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TMI Blog2012 (9) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to deduct Income-tax at source (TDS) on the amount of decree which is known as interest on delayed payment of compensation?" 2. The brief facts of the case are that the respondent Insurance Company paid compensation and interest thereon under the Motor Vehicle Act to the claimants without complying with the provision of Section 194A of the Income Tax Act, 1961. It was the legal obligation of the respondent to deduct tax on the amount of interest under Section 194A of the Income Tax Act, 1961. The Assessing Authority established that the respondent has failed to deduct the income tax on the amount of interest and accordingly they were liable to deposit the amount of short deduction of tax (TDS) under Section 201(1) along with interest under Section 201(1)A of the Act. 3. The respondent preferred an appeal being Appeal No.223 to 227/ CIT (A)-1/ ITO (TDS)/ Agra/ 2002-2003/ 187 before the Commissioner, Income Tax (Appeals)-1, Agra, who vide order dated 28.3.2003 confirmed the action of the Assessing Authority for all the five assessment years. 4. The Insurance Company filed second appeals before the I.T.A.T., Agra, who decided the appeals in favour of the respondent and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the interest as contemplated u/s 194A of the I.T. Act, 1961 because interest contemplated u/s 194A is income taxable in the hands of the recipients whereas interest received by the recipients u/s 171 of Motor Vehicle Act is a capital receipt in the hands of recipients because it is nothing but an enhanced compensation on account of delay in the payment of compensation." 8. The Assessing Authority held that debt incurred includes claims (in this case insurance claims) and interest on such claims is clearly covered under Section 2(28A) of the Act and further held as follows:- "4.1) Interest paid under Motor Vehicle Act is a revenue receipt like interest received on delayed payment on compensation under Land Acquisition Act. Provisions of sec. 194A of the I.T. Act are applicable in respect of interest on compensation under Land Acquisition Act. Similarly, these provisions are also applicable in respect of interest on compensation under Motor Vehicle Act. 4.2) Interest element in total award is different than compensation. However, interest on such compensation is on account of delayed payment of such compensation and therefore it is clearly an income in the hands of recipients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of TDS u/s. 201(1) of the I.T. Act, 1961." 9. The above findings of the Assessing Authority was approved by the CIT (Appeals)-1, Agra vide order dated 28.3.2003 and held that the interest payment awarded under Section 171 of the Motor Vehicle Act was nothing but interest and, therefore, subjected to the provisions of section 194A. 10. The I.T.A.T., Agra Bench, Agra, allowing the appeals filed by the assessee held as under:- "3. We have heard the rival submissions and have also perused the records. We find that the issue involved in these appeals is squarely covered by the order dated 24.01.2006 of this Bench in ITA No.317 to 321/Agra/2003 for the assessment years 1998-99 to 2002-2003 in the case of the Divisional Manager, New India Insurance Co. Ltd. Agra vs. ITO, wherein the issue was decided against the Revenue and in favour of the assessee by following the findings of ITAT Delhi Bench 'D' given in the order dated 27.09.2004 in the case of Oriental Insurance Company Ltd. And also the order dated 31.01.2005 of Agra Bench in ITA No.276 & 280/Agra/2003 in the case of Oriental Insurance Company Ltd. vs. ITO. Respectfully folowing the order of this Bench in the case of Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit facilities. This definition will be applicable for all purposes of the Income Tax Act." 14. It is relevant to mention that by Finance Act, 2003, Section 194A has been amended and following clause in sub section (3) has been inserted with effect from 1st day of June, 2003:- "(ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal 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." 15. Under the Motor Vehicle Act, 1988, a liability has been casted on the owner of the motor vehicle or the authorized insurer to pay compensation in the case of death or permanent disablement due to accident arising out of use of motor vehicle. This compensation is payable to the legal heirs in case of death and to the victim in case of permanent disablement. For the purposes of adjudicating upon claims for compensation in respect of motor accident, the Motor Accident Claims Tribunals have been established. The Motor Vehicle Act, 1988 further provides that in case of death, the claim may be pref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent was assessed to pay in respect of the amount of the decree. As between the company and the respondent the amount did not represent salary: it represented a judgment debt, and or payment of income-tax thereon no provision was made in the decree. Before paying that debt, the appellant company could not claim to deduct at source the tax payable by the respondent." 