2019 (6) TMI 1682 - HC - Income Tax

TDS u/s 194 A - Motor Accidents Claims - Insurance Company liability to deduct TDS on the interest paid - HELD THAT - As the Insurance Company has been directed to deposit the lump sum compensation amount along with interest and only after the amount with interest is deposited by the Insurance Company, the said amount was to be apportioned amongst the claimants. The Insurance Company was not directed to calculate the compensation amount with interest as per the share determined by the Claims Tribunal. Under these circumstances, this Court is of the considered opinion, that the Insurance Company did not commit any mistake in deducting the TDS on the entire interest. However, each of the claimant would be entitled to claim refund from the Income Tax Department, in case, if he/she is of the view that excessive tax has been deducted. This Court is of the considered opinion, that the Insurance Company is liable to deduct TDS on the interest paid by it as per the provisions of Section 194-A (3)(ix)(ix-a) of the Income Tax Act, and if the assessee is of the view, that the tax has been deducted in excess, then he can always claim refund of the same from the Income Tax Department. Accordingly, this Court is of the considered opinion that the Executing Claims Tribunal, committed material illegality by holding that the Insurance Company is not liable to deduct the TDS.

Summary

Issues Involved:
1. Liability of the Insurance Company to deduct TDS on the interest paid on compensation awarded by the Motor Accident Claims Tribunal.
2. Applicability of Section 145-B and Section 194-A of the Income Tax Act concerning the deduction of TDS on interest from compensation.
3. The distinction between compensation awarded under the Motor Vehicles Act and the Land Acquisition Act regarding the deduction of TDS on interest.

Issue-wise Detailed Analysis:

1. Liability of the Insurance Company to deduct TDS on the interest paid on compensation awarded by the Motor Accident Claims Tribunal:
The core issue revolves around whether the Insurance Company was correct in deducting TDS on the interest amount paid as part of the compensation awarded by the Motor Accident Claims Tribunal. The respondents argued that the interest should be spread over the years from the date of filing the claim, and TDS should only be deducted if the interest for any particular year exceeds Rs. 50,000. The Tribunal initially ruled in favor of the claimants, directing the Insurance Company to deposit the deducted TDS amount. However, the High Court found that the Insurance Company correctly deducted TDS on the entire interest amount, as the compensation and interest were to be paid as a lump sum, and apportionment among claimants was to occur only after the deposit.

2. Applicability of Section 145-B and Section 194-A of the Income Tax Act concerning the deduction of TDS on interest from compensation:
The legal provisions under scrutiny were Section 145-B and Section 194-A of the Income Tax Act. Section 145-B(1) stipulates that interest received on compensation is deemed income of the year it is received. Section 194-A(3)(ix) and (ix-a) specify that TDS must be deducted if the interest on compensation exceeds Rs. 50,000 in a financial year. The High Court concluded that these sections, when read together, mandate the deduction of TDS if the total interest exceeds Rs. 50,000, irrespective of the period over which the interest is calculated.

3. The distinction between compensation awarded under the Motor Vehicles Act and the Land Acquisition Act regarding the deduction of TDS on interest:
The High Court differentiated between compensation under the Motor Vehicles Act and the Land Acquisition Act. In the latter, compensation entitlement starts from the date of possession, while in motor accident cases, entitlement arises only after the award is passed. The Court noted that precedents cited by the respondents, which pertained to land acquisition, were not applicable to motor accident claims. The Court emphasized that the principle of strict interpretation of exemption provisions should apply, and any ambiguity should benefit the revenue, not the taxpayer.

Conclusion:
The High Court set aside the Tribunal's order, holding that the Insurance Company was correct in deducting TDS on the interest paid on compensation. The claimants, if they believe excess tax was deducted, have the option to seek a refund from the Income Tax Department. The petition by the Insurance Company was allowed, confirming their liability to deduct TDS as per Section 194-A(3)(ix) and (ix-a) of the Income Tax Act.