2018 (12) TMI 761 - HC - Income Tax

TDS u/s 194A on interest awarded by the Motor Accident Claims - Held that - Compensation awarded under Motor Vehicles Act or Employees Compensation Act in lieu of death of a person or bodily injury suffered in a vehicular accident, is a damage and not an income and cannot be treated as taxable income. It is well settled that interest awarded by the Motor Accident Claims Tribunal on a compensation is also a part of compensation upon which income tax is not chargeable as also held by the Division Bench of this Court in Court on its own motion vs. The H.P. State Cooperative Bank Ltd. and others, 2014 (10) TMI 972 - HIMACHAL PRADESH HIGH COURT - in view of abovesaid decision, deduction of income tax by petitioner/Insurance Company on the awarded compensation and interest accrued thereon is illegal and is contrary to the law of land. This petition is disposed of directing respondent No. 3 Income Tax Officer, Sector 2, Panchkula to refund the TDS to the petitioner/Insurance Company within ten weeks from date of receiving information thereof, which shall be supplied by petitioner/Insurance Company within two weeks from today, as per Rules applicable.

Summary

Issues:
1. Interpretation of Section 194A of the Income Tax Act, 1961 regarding deduction of income tax on compensation awarded under the Employees' Compensation Act.
2. Legality of deducting income tax on compensation and interest accrued on compensation.
3. Refund of TDS amount deducted by the Insurance Company.
4. Validity of the Commissioner's order to attach movable property for realization of balance compensation amount.

Analysis:
1. The case involves a dispute regarding the deduction of income tax on compensation awarded under the Employees' Compensation Act. The petitioner, an Insurance Company, deducted TDS on the interest component payable on the compensation amount deposited in compliance with Section 194 (A)(IX) of the Income Tax Act, 1961. However, the Commissioner ordered attachment of the petitioner's movable property for the realization of the balance amount, including the TDS amount claimed to have been deducted.

2. The Court clarified that compensation awarded under the Employees' Compensation Act for death or bodily injury suffered in a vehicular accident is considered as damage and not taxable income. Referring to previous judgments, the Court established that interest awarded on compensation is also not chargeable to income tax. Therefore, the deduction of income tax by the Insurance Company on the compensation and interest accrued was deemed illegal and contrary to the law.

3. In light of the above discussion, the Court directed the Income Tax Officer to refund the TDS amount to the Insurance Company within a specified timeframe. The discrepancy between the TDS amount deposited and the amount ordered for realization was acknowledged. The Insurance Company was instructed to satisfy the Court regarding the balance amount claimed by the claimants. Failure to do so could result in the Commissioner taking appropriate legal action.

4. The petition was disposed of with the aforementioned directions and the vacating of an interim order. The Commissioner was instructed to proceed accordingly, with no costs imposed. The judgment emphasized the importance of adhering to legal provisions and ensuring fair treatment in matters of compensation under the law.

This detailed analysis of the judgment highlights the key legal issues, interpretations of relevant laws, and the Court's directives in resolving the dispute over the deduction of income tax on compensation awarded under the Employees' Compensation Act.