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2018 (3) TMI 1972 - HC - Income TaxTDS on interest received on the compensation - whether interest received by an assessee on the compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received? - Direction to present petitioner-Insurance Company to release an amount which was deducted as TDS and pay the same to the claimants. Further, it was ordered that the difference of interest amount of ₹ 333/- shall also be released to the claimants - HELD THAT - At the first instance, the tax on the interest of compensation is to be deducted at source in the financial year, in which it is received. Secondly, in a case pertaining to interest on the compensation awarded by the Motor Accident Claims Tribunal, no tax is payable on the interest up to ₹ 50,000/- and beyond ₹ 50,000/- the tax is to be deducted source on the aggregate of the amount of such income paid during the financial year. The cases of the payment of compensation under the Workmen Compensation Act, 1923, are not covered under the said provisions. In such case, the appropriate remedy before the person concerned is to seek a refund from the Income Tax Department as permissible under the rules at time of filing of the return. However, since the Insurance Company had deducted the tax at source on the interest component, they cannot be directed to again pay the tax deducted at source to the claimants, since the same was lawfully deducted for the payment of compensation. It being so, the impugned order passed by the Commissioner, Employee's Compensation Act, 1923, Hisar, Circle at Hisar, is hereby set aside leaving the claimants to file income tax return and claim the refund, if permissible under the law.
Issues: Interpretation of Income Tax Act provisions regarding deduction of tax at source on interest received on compensation; Applicability of tax deduction on interest on compensation awarded by Motor Accidents Claims Tribunal; Remedies for cases of tax deduction on interest component of compensation under Workmen Compensation Act.
In the present case, the primary issue before the court was the interpretation of various provisions of the Income Tax Act related to the deduction of tax at source on interest received on compensation. The court examined Section 4 of the Income Tax Act, 1961, which mandates the deduction of income tax at source. Additionally, the court analyzed Section 56(2)(viii) of the Act, which classifies interest received on compensation as income from other sources. Furthermore, the court considered Section 145 A(b) of the Act, which deems interest received on compensation as income of the year in which it is received. The court also referred to Section 190 and Section 194A of the Act, which outline the tax deduction provisions for interest income. Regarding the tax treatment of interest on compensation awarded by the Motor Accidents Claims Tribunal, the court referenced Section 194 (ixa) of the Income Tax Act. This section specifies that no tax is payable on the interest up to a certain threshold, and tax deduction at source is required on the aggregate amount exceeding that threshold. The court emphasized the importance of complying with these provisions when dealing with interest on compensation awarded by the Tribunal. In the context of cases involving the payment of compensation under the Workmen Compensation Act, 1923, the court highlighted that these cases are not covered under the same provisions as those related to Motor Accidents Claims Tribunal awards. The court clarified that in such instances, the appropriate remedy for the concerned party is to seek a refund from the Income Tax Department while filing the tax return. The court emphasized that if the tax was lawfully deducted at source by the Insurance Company on the interest component of the compensation, the company cannot be directed to repay the tax to the claimants. Instead, the claimants are advised to file their income tax return and claim the refund, if permissible under the law. Consequently, the court set aside the impugned order directing the Insurance Company to release the deducted tax amount and instructed the claimants to pursue the refund through the proper channels. The court allowed the revision petition, thereby disposing of any pending applications related to the matter.
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