2021 (10) TMI 73 - HC - Income Tax

Return of TDS amount deducted u/s 194A on award passed under motor insurance act - seeking release of amount deducted by the non-applicant/Insurance Company on account of 20% TDS from the interest earned on the awarded amount - HELD THAT - Deduction made by the non-applicant/Insurance company is not in due adherence to the clause ix (a) of Section 194-A of Income Tax Act, 1961, as same has to be applied on the awarded amount proportionately in favour of the claimants with spread of years from which the claim is made. In terms of the application of provision of law quoted above, the proportionate valuation of the entitlement of the interest amount to the awarded amount is ₹ 7000 per claimant, therefore, the same does not exceed ₹ 50,000/- which can be taxable by application of Clause ix (a) of Section 194-A of Income Tax, 1961. This application is allowed and the Registry is directed to release the amount deposited by the non-applicant/Insurance Company, on account of deduction of tax on interest amount in favour applicants-claimants. The amounts shall be released in favour of the applicants/claimants through their counsel on proper identification and verification. The non-applicant/Insurance Company is at liberty to seek withdrawal of the amount so deposited with the Income Tax Department and the Income Tax Department shall release the deducted amount as and when such requisition is made by the non-applicant/Insurance Company.

Summary

Issues:
Release of deducted amount by Insurance Company on account of TDS from interest earned on awarded amount.

Analysis:
The judgment involved an application by claimants seeking the release of an amount deducted by the Insurance Company on account of TDS from the interest earned on the awarded amount. The counsel for the Insurance Company objected to the release, citing Clause ix (a) of Section 194-A of the Income Tax Act, 1961, which allows for TDS deduction on interest payments exceeding fifty thousand rupees. The counsel referred to a previous order by the Court in a related case where the deduction was upheld. The Court considered the arguments, reviewed relevant legal provisions, and referred to judgments by various High Courts and the Supreme Court of India. The Court partially allowed the revision, setting aside interest granted to claimants post-deposit but deemed the TDS deduction by the Insurance Company as erroneous. The claimants were granted liberty to seek a refund from the Income Tax authority.

In another case referred to by the Insurance Company's counsel, the Court had declared the Tribunal's view on tax deduction as erroneous. On the other hand, the claimants' counsel argued that the deduction was not in line with the law, as it should be proportionate to the awarded amount spread over the claim years. The claimants contended that the interest amount entitled to each claimant was below the taxable threshold of fifty thousand rupees. The Court agreed with the claimants, allowing the application and directing the release of the deducted amount to the claimants through their counsel upon verification.

The judgment highlighted the conflicting views of different High Courts on the application of TDS provisions in similar cases. Ultimately, the Court in this case ruled in favor of the claimants, emphasizing the need for proper application of tax deduction provisions in line with the law. The judgment provided clarity on the issue, allowing the claimants to receive the deducted amount and directing the Insurance Company to seek withdrawal of the deposited amount from the Income Tax Department upon request.