2016 (1) TMI 83 - HC - Income Tax

Clarification on the question of liability to deduct tax at source arising out of the amended section 194-A - Tax Deducted at Source in view of the amendment introduced in Section 194A by Finance Act, 2015 with effect from 01.06.2015 - writ in the nature of mandamus - Held that - This Court would not act as advisory jurisdiction in abstract. Surely, the insurance companies have access to expert legal advise. As an agency required to deduct tax at source under the Act, it is their duty to avail of such legal advise and follow the requirements of statute. Unless and until a concrete case comes before the Court where not only declaration of two interpretation of law but consequential directions can also be issued, we would not undertake the exercise of interpreting statutory provisions for advising the insurance companies as to how they should manage their affairs in the changed scenario under the amended statutory provision. - Decided against assessee

Summary

Issues:
1. Interpretation of the amended Section 194-A of the Income Tax Act regarding Tax Deducted at Source by insurance companies when paying compensation to claimants.

Analysis:

1. The petitioners, insurance companies, sought clarification on the issue of Tax Deducted at Source (TDS) in light of the amendment to Section 194A of the Income Tax Act by the Finance Act, 2015. The main concern was the procedure to be followed for deducting tax at source when paying compensation to claimants. Previously, the matter was governed by a decision of the Division Bench of the Court, but the petitioners highlighted the material amendment to the TDS provision from 01.06.2015. The petitioners requested clarity on their liability to deduct tax at source under the amended Section 194-A in the context of interest elements involved in compensation payments.

2. The Court emphasized that it would not provide advisory services in abstract matters. It stated that insurance companies should seek expert legal advice and comply with statutory requirements regarding tax deduction at source. The Court clarified that it would not interpret statutory provisions to advise insurance companies on managing their affairs under the changed scenario unless a specific case presented a concrete situation where both an interpretation of the law and consequential directions were required. The Court dismissed the petition, highlighting that the insurance companies should seek legal advice and adhere to statutory obligations without the need for the Court's intervention in the absence of a specific case warranting interpretation and direction.

This judgment underscores the importance of insurance companies seeking expert legal advice to ensure compliance with tax deduction obligations under the amended Section 194-A of the Income Tax Act. The Court's decision not to provide advisory services in abstract matters emphasizes the need for concrete cases requiring interpretation and direction for statutory compliance.