Uber India Systems Private Limited Vs Jt. CIT (ITAT Mumbai)
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 either under the agreement with the Driver-Partner or under the agreement with the User. (emphasis supplied by us)
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 UISPL.
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 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.
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.
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.
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 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.
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 default‟ and no order could be passed u/s 201 / 201(1A) of the Act in its hands for the years under consideration.
FULL TEXT OF THE ITAT JUDGEMENT
These appeal had raised the following grounds of appeal in ITA No.5862/Mum/2018 & 5863/Mum/2018 for A.Yrs.2016-17 & 2017-18 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-60, Mumbai in appeal No.CIT(A)-60/IT-10039/JCIT(TDS)(OSD)-2(3)/2018-19 dated 12/09/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.201(1)/ 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as Act).
1.1 As identical issues are involved in both the appeals, they are taken up together and disposed of by this common order for the sake of convenience. With the consent of both the parties, Asst Year 2016-17 is taken as the lead year and the decision rendered thereon would apply with equal force for Asst Year 2017-18 also except with variance in figures.
2. The assessee 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. ErreJle by 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 (including interest under section 201(1 A) of the Act amounting to Rs.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 down by the Hon’ble Supreme Court in various judicial precedents;
7. Erred in 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;
8. Erred in holding that the Appellant is an ‘Aggregator rather than Uber B.V. and the Appellant is soliciting Driver-Partners and the Users on its platform; and in not appreciating that the Appellant is a support entity and as pan of its support services to Uber B.V. and was appointed to collect and remit payments on behalf of and under the instructions of Uber B.V. only on account of regulatory requirements:
9. Erred in 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 the roles, responsibilities and obligations of respective parties, and alleging such legally enforceable agreements as camouflaged, deceptive and without any substance and evidence;
10. Erred in re-characterising the business of Uber B.V. from a mere marketplace / e-commerce platform company to a transportation company providing services to end consumers, rather than providing lead generation services to Driver-Partners who provides transportation services to end consumer facilitated through Uber BV application.
11. Erred in 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 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 that the Driver-Partners are independent small scale business entrepreneurs engaged in provision of transportation services and income earned from such business operations is not subject to tax as per the provisions of section 44AD of the Act;
22. Erred in not 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;
23. Erred in upholding levy of interest amounting to Rs 5,26,54,612under section 201 (1 A) of the Act;
24. Erred in upholding that the Appellant has failed to deduct taxes as required under the law and initiation of penalty proceedings under section 271C of the Act.
Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, may thus be granted.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon’ble Tribunal to decide this appeal according to law.”
3. We have heard the rival submissions and perused the materials available on record including various judicial pronouncements that were referred to at the time of hearing by both the parties. The following primary facts would be relevant to be considered 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 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;
