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2023 (1) TMI 1243 - AT - Income TaxTDS u/s 194C - remittances made by the assessee to the driver partners under the Uber App - non deduction of tds - person responsible for paying - addition made u/s 201(1) and 201(1A) - HELD THAT - ITAT Chandigarh in the case of ANI Technologies Pvt. Ltd. 2023 (3) TMI 515 - ITAT CHANDIGARH wherein on similar fact and identical issue (OLA App) it is held that Sec. 194C is not applicable on disbursement of fare by the assessee to the drivers. It was also held that there was no contract/sub-contract between the assessee and the driver under which the drivers provides any transportation services either to assessee or to a rider on behalf of assessee for which the driver is paid by assessee. The contract for transportation services is between the driver and the rider and the assessee only facilitates the entire process in the capacity of an aggregator. Also in the case of the assessee itself on similar issue and identical fact 2021 (3) TMI 326 - ITAT MUMBAI wherein the issue was decided in favour of the assessee as held 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). If the version of the revenue is to be accepted by holding that UISPL would be person responsible for paying as it was making payment to Driver-Partners on behalf of Uber B.V. (Non-resident) 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. 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. 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 default and no order could be passed u/s 201 / 201(1A) of the Act in its hands for the years under consideration. Decided in favour of assessee.
Issues Involved:
1. Treating the Appellant as an 'assessee in default' under section 201(1) of the Act. 2. Arbitrary rejection of submissions and explanations by the Appellant. 3. Determination of a sum as demand payable including interest under section 201(1A). 4. Preliminary jurisdiction issues regarding the 'person responsible to pay.' 5. Misinterpretation of Section 204. 6. Appellant's role as an aggregator. 7. Legal agreements and their interpretation. 8. Governing laws of The Netherlands and their recognition. 9. Consistency of business model recognition across different laws. 10. Re-characterization of the Appellant's role in India. 11. Applicability of section 194C. 12. Nature of work carried out by Driver-Partners. 13. Existence of a contract with Driver-Partners/Users. 14. Misinterpretation of CBDT Circulars. 15. Applicability of Circular No 558. 16. Exemption thresholds under section 194C. 17. Inclusion of cash collections by Driver-Partners. 18. Independent business status of Driver-Partners. 19. Vicarious liability and tax discharge by Driver-Partners. 20. Withholding tax rate under section 206AA. 21. Reference to international judgments. Detailed Analysis: 1. Treating the Appellant as an 'assessee in default' under section 201(1): The AO treated the Appellant as an 'assessee in default' for not deducting tax at source under section 194C on payments to Driver-Partners. The AO concluded that the Appellant was liable to deduct tax at 1% on these payments and at 20% where PAN was not available, based on the provisions of section 206AA. 2. Arbitrary rejection of submissions and explanations: The Appellant argued that the AO arbitrarily rejected their submissions and explanations without proper consideration, leading to an unsustainable order. The Appellant maintained that they were merely a technology platform facilitating connections between drivers and users, not providing transportation services directly. 3. Determination of a sum as demand payable: The AO determined a demand of Rs.113,54,56,072, including interest under section 201(1A). This was contested by the Appellant, who argued that the demand was based on incorrect assumptions about their role and obligations under the tax laws. 4. Preliminary jurisdiction issues regarding the 'person responsible to pay': The Appellant contended that the AO did not address the preliminary jurisdiction issue of who is the 'person responsible to pay,' which is crucial for determining liability under section 194C. The Appellant argued that they were not the person responsible for paying under the Act. 5. Misinterpretation of Section 204: The Appellant argued that the AO misinterpreted Section 204, which defines the 'person responsible for paying.' The Appellant claimed that they were not responsible for paying the Driver-Partners as they were merely remitting payments on behalf of Uber B.V. 6. Appellant's role as an aggregator: The AO held that the Appellant was an aggregator soliciting Driver-Partners and Users on its platform. The Appellant argued that they were a support entity for Uber B.V., responsible for collecting and remitting payments due to regulatory requirements. 7. Legal agreements and their interpretation: The AO did not appreciate the legal agreements between the Appellant, Uber B.V., Driver-Partners, and Users. The Appellant argued that these agreements clearly outlined their role as a facilitator and not as a service provider. 8. Governing laws of The Netherlands and their recognition: The Appellant argued that the contracts with Driver-Partners were governed by the laws of The Netherlands and should be interpreted accordingly. The AO's re-characterization of these relationships was contested as it ignored the applicable foreign laws. 9. Consistency of business model recognition across different laws: The AO disregarded the recognition of the Appellant's business model under service tax/GST laws for income tax purposes. The Appellant argued that consistency should be maintained across all Central Acts. 10. Re-characterization of the Appellant's role in India: The AO concluded that the Appellant's support activities made Uber B.V. a smoke entity and the Appellant the operating entity in India. The Appellant contested this re-characterization, arguing that all contractual arrangements were with Uber B.V. 11. Applicability of section 194C: The AO held that the Appellant was liable to deduct tax under section 194C from remittances to Driver-Partners. The Appellant argued that there was no contract for carrying out any work between them and the Driver-Partners, making section 194C inapplicable. 12. Nature of work carried out by Driver-Partners: The AO concluded that Driver-Partners carried out 'work' for the Appellant. The Appellant argued that Driver-Partners were independent contractors providing transportation services to Users, not to the Appellant. 13. Existence of a contract with Driver-Partners/Users: The Appellant argued that there was no contract between them and the Driver-Partners/Users, and therefore, the question of applying section 194C did not arise. 14. Misinterpretation of CBDT Circulars: The AO misinterpreted CBDT Circular No. 715 and concluded that its principles applied to the Appellant. The Appellant argued that the circular was not applicable to their fact pattern. 15. Applicability of Circular No 558: The AO relied on Circular No 558, which the Appellant argued did not apply to their case. The Appellant maintained that their situation was distinguishable from the context of the circular. 16. Exemption thresholds under section 194C: The Appellant argued that the AO did not consider the exemption thresholds provided under section 194C, which should apply to their case. 17. Inclusion of cash collections by Driver-Partners: The AO included cash collections by Driver-Partners while computing liability under section 194C. The Appellant argued that these collections were paid directly by Users to Driver-Partners and should not be included. 18. Independent business status of Driver-Partners: The Appellant argued that Driver-Partners were independent small-scale business entrepreneurs whose income was not subject to tax under section 44AD. The AO's conclusion ignored this status. 19. Vicarious liability and tax discharge by Driver-Partners: The Appellant argued that they could not be treated as an assessee in default without establishing that the Driver-Partners had any tax liability or had already paid applicable taxes on their income. 20. Withholding tax rate under section 206AA: The AO confirmed the applicability of withholding tax at 20% under section 206AA, even after the Appellant provided bank account details for Driver-Partners without PAN. The Appellant argued that they should have been given an opportunity to submit additional PANs. 21. Reference to international judgments: The AO referred to various international judgments to suggest that the Appellant was providing transportation services. The Appellant argued that these judgments were distinguishable and ignored several favorable judgments. Conclusion: The ITAT Mumbai, after considering the facts, arguments, and relevant judicial precedents, concluded that the Appellant was not liable to deduct tax under section 194C. The Appellant was not the 'person responsible for paying' under section 204, and the payments to Driver-Partners were not for carrying out any work for the Appellant. The ITAT directed the AO to delete the impugned addition made under sections 201(1) and 201(1A). The appeal of the Appellant was allowed.
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