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TMI Blog2021 (3) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... had raised the following grounds of appeal :- "Based on the facts and circumstances of the case and in law, Uber India Systems Private Limited ('the Appellant"), respectfully craves leave to prefer an appeal against the order dated 11 September 2018 passed by the Learned Commissioner of Income Tax (Appeals) - 60 [' Learned CIT(A)"] (received by the Appellant on 15 September 2018) under section 201(1) / 201(1A) of the Income-tax Act. 1961 ('Act") on the following grounds which are separate and without prejudice to each other: On the facts and in the circumstances of the case and in law, the Learned CIT(A) has: General 1. Erred in treating the Appellant as an 'assessee in default' under section 201(1) of the Act for non-deduction of tax at source under section 194C of the Act amounting to Rs. 19,65,61,979 with respect to disbursements made to Driver-Partners on behalf of Uber B.V; 2. Erred in arbitrarily rejecting the 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 Rs. 24,92,16,591 (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completely ignoring that all the contracts with Driver-Partners shall be governed by and construed in accordance with the laws of The Netherlands and therefore due recognition should be given to the interpretation under the laws of The Netherlands, before recharacterization of contractual relationships; 12. Erred in holding that ''web / app based aggregator" business model recognized by service tax law cannot be applied for income tax purposes, thereby disregarding the settled law of consistency to be followed for all Central Acts; 13. Erred in leading to a conclusion that the support activities provided by the Appellant to Uber S V. makes Appellant the actual face operating for Uber B.V. in India, though all contractual arrangements with Driver-Partners and Users are with Uber B.V.; Non-applicability of section 194C of the Act 14. Erred in holding that the Appellant is liable 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 other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the purpose of better appreciation of the issues in dispute before us. A) Uber Technologies Inc. is a company incorporated in the United States of America and is the owner of the Uber Application ("Uber App") which provides 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 abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaching the location of a User, he picks up the User and starts the trip. After dropping the User at the location provided, the User is required to pay the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludes inter-alia promotion of the Uber App amongst (potential) customers, i.e. Driver-Partners, and (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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 responsibility to ensure that insurance is taken for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. issuing invoices, resolving driver complaints, fixing of price, registering or de-registering driver, conditions of vehicle, etc. (g) Relied on three foreign judgments name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. AR could be summarized in the following tabular form :- Contentions of Learned DR Rebuttal of the Learned AR Supporting Documents (if any) Contentions relating to "person responsible for paying" 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 transporta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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. Switching on the Uber App leads to entering into contingent contract between Uber and Driv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent 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. 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 busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtist 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) Circular No. 487 dated 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 agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Driver-Partner to a User creates a legal and direct business relationship between them and Uber B.V. 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 respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity 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 service to the Driver-Partner and transportation service is not provided by Uber B.V. or UISPL. The transportation service is provided by the Driver- Partner to the User for which the car is arranged by the Driver-Partner, 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 eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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. 3.8.1. Further, 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. 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 certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 and cannot be made applicable for earlier years. This amendment cannot be held to be clarificatory in nature thereby holding it retrospective in operation as admittedly the same was not introduced with the expression ' for the removal of doubts'. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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