2010 (11) TMI 1118 - HC - Income Tax

TDS u/s 194A - Motor Accident Claims - interest accrued on the amount of compensation without deduction of Tax Deduction at Source (TDS) - Whether such interest awarded by the Tribunal is to be spread over from the date from which it is payable to the date of actual payment? - HELD THAT - It is clear from Section 194-A (3)(ix) that if the payment of interest is being made to more than one claimant then unless the interest payable to each claimant separately exceeds Rs. 50000/- in each case the person responsible for payment is not required to deduct tax. The Apex Court in the case of KS Krishna Rao v. CIT 1989 (11) TMI 3 - SUPREME COURT held that where a compensation awarded under the Land Acquisition Act is enhanced by the order of the Court on a reference u/s 18 of that Act or on further appeals interest on enhanced compensation cannot be taxed all in a lump sum as having accrued on the date on which the Court passes order for enhanced compensation; the interest has to be spread over on annual basis right from the date of delivery of possession till the date of order on a time basis. This Court is of the view that the interest awarded has to be spread over in number of years from the date of filing of claim petition till the date of payment because the right to receive compensation arises immediately on occurrence of accident and the interest is awarded by the Tribunal or the Courts for the delay that occurs due to the delay in determination of the compensation and if the interest for the financial year payable to each of individual claimant exceeds Rs. 50000/- then only question of TDS will arise. So far as obligation of Petitioner/Insurance Company responsible for the payment is concerned it is made clear that before releasing the amount of interest claimant shall be required to submit an affidavit to the effect that claimant has furnished a declaration on form No. 15-G of Rule 29-C of the Income Tax Rules in terms of Section 197-9(1-A) of the Income Tax Act for each financial year in the office of Insurance Company so that concerned Insurance Company is relieved of its obligation of payment of TDS. Hence appeal stands disposed of.

Summary

Issues:
1. Whether the deduction of a sum of Rs. 6571/- towards TDS by the Petitioner/Company from the compensation amount payable to the Respondent No. 1 was justified.
2. Whether the interest awarded by the Tribunal is to be spread over from the date it is payable to the date of actual payment.

Analysis:
1. The Petitioner/Company challenged an order directing them to pay Rs. 6571/- deducted as TDS to the Respondent No. 1. The Petitioner argued that as the interest amount exceeded Rs. 50,000, it was their statutory duty to deduct TDS under Section 194A of the Income Tax Act. Citing a Gujarat High Court decision, the Petitioner contended that the Insurance Company was obligated to deduct Income Tax from interest paid. The Petitioner sought to set aside the order based on the specific provisions of the Income Tax Act. The Income Tax Department's counsel highlighted Section 2(28A) and Section 194A, emphasizing the obligation to deduct TDS on interest exceeding Rs. 50,000 in a financial year. The Petitioner relied on a Madras High Court decision to support their argument that interest exceeding Rs. 50,000 must be taxed at source.

2. The Respondent's counsel argued that the interest payable should be spread over the years for which it was awarded. Referring to a Supreme Court decision and a Kerala High Court Full Bench decision, the counsel contended that interest on compensation should accrue from the date the right to receive compensation arises. The counsel emphasized that interest should be assessed on a yearly basis and apportioned among the claimants. The Respondent's counsel supported the tribunal's order directing the Petitioner/Company to pay the deducted amount to the claimant.

3. The Court considered various precedents, including decisions related to interest on compensation under the Land Acquisition Act. Referring to Supreme Court rulings, the Court held that interest awarded should be spread over the years from the filing of the claim petition till the date of payment. The Court clarified that if the interest payable to each individual claimant exceeded Rs. 50,000 in a financial year, TDS would be applicable. The Court directed that claimants must submit a declaration to relieve the Insurance Company of its TDS obligation before receiving the interest amount. The appeal was disposed of based on these principles.