2024 (2) TMI 338 - HC - Income Tax

TDS on interest arising from Motor Accidents Claim - Validity of the order of the Motor Accidents Claims Tribunal issuing directions to refund by the Insurance Company of amounts deducted as TDS and already credited to the Income Tax Department - directions to the Insurance Company to pay an amount being the TDS deducted with interest at the rate of 9% per annum from 29.01.2008 till payment - Insurance Company, before the Tribunal and before this Court, asserts that there can be no liability cast on the Insurance Company of a like nature - applicant is said to have died on 02.04.2015 and the order was passed on 09.02.2018, after the death - substitution petition has been filed by one Bhola Shah, aged about 41 years, son of Late Babulal Sah, the applicant before the Tribunal. HELD THAT - As per Section 194A(1), any income by way of interest other than income by way of interest on securities shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, be liable for tax deduction at source. Hence, there can be no spread over of the interest income in the years in which it accrued after death of the person, which resulted in the compensation being awarded. We also have to notice subclause (ix) of sub-section(3) of Section 194A, which speaks of such exemption from deduction of tax, from the interest income, when the aggregate amount of such income credited or paid during the financial year exceeds Rs. 50,000/-. Hence, the income has to be found to have accrued only on the date of payment or credit. We have to caution the Tribunals, insofar as the proper procedure being the resort to refund, if at all the claimant does not have income in excess of the taxable limit under the Income Tax Act. On the above reasoning, we find that the application filed before the Tribunal was unsustainable. We, hence, set aside the order of the Tribunal and caution the Tribunals from issuing such orders directing refund for the periods prior to 01.06.2015. We specifically notice that Section 194A(3)(ix) has been substituted by the Act 20 of 2015 with effect from 01.06.2015, which reads as under - (3)(ix)-To such income credited by way of interest on the compensation amount awarded by the MACT. On the above provision coming into force from 01.06.2015, no TDS can be deducted even on the interest component. The writ petition is allowed, leaving the parties to suffer their respective costs. Since, we have answered the question against the refund directed by the Tribunal, we are of the opinion that the application before the Tribunal need not be restored and the same shall stand closed as not maintainable.

Summary

Issues involved:
The issues involved in this case are the liability of the Insurance Company to pay TDS deducted with interest, the substitution of a deceased applicant in the case, the interpretation of Section 194A of the Income Tax Act, and the proper procedure for refund in cases where the claimant does not exceed the taxable limit.

Liability of Insurance Company for TDS:
The Insurance Company challenged the order of the Motor Accidents Claims Tribunal directing it to pay TDS deducted with interest. The Company argued that the claimant should approach the Income Tax Department for a refund when TDS is deducted from interest amounts granted in accordance with an award of the MACT.

Substitution of Deceased Applicant:
The Tribunal passed an order in an application where the applicant had already passed away. A substitution petition was filed by the Insurance Company to bring the deceased applicant's legal representative on record. The Court allowed the substitution and cautioned the Tribunals in such matters.

Interpretation of Section 194A of Income Tax Act:
The Tribunal relied on decisions of other High Courts regarding the deduction of TDS on interest income from an award of the Motor Accidents Claim Tribunal. The Court noted the statutory provisions under Section 194A(1) and (3)(ix) and emphasized that TDS should be deducted when the interest amount exceeds Rs. 50,000 in a financial year.

Proper Procedure for Refund:
The Court observed that the Tribunal erred in directing refunds by the Insurance Company, contrary to statutory provisions. It highlighted the need for cautioning Tribunals in following the correct procedure for refunds, especially when the claimant does not exceed the taxable limit under the Income Tax Act.

Conclusion:
The Court set aside the Tribunal's order directing refund and cautioned Tribunals against issuing such orders for periods prior to 01.06.2015. It noted the substitution in Section 194A(3)(ix) of the Income Tax Act from 01.06.2015, which exempts TDS deduction on interest components. The writ petition was allowed, and the application before the Tribunal was not restored, standing closed as not maintainable.