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2020 (3) TMI 1415 - HC - Income TaxTDS u/s 194A - Motor Accidents Claims - interest accrued on the amount of compensation without deduction of Tax Deduction at Source (TDS) - HELD THAT - In the present case, while passing the award the MACT has already held that the claimants are entitled for total compensation along with interest @ 7.5% per annum from 23.6.2017 till its the payment. Out of the aforesaid the amount, a further direction has been given that claimant No.1/respondent No.1 shall be entitled to receive Rs.4,84,000/- in cash Rs.3,00,000/- be paid in cash to each of three sons of the deceased and Rs.3,00,000/- - 3,00,000/- be further deposited in the form of FDR in the nationalised bank in which interest shall be paid to respondent No.1 periodically. Judgment of the MACT has attained finality as neither the claimants nor the Insurance Co. has filed any appeal before this High Court . The Insurance Co. has already been directed by learned Motor Accident Claims Tribunal to examine whether the interest payable to respondent No.1 was exceeding Rs.50,000/-, then only the interest is liable to be deducted. Hence, in the present case, the issue in regards to the deduction of TDS on the interest components payable to respondent No.1 is not liable to be considered again. This Court in the aforesaid three cases i.e. Ramlal 2010 (11) TMI 1118 - MADHYA PRADESH HIGH COURT ; Smt. Swaroopi Bai 2019 (6) TMI 1669 - MADHYA PRADESH HIGH COURT ; and Draupadibai 2010 (9) TMI 738 - MADHYA PRADESH HIGH COURT has consistently held that the tax is payable on the interest accrued on the the amount of compensation under Motor Vehicle Act with a rider that the interest should not be more than Rs.50,000/- per claimant per financial year. After the aforesaid award, the Insurance Co. has calculated the interest payable on entire the amount of compensation and deducted the TDS @ 20%. At the most, the Insurance Co. can file the details of calculation of the the amount of interest, payable to each claimants and explain to the MACT that the same is exceeding Rs.50,000/- per month and the deduction of TDS was justified. If such details are filed, then the direction given in the case of Ramlal (supra) shall apply and it would be the discretion of claimants to claim a refund from the Income Tax Department or not.
Issues Involved:
1. Deduction of Tax Deducted at Source (TDS) on interest accrued on compensation awarded by the Motor Accident Claims Tribunal (MACT). 2. Compliance with Section 194A of the Income Tax Act regarding TDS on interest exceeding Rs. 50,000 per claimant per financial year. 3. Legal obligation of the insurance company to deduct TDS and the claimants' right to claim a refund. Detailed Analysis: 1. Deduction of TDS on Interest Accrued on Compensation: The Oriental Insurance Co. Ltd. challenged the orders dated 23.10.2019 and 6.11.2019 by the MACT, Ujjain, directing the company to deposit the interest amount on compensation without TDS deduction. The claimants had approached the MACT under Section 166 of the Motor Vehicle Act, 1988, seeking compensation for the death of Amritlal in a road accident. The MACT awarded a total compensation of Rs. 49,84,000/- with interest at 7.5% per annum from the application date until payment. The MACT directed the insurance company not to deduct TDS on the interest unless it exceeded Rs. 50,000 per claimant per financial year. 2. Compliance with Section 194A of the Income Tax Act: The insurance company, in compliance with the award, deposited the compensation and interest amount. However, as the interest exceeded Rs. 50,000 per claimant per financial year, the company deducted TDS and deposited it with the Income Tax Department as required by Section 194A of the Income Tax Act. The MACT returned the TDS certificate to the insurance company and directed it to deposit the deducted amount before the Tribunal. The insurance company argued that it was legally obliged to deduct TDS and that the claimants could claim a refund if their total income did not exceed Rs. 50,000. 3. Legal Obligation and Claimants' Right to Refund: The court considered various judgments from different High Courts on whether interest on compensation awarded by MACT is taxable. The Bombay High Court in Rupesh Rashmikant Shah v. Union of India held that interest awarded in motor accident claim cases is not taxable as it is not considered income. Similarly, the Himachal Pradesh High Court in Court on its own motion v. H.P. State Cooperative Bank Ltd. concluded that compensation awarded under the Motor Vehicles Act is not taxable income. The Punjab and Haryana High Court in New India Assurance Co. Ltd. v. Sudesh Chawla and The New India Assurance Co. Ltd. v. Savitri Devi held that compensation for death or injury is not a business transaction and should not be subjected to TDS. Conversely, the Madhya Pradesh High Court in United India Insurance Co. Ltd. v. Ramlal and The Oriental Insurance Co. Ltd. v. Smt. Swaroopibai upheld the deduction of TDS on interest if it exceeded Rs. 50,000 per claimant per financial year. The court emphasized that the insurance company must obtain a declaration in Form 15-G from the claimants to relieve their obligation of TDS payment. Conclusion: The court noted divergent views on the issue and reiterated that in cases where the interest exceeds Rs. 50,000 per claimant per financial year, the insurance company is obligated to deduct TDS. The MACT's direction to ascertain whether the interest payable to each claimant exceeds Rs. 50,000 and then deduct TDS was upheld. The insurance company was advised to file detailed calculations of interest payable to each claimant and justify the TDS deduction if it exceeded the threshold. The petition was disposed of with the court appreciating the assistance rendered by the amicus curiae.
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