2020 (5) TMI 716 - HC - Income Tax

TDS u/s 194A - Motor Accident Claims - Insurance claim award with interest @ 9% per annum from date of claim - whether interest liability would be subject to Tax Deducted at Source (TDS) under Sec. 194 A? - HELD THAT - Where the Claimants produce the proof of PAN Card TDS is applied at 10%. In the absence of such PAN Card it shall be 20%. Not so insignificant amounts and when refunds are not made to the poor victims the issue is exacerbated. Following these difficulties for the innocent motor accident victims a few High Courts have ruled that Sec 194 A was not applicable in these claims. They appear to have done so after due notice and hearing the Income Tax Department. As Transport Corporations are facing Execution Petitions before Claims Tribunals where TDS was applied and apparent conflict between the decisions and as insurance companies and TDS issue flagged requires to be elevated to a Division Bench or a larger Bench as may be deemed fit by the Hon ble Chief Justice for a clear cut verdict on the applicability of TDS on interest in Motor Accident Claims atleast in sofar as Tamil Nadu is concerned. Going by the above discussion and the obvious and apparent disagreement between two learned single judges on the issue and unnecessary pendency of EPs and CRPs and difficulties faced by all the stakeholders I am more than satisfied that it is a fit case to order a blanket stay of all Execution Petitions pending before all Motor Accident Claims Tribunals in Tamil Nadu in relation to and confined to the issue of Tax Deduction at Source vide 194 A of the Income Tax Act 1961. In respect of EPs which may include the TDS issue and not solely confined to it only the dispute relating to TDS issue will stand suspended awaiting a verdict from the larger bench. TDS is in application in millions of motor accident cases since 01.06.2003. Huge sums may have accumulated in the coffers of Income Tax Department. Not all victims may have sought and/ or obtained refunds. Many victims may belong to such strata of society that they may not be in a position to pursue the refund. I deem it fit to leave it to the larger bench to allude to this issue also and examine the possibility of proper utilization of the unrefunded amounts for the benefit of motor accident victims. The Income Tax Department could be asked to provide statistics relating to the TDS amounts refunds sought and pending refunds ordered and no refunds sought for at all and the period for the same for this purpose. This is a fit and proper case to direct the Registry to place this matter before the Hon ble Chief Justice for considering the issues for resolution by a larger bench as found fit and proper by the Hon ble Chief Justice.

Summary

Issues Involved:
1. Award of compensation and interest in motor accident claims.
2. Applicability of Tax Deducted at Source (TDS) on interest awarded in motor accident claims.
3. Conflict between different High Court judgments on TDS applicability.
4. Need for a larger bench to resolve the TDS issue.

Detailed Analysis:

1. Award of Compensation and Interest in Motor Accident Claims:
The appeal concerns an award of ?10,46,200/- with interest at 9% per annum from the date of the claim (21-11-2016) and costs of ?27,332/-. The claimant suffered grievous injuries and was assessed for disablement by the Medical Board. The insurance company agreed to deposit the entire award amount, including interest and costs, minus the statutory deposit, within two weeks of receiving the order. The court noted that the affirmation of the award with interest at 9% p.a. should not be treated as a precedent, as the ordinary rate of interest is 7.5% p.a.

2. Applicability of TDS on Interest Awarded in Motor Accident Claims:
The insurance company highlighted a vexed issue related to the insertion by the Finance Act, 2003, effective from 01.06.2003, to Section 194A of the Income Tax Act, 1961. The insurer faces a dilemma: if they apply TDS on the interest liability, they risk attachment by way of execution petitions; if they do not apply TDS, they risk penal consequences under Section 201 of the Income Tax Act, 1961. The court acknowledged the insurer's quandary and the need to address this issue comprehensively.

3. Conflict Between Different High Court Judgments on TDS Applicability:
The court noted that various High Courts have different viewpoints on the applicability of TDS on interest awarded in motor accident claims. For instance, the Madras High Court in MD, TNSTC Vs. Chinnadurai ruled that TDS in motor accident claims was inapplicable, giving primacy to the Motor Vehicles Act, 1988, as a social welfare legislation over the Income Tax Act, 1961. However, this decision conflicted with an earlier decision in New India Assurance Vs. Mani, which upheld the applicability of TDS. The court recognized the need for a consistent and uniform approach to this issue.

4. Need for a Larger Bench to Resolve the TDS Issue:
Given the apparent disagreement between the decisions in Mani and Chinnadurai and the complexities involved, the court deemed it necessary to refer the matter to a Division Bench or a larger bench for a clear-cut verdict on the applicability of TDS on interest in motor accident claims. The court also ordered a blanket stay of all execution petitions related to the TDS issue pending before all Motor Accident Claims Tribunals in Tamil Nadu until a decision is obtained from the larger bench. The court suggested that the larger bench consider the proper utilization of unrefunded TDS amounts for the benefit of motor accident victims.

Conclusion:
The court directed the insurance company to satisfy the award without applying TDS and allowed the claimant to withdraw the award amount upon identification. All execution petitions related to the TDS issue were stayed, pending a decision from the larger bench. The court emphasized the need for a consistent and uniform approach to the applicability of TDS on interest in motor accident claims and referred the matter to the Hon'ble Chief Justice for consideration by a larger bench.