2013 (7) TMI 1194 - HC - Indian Laws

Summary

Issues involved:
The issues involved in the judgment are:
1. Whether the Court was justified in directing the appellant to pay interest at the rate of 12% per annum from the date of the accident.
2. Whether the compensation becomes due only when the adjudication of the claim is made, i.e., the date of passing of the order.

Issue 1: Interest Payment and Tax Deduction:
The Court referred to the Apex Court judgment in Oriental Insurance Co. Ltd. v. Siby George, where it was held that the matter is to be answered against the appellant. The Court dismissed the appeal based on this precedent. However, a question was raised regarding the liability of the appellant to deduct tax on the interest portion ordered by the Commissioner under the Income Tax Act.

Issue 2: Tax Deduction on Interest Portion:
Section 194A(1) of the Income Tax Act states that any person responsible for paying interest to a resident is liable to deduct income tax at the rates in force. The definition of 'interest' under Section 2(28A) includes various forms of interest payable. The Court highlighted that tax need not be deducted on interest paid on compensation where the amount does not exceed fifty thousand rupees, as per Section 194A(3)(ix).

Judicial Precedents:
The Court referred to the decision in Bikram Singh and others v. Land Acquisition Collector & Ors., where it was established that interest on delayed payment of compensation is considered a revenue receipt and is subject to income tax. Additionally, the Division Bench judgment in New India Assurance Co. Ltd. v. Biju emphasized that interest is an integral part of compensation, and the amount payable under the order includes interest.

Conclusion:
The Court concluded that interest ordered by the Commissioner under Section 4A is considered income and liable to tax deduction under Section 194A of the Income Tax Act. The appeal was dismissed, and the appellant was justified in deducting tax on the interest portion. The appellant was not required to pay that amount from the compensation awarded to the claimant.