i.e. the remitter of money for Government, wherever required, need to deduct tax at source being person responsible for paying. The said provision is restricted to payment made by DDO on behalf of the Government and the same cannot be extended to other payments made by outsiders. 3.5.12. Hence UISPL (i.e. the assessee company) being a mere remitter of collections made on behalf of the Driver-Partner at the direction of Uber B.V. cannot be held as the Person responsible for paying within the meaning of section 194C read with section 204 of the Act. 3.6. Applicability of provisions of section 194C of the Act We find that the Driver-Partners enter into only one agreement i.e. with UberB.V. for availing the lead generation service . The relevant clauses of the said agreement which are enclosed in pages 55 to 66 of the paper book filed before us are summarised as under: a) Clause 1.14 and 1.17 - Transportation service is provided by the Driver-Partner to the User and Uber B.V. merely provides lead generation services to the Driver-Partner. b) Clause 2.2.- The Driver-Partner provides tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion services enter into agreements/ contract with Uber B.V.. The relevant clauses of the said agreement entered into between Uber B.V. and the Users which are enclosed in pages 69 to 75 of the paper book are summarized as under:- a) Clause 2 - Uber B.V. provides a technology platform to the User and the User agrees that the transportation service is not provided by Uber B.V.. Uber B.V. does not control third party transportation services availed by the User. b) Clause 3 - User must create an account for using the technology platform provided by Uber B.V. c) Clause 4 - After User receives transportation services from the Driver-Partner, Uber B.V. may, if so required by the User, facilitate the payment to be made by the User to the Driver-Partner. It is open to the User by exercise of an option at will, not to avail of this facility provided by Uber B.V. and to pay the Driver-Partner directly for the transportation service availed by remitting cash payment to the Driver-Partner. d) Clause 5- Uber B.V. has no responsibility or liability related to transportation service provided by the Driver-Partner to the User. 3.6.2. From the aforesaid clauses in the relevant agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 1994 was amended to provide that the aggregator liable to pay service tax if he is involved in the transaction in any manner. These documents are enclosed in page 90 of the paper book filed before us.Accordingly, later on, vide letter dated 27.4.2015, Uber B.V. intimated the service tax authorities that Uber B.V. has discharged its liability of service tax as an aggregator. Evidences in this regard are enclosed in Pages 82 and 88 of the Paper book filed before us. 3.7.1. From the above, again it becomes very clear that one wing of the legislature has recognized Uber B.V. as an aggregator and not a service provider which again brings us to the same point that the transportation service is provided by Driver-Partner to Users directly for which User is making the payment and it is the User who is the person responsible for making payment. And, Uber B.V. and UISPL are not a party to the contract of transportation entered into between a User and a Driver-Partner. 3.8. Principle of Consistency in the assessment made bv 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns (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 held to be clarificatory in nature thereby holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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