2019 (8) TMI 1833 - HC - Income Tax

TDS u/s 194A - interest on the compensation amount awarded by the Motor Accidents Claims Tribunal - buses belonging to the State of Punjab having met with accidents at various times and compensation having been awarded to the claimants in the context of those accidents, upon payment of which tax was not deducted at source by the State/its agency - HELD THAT - In the present cases, the claim petition that eventually became subject matter of Execution Case came to be filed by respondents Baljit Kaur and others, on January 17, 2013, before the Motor Accident Claims Tribunal, with the Tribunal having made its Award in favour of the claimants on 11.02.2015. Thus, if the judgment of the Division Bench of this court in Drawing Disbursing Officers' case 2011 (3) TMI 1671 - PUNJAB AND HARYANA HIGH COURT is to be strictly followed, as this Bench is bound to do in any case till 01.06.2015, i.e. till the amendment of clause (ix) and insertion of clause (ixa) in Section 194A(3) of the Income Tax Act, 1961, no interest would be deductible at source at all, even if such interest is beyond Rs.50,000/- in a particular year. Hence, honouring the ratio of the said judgment of the Division Bench, no tax would be deductible at source uptil 01.06.2015, even if such interest exceeds Rs.50,000/- in the financial year 2014-15, and upto 01.06.2015 in the financial year 2015-16. Therefore, if the petitioner company has paid the interest on compensation to the claimants prior to 01.06.2015, and deposited TDS with the income tax authorities at that time, even where such interest did not exceed Rs.50,000/- in any particular financial year, then such deposit has been made by the company wholly contrary to what has been held by the Division Bench of this court in Drawing Disbursing Officers' case (supra), (though in my opinion, strictly even in terms unamended clause (ix) of sub-clause (3) of Section 194-A of the Act of 1961, the tax was deductible at source, whether credited or actually paid). As per applicability of the ratio of that judgment, the claimants cannot be burdened with filing returns seeking a refund, if the fault is that of the company itself (by making an erroneous deduction). In view of the aforesaid discussion, these petitions are disposed of with the impugned orders in both petitions set aside. The matters are remanded to the learned Motor Accident Claims Tribunal, Moga, with a direction that if the interest on compensation was paid prior to 01.06.2015, then the petitioner company would pay the claimants the amount of tax it had deducted at source (and seek refund from the income tax authorities if it so desires, by filing a revised income tax return). However, on the other hand, if the interest on the compensation awarded was actually paid after 01.06.2015, and such interest was of an amount above Rs.50,000/-, the petitioner company would not be liable to pay to the respondent-claimants, the tax deducted at source and paid to the Income Tax Department. In such a case, it would be the choice of the respondent claimants in each of these petitions, to file an appropriate income tax return for the year concerned, seeking a refund of the tax deducted at source, if such tax/any part thereof, was not actually payable by them on account of them being below taxable thresholds.

Issues Involved:
1. Whether interest allowed by the Motor Accident Claims Tribunal (MACT) on the compensation amount can be termed as 'income from interest' or is it a part of compensation.
2. Whether the insurance company is liable to deposit tax deducted at source (TDS) on the interest component of compensation.
3. Applicability of Section 194-A of the Income Tax Act, 1961, regarding TDS on interest from compensation awarded by MACT.
4. Interpretation of the amendment in Section 194-A(3) of the Income Tax Act, particularly clauses (ix) and (ixa).

Detailed Analysis:

1. Nature of Interest on Compensation:
The primary issue was whether the interest component on compensation awarded by MACT is to be treated as 'income from interest' or as part of the compensation. The Tribunal had relied on a previous judgment of the High Court in "Drawing and Disbursing Officer v. Income Tax Officer," where it was held that the interest component in compensation is a capital receipt and not income until the claimant actually receives the amount. Consequently, it should not attract TDS.

2. Liability to Deposit TDS:
The petitioner, National Insurance Company Limited, contended that it had already deposited TDS with the income tax authorities and that the Tribunal's direction to deposit TDS again was uncalled for. The Tribunal had directed the company to deposit TDS on the interest component, which the company argued would result in double payment.

3. Applicability of Section 194-A of the Income Tax Act:
Section 194-A(1) mandates TDS on interest payments, but sub-section (3) provides exemptions. Clause (ix) and the subsequently added clause (ixa) of Section 194-A(3) specifically deal with interest on compensation awarded by MACT. Clause (ix) exempts interest on compensation up to Rs. 50,000 in a financial year from TDS, while clause (ixa) applies the same rule to interest paid.

4. Interpretation of Clauses (ix) and (ixa):
The court noted that the Division Bench's judgment in "Drawing and Disbursing Officers' case" held that the interest component on compensation is not taxable until it is actually received by the claimant. This interpretation was based on detailed discussions of various judgments, including those of the Supreme Court and Privy Council, which distinguished between capital receipts and revenue receipts.

The court also referred to a Division Bench judgment of the Bombay High Court in "Gauri Deepak Patel v. New India Assurance Co. Ltd.," which held that TDS is applicable if the interest in a particular financial year exceeds Rs. 50,000. However, this interest should be spread over the relevant financial years, and TDS should be deducted only for the years in which the interest exceeds Rs. 50,000.

Conclusion:
The court concluded that it is bound by the Division Bench's judgment of its own High Court, which held that interest on compensation is a capital receipt until actually received and does not attract TDS. Therefore, the orders of the Tribunal directing the petitioner to deposit TDS were set aside.

The matters were remanded to the Tribunal with instructions:
- If the interest was paid before 01.06.2015, the petitioner must pay the deducted TDS amount to the claimants and seek a refund from the income tax authorities.
- If the interest was paid after 01.06.2015 and exceeded Rs. 50,000 in any financial year, the petitioner is not liable to pay the deducted TDS to the claimants. The claimants may file income tax returns to seek a refund if they are below taxable thresholds.

The Tribunal was directed to pass appropriate orders based on these considerations, and any delays in filing returns should be condoned by the appropriate authority.

← Previous Next →