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2024 (8) TMI 190 - HC - Income TaxTDS on an amount awarded in an arbitral award deducted by the judgment (award) debtor - whether TDS can be deducted by the respondent on the amounts awarded in favour of the petitioner by the arbitral award under execution? - contention of the respondent in the present case is that TDS is deductable from the amount payable to the petitioner in terms of Section 195 (1) of the Income Tax Act, as the petitioner is a non-resident individual, who is not a company. HELD THAT - Supreme Court in Prateek Infra Projects India Pvt Ltd v. Nidhi Mittal 2020 (6) TMI 836 - SUPREME COURT (LB) has not, therefore, pronounced on deductibility or otherwise, of TDS on the amount payable to the builder but has vacated the omnibus restraint on the builder from deducting TDS, stating that the deduction would be in accordance with law. This solitary sentence towards the closure of the judgment cannot be regarded as a declaration of the law within the meaning of Article 141 of the Constitution of India to the effect that TDS is deductible on the compensation payable to the builder. Besides, Decree Holders submits that the order passed by the NCDRC cannot be treated as a decree, so that the compensation granted by the said order does not partake of the character of a decretal debt. Given the view adopted by the Supreme Court in All India Reporter 1960 (11) TMI 21 - SUPREME COURT as followed by this Court in Voith Hydro Ltd 2021 (3) TMI 1424 - DELHI HIGH COURT and Glencore International 2019 (8) TMI 1206 - DELHI HIGH COURT , the nature of the amount payable to the petitioner, once it stands awarded in an arbitral award, acquires the character of a judgment debt and, therefore, cannot be subjected to deduction of TDS. As the judgments of this Court in Voith Hydro Ltd 2021 (3) TMI 1424 - DELHI HIGH COURT and Glencore International 2019 (8) TMI 1206 - DELHI HIGH COURT , are directly on the point and followed the decision of the Supreme Court in All India Reporter, we are constrained to hold that the respondent cannot be permitted to deduct TDS from the amount awarded to the petitioner by the arbitral award under execution and directed to be paid by this Court vide order dated 11 March 2024.
Issues Involved:
1. Whether tax can be deducted at source (TDS) on an amount awarded in an arbitral award. Detailed Analysis: Issue 1: Whether tax can be deducted at source (TDS) on an amount awarded in an arbitral award Background: The applications under consideration pertain to the revival of a petition and a direction regarding TDS deduction on an arbitral award. The original order dated 11 March 2024, directed the payment of the awarded amount in seven equal monthly installments (EMIs) starting from March 2024, with specific deadlines for each installment. Compliance and Revival: Due to non-compliance with the deposit direction, the petitioners filed Ex. Appl. (OS) 948/2024 seeking revival of OMP (Enf) (Comm) 65/2021. Concurrently, the respondent filed Ex. Appl. (OS) 952/2024 seeking a direction for the petitioner to provide requisite documents for TDS deduction. Rival Stands: - Petitioner's Argument: The petitioner's counsel, Ms. Sobhana Takiar, relied on the judgment in *Islamic Investment Company v. U.O.I.* (2002) and the Supreme Court's decision in *All India Reporter Ltd v. Ramchandra D. Datar* (1961). These judgments held that once an amount becomes payable under a decree, it loses its original character and assumes the character of a judgment debt, and there is no provision in the Income Tax Act, 1961, that envisages TDS deduction from such a judgment debt. - Respondent's Argument: The respondent's counsel, Mr. Ramesh Singh, argued that accepting the petitioner's view would allow income tax evaders to avoid TDS by obtaining decrees for payment and then claiming that no TDS could be deducted from the decretal amount. Legal Precedents: - The Supreme Court in *All India Reporter* observed that the amount due under a decree, when paid, would not automatically be liable to TDS. - The Bombay High Court in *Islamic Investment Company* held that no TDS could be deducted from a decretal amount, but included a caveat requiring security to be provided until a tax liability determination was made. - The Delhi High Court in *Voith Hydro Ltd v. NTPC Limited* followed the principle that once a claim merges into a decree, it becomes a judgment debt and is not subject to TDS deduction. Judgment Analysis: - The court noted that the Supreme Court in *All India Reporter* and the High Court in *Islamic Investment Company* established that a decretal amount cannot be subjected to TDS. - The court also referenced the Supreme Court's decision in *Prateek Infra Projects India Pvt Ltd v. Nidhi Mittal* where an omnibus restraint on TDS deduction was vacated, but it did not constitute a declaration of law under Article 141 of the Constitution regarding TDS on compensation. - The court concluded that the amount payable to the petitioner, once awarded in an arbitral award, acquires the character of a judgment debt and thus cannot be subjected to TDS. Final Orders: - Ex. Appl. (OS) 952/2024: Dismissed, as the respondent cannot deduct TDS from the awarded amount. - Ex. Appl. (OS) 948/2024: Partially allowed, directing the respondent to make payments in accordance with the order dated 11 March 2024 without deducting any TDS. The installment schedule was modified to commence from August 2024, with specific deadlines for each subsequent installment. The application stands disposed of accordingly.
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