Is TDS leviable on payments to driver partners?
TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payments. The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself.
According to Section 194C, any person responsible for paying any sum to any resident (contractor) for carrying out any work (including supply of labour) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to-
- 1% where the payment is being made or credit is being given to an individual or HUF
- 2% where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.
No deduction shall be made if:
- payment to the contractor does not exceed Rs 30,000
- aggregate of such payments to contractors does not exceed Rs 75,000
No deduction shall be made from any sum credited or paid to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, [where such contractor owns ten or less goods carriages at any time during the previous year] furnishes a declaration to that effect along with] his Permanent Account Number, to the person paying or crediting such sum.
Let us refer to the case of Uber India where the Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that Uber India was not liable to pay TDS for Payments to Driver Partners.
Facts of the Case:
- The Uber Technologies Inc. is a company incorporated in the United States of America and is the owner of the Uber Application which provides lead generation services to independent Driver-Partners who are interested in providing transportation services to Riders. Uber group had set up a subsidiary namely, Uber India Systems Private Limited (UISPL) in India i.e. the assessee company on 16 August 2013 to market and promote the use of the Uber App in India and provide support services in connection with the same.
- Uber B.V. had engaged UISPL to provide support services under an Intercompany Service Agreement (as amended from time to time), for an arms” length consideration, i.e.. cost plus 8.5%.
- This fee was the subject matter of scrutiny and the assessing officer had not questioned the arm’s length basis of the said services provided by UISPL.
- AO had held that Uber B.V. was in the business of providing transportation services, therefore provisions of section 194C of the Act were applicable when the payments were made to Driver-Partners.
- However, according to him, since UISPL i.e. the assessee company was the face of Uber B.V. in India, UISPL was the person responsible for making payment and consequently liable to deduct tax at source under section 194C
- The opinion of the AO was affirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].
Observations of ITAT
- ITAT clarified that three conditions were required to be fulfilled in entirety for the department to conclude that UISPL was required to withhold taxes under Section 194C on disbursements to Driver-Partners.
- Firstly, UISPL should be the ‘person responsible for paying’ as per provisions of Section 204 of the Act.
- According to Section 204, For the purposes of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J, section 194K, sections 195 to 203 and section 285, the expression” person responsible for paying” means in the case of payments of income chargeable under the head” Salaries”, other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof
- Secondly, the disbursements to be made to the Driver-Partners should be in pursuance for carrying out any work by the Driver-Partners for UISPL.
- Thirdly, there was a contract entered into between the Driver-Partners and UISPL for the said work.
- The ITAT noted that from the primary facts narrated hereinabove that UISPL did not satisfy any of the 3 conditions prescribed under section 194C of the Act as UISPL made the payment on behalf of Uber B.V. therefore UISPL was not a person responsible for paying.
- The amount paid by UISPL was not for the purpose of carrying out any work for UISPL.
Therefore, the Tribunal concluded that Uber B.V. was 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 was a contract between them to which Uber B.V. was not a party. For providing lead generation service, the Driver-Partner paid a percentage of the ride fare as a service fee to Uber B.V. Therefore, it was clear that UISPL was not a part of the contract and no payment obligation was imposed either under the agreement with the Driver-Partner or under the agreement with the User.