2019 (2) TMI 2042 - HC - Income Tax

TDS u/s 194A - interest on the compensation awarded by the Motor Accident Claims Tribunal - HELD THAT - Pursuant to notice issued on the last date of hearing to the newly added respondent no. 4, i.e. the Department of Income Tax through its Commissioner, TDS Circle, Mumbai, Mr. Yogesh Putney, Advocate, puts in appearance and has supplied a copy of the judgment of a co-ordinate Bench of this Court, in New India Assurance Company Ltd. vs. Rajbala and others 2018 (3) TMI 1972 - PUNJAB AND HARYANA HIGH COURT wherein held 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 Rs. 50,000/- and beyond Rs. 50,000/- the tax is to be deducted at source on the aggregate of the amount of such income paid during the financial year. In view of the above, let notice of motion be also issued now to respondent no. 1, i.e. the claimant before the Motor Accidents Claims Tribunal, returnable on 06.9.2019. In the meanwhile, operation of the impugned order to the extent that it directs the petitioner company to deposit the tax deducted at source shall remain stayed, till the next date of hearing.

Summary

Issues involved:
1. Tax liability on interest paid along with compensation by Motor Accident Claims Tribunal.
2. Applicability of TDS on interest above Rs. 50,000.
3. Conflict between judgments of different courts regarding TDS on interest awarded on compensation.

Analysis:
1. The judgment discusses the tax liability on interest paid along with compensation by the Motor Accident Claims Tribunal. It references a case where it was held that no tax is payable on interest up to Rs. 50,000, and beyond that, tax is to be deducted at source on the aggregate amount of such income paid during the financial year.

2. Another set of cases, including one titled New India Assurance Co. Ltd. vs. Savitri Devi, held that interest paid along with compensation is not liable for TDS. The judgment emphasized the unjustness of asking victims to pay tax on interest received due to delayed payment, for which they are not responsible. The Tribunal's orders directing that compensation or interest cannot be subjected to TDS were upheld.

3. The matter was also brought before the Bombay High Court, which referred the issue to the Central Board of Direct Taxes. The CBDT opined that tax on interest awarded on compensation would be deductible at source. Additionally, it was highlighted that if the interest on the compensation amount exceeds Rs. 50,000, tax would still be deductible at source as per Section 194-A (3) (ixa) of the Income Tax Act, 1961.

4. In light of the conflicting judgments and opinions, the court issued a notice to the claimant before the Motor Accidents Claims Tribunal for further proceedings. The operation of the impugned order directing the petitioner company to deposit the TDS amount was stayed until the next date of hearing, ensuring no immediate financial burden on the company.