2018 (10) TMI 1949 - HC - Income Tax

TDS liability on Insurance company - TDS u/s 194A - interest paid to the owners of the land acquired - payment of interest for belated payment of compensation for the land acquired - deduction of the payment of interest at source under section 194-A by the Land Acquisition Collector - HELD THAT - In the case at hand the apportionment of the compensation being not established and since the income from interest exceeds fifty thousand rupees during financial year, the act of the insurance company in deducting the income tax at source cannot be faulted. The issue as to whether the expression Accident Claims Tribunal can be treated to be a Commissioner, Employees' Compensation is kept open to be decided in appropriate case. In view of above analysis, since it was obligatory on the part of the insurance company under Section 203 of 1961 read with Section 194-A(3)(ix) of 1961 Act to deduct the income tax at source on income from interest which exceeded fifty thousand rupees during financial year when it is paid, the impugned order directing the petitioner/insurance company to deposit the amount so deducted is set aside.

Summary

Issues:
Negation of deduction under Section 194-A of the Income Tax Act 1961 from compensation amount.

Analysis:
The case involves a dispute regarding the deduction of income tax from a compensation amount awarded under the Employees' Compensation Act 1923. The petitioner challenges the deduction of Rs.63,934/- by the insurance company under Section 194-A of the Income Tax Act 1961. The petitioner argues that since the award was passed by the Commissioner, Employees' Compensation and not by the Motor Accident Claim Tribunal, the insurance company was not exempted from deducting income tax on the interest exceeding Rs.50,000/-. The petitioner seeks relief based on this contention.

On the other hand, the respondents argue that the term "resident" in Section 194-A should be interpreted in a manner that exempts the deduction of income tax on interest earned by residents if it is less than Rs.50,000. They rely on a previous decision by a Co-ordinate Bench to support their argument. However, the court notes that there is no concrete evidence to establish the apportionment of the compensation among the claimants, making it impermissible to exempt the deduction based on this premise.

The respondents further contend that the Employees' Compensation Act 1923 should be liberally construed in line with the Motor Accident Claims Tribunal for the purpose of Section 194-A. They argue that since the income from interest exceeded Rs.50,000 and the apportionment was not proven, the deduction made by the insurance company was justified. The court keeps the issue open for future determination on whether the Commissioner, Employees' Compensation can be equated with the Motor Accident Claims Tribunal.

After thorough analysis, the court concludes that the insurance company was obligated to deduct income tax at the source on interest exceeding Rs.50,000 as per Section 203 of the Income Tax Act 1961 read with Section 194-A(3)(ix). Therefore, the impugned order directing the insurance company to deposit the deducted amount is set aside, and the petition is allowed accordingly without costs.