2023 (9) TMI 333 - HC - Income Tax

TDS u/s 194A(3)(ix) - TDS on accrued interest on the compensation amount - claimants, filed claim petition u/s 166 of the Motor Vehicles Act, 1988 seeking compensation on account of injury sustained by him in a motor accident - award passed as claimant entitled to compensation to the tune of Rs. 20,31,000/- alongwith interest at the rate of 9% from the date of filing petition till the deposit of award amount - whether TDS can be deducted from the amount awarded as compensation as well as interest accrued thereupon in motor accident cases or not? HELD THAT - This court finds that the aforesaid issue stands already adjudicated as titled Court On Its Own Motion v. the H.P. State Cooperative Bank Limited 2014 (10) TMI 972 - HIMACHAL PRADESH HIGH COURT while placing reliance upon said judgment in National Insurance Company Limited v. Dil Kumari and others 2018 (6) TMI 1838 - HIMACHAL PRADESH HIGH COURT has held that no TDS can be deducted on the amount of interest accrued on compensation amount deposited by insurance company on account of injury or death in accident cases. Recently, High Court of Gujarat at Ahmedabad, in Oriental Insurance Co. Ltd. 2022 (5) TMI 282 - GUJARAT HIGH COURT has also held that compensation as well as interest thereupon is not income but damages as such, same cannot be subjected to TDS as per 194A(3)(ix) of the Income Tax Act. Thus it can be safely concluded that compensation and interest thereupon awarded by Motor Accident Claims Tribunal, by no stretch of imagination, can be said to be income rather same being damages granted by court on account of injury or death in accidental cases, cannot be subjected to S. 194A of Income Tax Act, which otherwise mandates for Tax Deduction at Source for the interest amount beyond Rs. 50,000/-.

Summary

Issues involved:
The issues involved in the judgment are the deduction of Tax Deducted at Source (TDS) from the compensation amount awarded in a motor accident case and the applicability of Income Tax Act provisions in such cases.

Issue 1: Compensation and Interest in Motor Accident Cases

The claimant filed a claim petition seeking compensation for injuries sustained in a motor accident. The Motor Accident Claims Tribunal awarded compensation along with interest. The petitioner insurance company raised objections regarding the deduction of TDS on the accrued interest amount. The claimant argued that compensation in such cases is considered as 'damages' and not 'income,' thus not subject to TDS as per the Income Tax Act. The executing court rejected the petitioner's objections and directed payment of the deducted amount with interest to the claimant. The High Court upheld the executing court's decision based on previous judgments that established compensation and interest in motor accident cases as 'damages' and not 'income,' hence not liable for TDS.

Issue 2: Applicability of Income Tax Act in Motor Accident Cases

The petitioner contended that TDS should be deducted on the accrued interest as per the Income Tax Act provisions. However, the claimant argued that compensation awarded in motor accident cases is not 'income' but 'damages,' and therefore not subject to TDS. The High Court referred to previous judgments that clarified that compensation under the Motor Vehicles Act is not taxable income and cannot be subjected to TDS. The Court highlighted that interest awarded by the Motor Accident Claims Tribunal is part of compensation and is not chargeable under the Income Tax Act. The Court dismissed the petition, upholding the executing court's decision and emphasizing that the compensation and interest in motor accident cases are considered 'damages' and not 'income,' thus exempt from TDS.

Separate Judgment by High Court of Gujarat:

The High Court of Gujarat in a similar case held that compensation and interest in motor accident cases are not considered 'income' but 'damages,' and therefore not liable for TDS under the Income Tax Act. The High Court emphasized that compensation for loss cannot be categorized as 'income' and should not be subjected to TDS. The judgment further supported the view that the compensation awarded under the Motor Accident Claims Tribunal is not taxable income, aligning with the decisions of the Himachal Pradesh High Court on the matter.