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2023 (3) TMI 515 - AT - Income TaxTDS u/s 194C - non-deduction of tax on Ride Charges by OLA - payments to the TSPs Transport Service Providers for carrying out work relating to the carriage of passengers - assessee-in-default under section 201 (1 )/201 (1 A) for non deduction of TDS - assessee is a leading technology service provider in the cab hailing market in India to establish mobility for the Indian masses and it provides internet and mobile technology platform for cab hailing by the passengers hereinafter referred to as Rider(s) as operates under the brand name OLA - 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 preference - who is responsible for providing the transportation services to the Rider i.e., the Driver, who has the necessary approvals and the vehicle or the assessee, who owns the app? - HELD THAT - As 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. 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. Whether 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 ( 2021 (3) TMI 326 - ITAT MUMBAI 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 assessee did not deduct tax under section 194C while disbursing Fare to the Driver. There is no estoppel in law and therefore, no obligation can be imposed on the assessee basis a conservative position having been taken by it in the past, when none may have existed. We also agree with the submissions advanced by the Ld. AR that control in the present case is only a measure of compliance by the assessee with the guidelines issued by the Central Government/ State Governments in accordance with the Motor Vehicles Act, 1988 and applicable to an aggregator as defined under section 2(1A) therein, which the assessee before us is. We find that from 01.09.2019, the concept of aggregator has been recognised even under the Motor Vehicles Act, 1988. According to section 93(1)(iii) 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. Capping of maximum fare by Regional Transport Authorities, puts it beyond all doubts as to who regulates the prices for taxis. Therefore, there is no merit in the argument of the AO/ CIT(A)/ Ld. Departmental Representative that the assessee controls the pricing. 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 - 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. Distinction between suppliers of accommodation, airlines or food items and the assessee to state that the said suppliers carry out businesses that are independent from the platform on which they are listed - As each case must turn on its own facts and generalities cannot be accepted as valid legal propositions. We have already expressed our view that according to the contracts in place and the conduct of assessee, the assessee is an aggregator/ intermediary. The transportation services in question are provided by the Driver to the Rider and, therefore, the Driver s Fare is payable by Rider either directly or through the assessee. There cannot be any liability on the assessee under section 194C since it is a mere intermediary. The Hon ble Jurisdictional High Court in CIT v. Truck Operators Union 2011 (3) TMI 1017 - PUNJAB AND HARYANA HIGH COURT and in CIT v. Cargo Linkers 2008 (3) TMI 619 - DELHI HIGH COURT have also expressed the opinion that section 194C cannot be applied on intermediaries. DR contended that if the Rider cancels a trip request after the Driver has accepted it and has reached Rider s location, the Driver is not guaranteed a Cancellation Fee - Even if it is assumed that the Driver does not get any Cancellation Fee, we do not find any merit in this contention, since no transportation services are provided in such a case. Even if it is assumed that a related party of the assessee has provided such options to the Driver, it still, in our considered view, would not saddle the assessee with a liability to deduct tax at source under section 194C. Thus there is no contract/ sub-contract between the assessee and the Driver under which the Driver provides any transportation services either to assessee or to any 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 . Accordingly, the AO and the CIT(A) erred in concluding that the assessee was providing transportation services which was sub-contracted to the Driver and consequently the assessee was liable to deduct tax at source while disbursing Fare to the Driver - Decided in favour of assessee.
Issues Involved:
1. Whether the assessee is liable to be treated as an "assessee-in-default" under Section 201 of the Income Tax Act, 1961 for non-deduction of tax under Section 194C on payments made to Transport Service Providers (TSPs). 2. Whether the assessee is responsible for making the payment of "Ride Charges" so as to attract the provisions of Section 194C. 3. Whether the provisions of Section 194C of the Income Tax Act, 1961 are applicable to the "Ride Charges" paid to the TSPs/Drivers. 4. Whether the interest under Section 201(1A) of the Act is rightly levied. 5. Whether the penalty under Section 271C of the Act is rightly levied. Issue-wise Detailed Analysis: 1. Assessee-in-default under Section 201 for Non-Deduction of Tax under Section 194C: The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] concluded that the assessee was an "assessee-in-default" under Section 201 for non-deduction of tax at source under Section 194C on payments made to TSPs. They argued that the assessee was in the business of providing transportation services and had subcontracted these services to third-party drivers, thus attracting withholding obligations under Section 194C. The AO's case was based on the assumption that the assessee controlled the TSPs/Drivers and that these drivers performed transportation services under the assessee's supervision. 2. Responsibility for Making Payment of "Ride Charges": The assessee argued that it was not responsible for making the payment of "Ride Charges" to the TSPs/Drivers. Instead, the assessee contended that it operated as an aggregator or intermediary, facilitating the connection between riders and drivers through its OLA App. The assessee charged a "convenience fee" from riders for using its platform, while the actual transportation services were provided by the drivers, who were independent contractors. The assessee emphasized that the contractual relationship for transportation services was directly between the rider and the driver, not involving the assessee. 3. Applicability of Section 194C to "Ride Charges": The Tribunal examined the contractual terms between the assessee, the drivers, and the riders. The Subscription Agreement between the assessee and the drivers clearly stated that the assessee was an intermediary providing an online marketplace and that the transportation services were provided by the drivers. The User Terms between the assessee and the riders also indicated that the drivers were independent contractors responsible for providing transportation services. The Tribunal found that the transportation services were provided by the drivers, not the assessee, and that the assessee merely facilitated the connection between riders and drivers. Therefore, the provisions of Section 194C were not applicable to the "Ride Charges" paid to the TSPs/Drivers. 4. Levy of Interest under Section 201(1A): Since the Tribunal concluded that the assessee was not liable to deduct tax under Section 194C on payments made to the drivers, the question of levying interest under Section 201(1A) did not arise. The Tribunal set aside the findings of the AO and CIT(A) in this regard. 5. Levy of Penalty under Section 271C: Similarly, the Tribunal found that the penalty under Section 271C for failure to deduct tax at source was not applicable, as the assessee was not obligated to deduct tax under Section 194C on the payments made to the drivers. The Tribunal set aside the penalty imposed by the lower authorities. Conclusion: The Tribunal allowed the appeal of the assessee, concluding that the assessee was not liable to deduct tax at source under Section 194C on payments made to TSPs/Drivers. The Tribunal found that the assessee operated as an aggregator, facilitating the connection between riders and drivers, and that the transportation services were provided by the drivers, not the assessee. Consequently, the Tribunal set aside the findings of the AO and CIT(A) and dismissed the levy of interest under Section 201(1A) and penalty under Section 271C.
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