2015 (3) TMI 765 - HC - Income Tax

TDS while paying the amount under the award of the Motor Accident Claims Tribunal - deduction of ₹ 24,175/- by way of income tax is not sustainable and directed the petitioner to disburse the said amount to the claimant as held by district judge - Held that - Any person responsible for paying any income by way of interest other than income by way of interest on securities is obliged to deduct income tax thereon at the rate in force at the time of payment of the said amount to the concerned payee and the only exception in case of income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal is where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees. It is, thus, evident that if the interest component of the payment to be made during the financial year on the basis of award of the Motor Accident Claims Tribunal exceeds ₹ 50,000/- then the person making the payment is obliged to deduct income tax at source while making payment; this is what the petitioners have done. In the said circumstances, it was not open to the District Judge to hold to the contrary. As a matter of fact, the District Judge was exercising his jurisdiction with regard to executing the award but while executing the same he had to be conscious of the fact that any such payment would be subject to statutory provisions. There being clear provision under the Income Tax Act with regard to deduction of tax, it was not open to the District Judge to have held to the contrary. The only remedy for the assessee under such circumstances would have been either to have approached the assessing officer under Section 197 of the Income Tax Act before the said payment was made for issuing a certificate for deduction of income-tax at a lower rate or no deduction of income-tax as the case may be or if that had not been done then to approach the Income Tax Department for refund of the amount in case no income-tax or less amount is due and payable by the concerned respondent.. W.P. allowed. Orders of the District Judge set aside.

Summary

Issues:
1. Quashing of orders directing disbursement of deducted income tax to private respondents.
2. Interpretation of Section 194A (3) (ix) of the Income Tax Act, 1961 regarding deduction of income tax on interest component of compensation amount awarded by Motor Accident Claims Tribunal exceeding Rs. 50,000.

Analysis:
1. The High Court was presented with writ applications seeking to quash orders directing the disbursement of deducted income tax to private respondents, passed by the District Judge in two cases. The petitioner, National Insurance Company, had deducted amounts as income tax at source under Section 194A (3) (ix) of the Income Tax Act, 1961, while making payments under the awards of the Motor Accident Claims Tribunal. Despite objections from the private respondents, the District Judge directed the petitioner to disburse the deducted amounts. The High Court examined the statutory obligations under the Income Tax Act and relevant case law to determine the legality of the deductions.

2. The Court analyzed the provisions of Section 194A (1) and 3 (ix) of the Income Tax Act, which mandate the deduction of income tax on interest payments exceeding Rs. 50,000, except for interest on compensation awarded by the Motor Accidents Claims Tribunal within the specified limit. The petitioner had deducted income tax on the interest component of the compensation exceeding Rs. 50,000, in compliance with the statutory requirement. The Court referred to precedents from various High Courts emphasizing the obligation of the payer to deduct tax at source on such interest payments.

3. Relying on judgments from different High Courts, the Court reiterated that the compensation amount earning interest due to delayed payment is liable to be taxed. The Court emphasized that if the interest component of the payment exceeds Rs. 50,000 during a financial year, the payer is obligated to deduct income tax at source. The Court held that the District Judge erred in directing otherwise, as the statutory provisions clearly mandated the deduction of tax at source on such payments. The Court clarified that any dispute regarding tax liability should be addressed through appropriate channels with the Income Tax Department.

4. Consequently, the High Court allowed both writ applications and set aside the orders of the District Judge directing the disbursement of the deducted income tax amounts to the private respondents. The Court emphasized the importance of adhering to statutory provisions and seeking remedies through proper channels in case of tax-related disputes, affirming the petitioner's compliance with the Income Tax Act in deducting income tax on interest payments exceeding the specified limit.