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2023 (8) TMI 1197 - HC - Income TaxTDS u/s 194A - Interest received on Compensation received under MV Act - as contented interest received on compensation or enhanced compensation is deemed to be income of the assessee it may be mentioned that the term income which is inclusively defined in Section 2 (24) of the Act 1961 does not include interest as income - whether interest received by the petitioner on the amount of compensation/enhanced compensation was liable for deduction of tax? - HELD THAT - Section 194-A of the Act 1961 was only a provision for deduction of tax at source and did not govern the taxability of the receipt and the question of deduction of tax at source would also arise only if the payment was in the nature of income of the payee. It had also been observed that the interest was not made chargeable to tax even by Section 56 (2) (viii) of the Act 1961 only that part of the interest component which deals with income from other sources. Thus the interest granted on compensation or enhanced compensation awarded by MACT or this Court from the date of filing of the claim petition till the date of passing of the award or judgment by High Court will not fall in the bracket of income and would not be exigible to tax. In view of provisions of Section 194-A (3) (ix-a) of the Act 1961 only that part of the interest component which is treated as income and which when received exceeded Rs. 50, 000/- and did not form part of compensation would be exigible to tax. Respondents in this case have already charged tax on the amount of interest which was received by the petitioner along with the amount of compensation granted by MACT and by this Court in FAO filed by the petitioner by treating the same as income of the petitioner. Since the upshot of the discussion as made above is that no tax was exigible and could be deducted from the amount of interest awarded to the petitioner by MACT from the date of filing of claim petition till the date of passing of the award and interest awarded on enhanced amount of compensation by High Court in the appeal filed by the petitioner till the judgment of the High Court the same not being income therefore the tax on these amounts so deducted by the respondents is liable to be refunded to the petitioner.
Issues Involved:
1. Refund of tax deducted on interest amount received as compensation under the Motor Vehicles Act, 1988. Summary: The petitioner filed a petition seeking compensation after her husband's death in a motor vehicle accident. The Motor Accident Claims Tribunal awarded her compensation, which was later enhanced by the High Court. The petitioner sought a refund of tax deducted on the interest amount received along with the compensation, claiming it was not taxable. The respondents argued that the interest was a revenue receipt and taxable under the Income Tax Act, 1961. The petitioner contended that the interest on compensation should not be taxed as it was a capital receipt. Both parties cited relevant legal authorities to support their arguments. The Court considered the provisions of the Motor Vehicles Act and the Income Tax Act. It noted that compensation under the MV Act aims to restore the claimant to their pre-loss position and is not considered income. The Court analyzed the definitions of 'income' and 'interest' under the Income Tax Act, which indicated that interest on compensation could be chargeable to tax. However, it also examined Section 194-A of the Act, which provides for tax deduction on interest but excludes certain types of income, including interest on compensation awarded by the MACT. The Court referred to various legal precedents that supported the view that compensation and interest on compensation were not taxable. Ultimately, the Court held that the interest received by the petitioner on the compensation amount was not taxable. It concluded that the tax deducted by the respondents on the interest amount was to be refunded to the petitioner. The writ petition was allowed, and the respondents were directed to refund the tax amount within one month. No costs were awarded in the case.
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