19. In Commissioner of Income Tax Vs. Chiranji Lal Multani Mal Rai Bahadur (P.) Ltd., (1989) 179 ITR 0157, the Punjab and Haryana High Court while considering the matter of interest awarded by court for loss suffered on account of deprivation of property, has held that it amounts to compensation and is not taxable. It has been further held that the amount of interest received by the assessee by way of compensation was a casual receipt and could not be included in the income of the assessee in the relevant assessment year. It has been further held that if interest is received on the basis of a contract or under a statute, the same is taxable, but if interest is awarded by the court for loss suffered on account of deprivation of property, it amounts to compensation, though called interest, and would not be taxable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he damages which would be uniform for all the allottees. The allottees had not given the money to the assessee by way of deposit nor had the assessee borrowed the amount from the allottees. The amount was paid under a self-financing scheme for construction of the flats and the interest was paid on account of damages suffered by the claimant for delay in completion of the flats." 22. In Commissioner of Income-tax Vs. Cargill Global Trading P. Ltd., (2011) 335 ITR 0094, the Delhi High Court while interpreting Section 2(28A) of the Income Tax Act, 1961 has held that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. In this case the bills of exchange were discounted by the assessee. The discount charges paid by the assessee were treated as interest within the meaning of Section 2(28A) of the Income Tax Act by the Assessing Officer but it was held by the Delhi High Court that the discount charges paid were not in respect of any debt incurred or money borrowed. Hence the tax was not taxable at source on the amount. 23. In Commissioner of Income-tax Vs. Sahib Chits (Delhi) (Pvt.) Ltd., (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insertion of new sub clause (ix) to Section 194A(3). Present appeals are for the period relating to pre-amendment by the Finance Act, 2003 hence this law is not applicable to the present set of appeals. 28. In Commissioner of Income-tax and another Vs. Wipro Systems, (2010) 325 ITR 234 (Karn), the Karnataka High Court has held that if the assessee had provided money to an officer to purchase the club membership and if the subscription and the amount incurred by the officers for his personal benefit was reimbursed by the assessee such amount sent by the officers of the assessee could not be considered as business promotion and this would fall under section 17(2)(iv). This judgment do not cover any question of law in the present appeals. 29. In Registrar University of Agricultural Science Vs. Fakiragowda and others, (2010) 325 ITR 239 (Karn), the Karnataka High Court in the matter of payment of compensation for acquisition of land has held that the interest received on belated payment of compensation is a revenue receipt exigible to income-tax and it is income and the claimants are liable to pay the tax as provided under the relevant provisions of the Income-tax Act, 1961. Tax has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Acquisition Act, 1894, land acquired compulsorily vests absolutely in the Government after the Collector has taken possession of the land, whether before or after making his award determining the compensation. A statutory liability has been imposed upon the Collector to pay interest on the compensation awarded from the time of his taking possession until it is paid or deposited. This amount is not compensation for the land acquired or for depriving the claimant of his right to possession but is paid to the claimant for the use of his money by the State. The statutory interest paid under section 34 of the Land Acquisition Act, 1894, on the amount of compensation awarded for the period from the date the Collector has taken possession of land compulsorily acquired is interest paid for the delayed payment of the compensation and is therefore a revenue receipt liable to tax under the Income-tax Act." 35. Most of the rulings cited by learned counsel for the revenue relates to interest paid on the delayed payment of compensation awarded under Land Acquisition Act. The award under Land Acquisition Act and the award under Motor Vehicle Act cannot be equated for the simple reason that in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor Vehicle Act regarding compensation for death or injury is a statutory liability. 39. Insertion of clause (ix) to Section 194A(3) by the Finance Act 2003 with effect from 1.6.2003 also goes to show that prior to 1.6.2003, the legislature had no intention to charge any tax on the interest received as compensation under the Motor Vehicle Act. Even under the amended Act, interest received in excess of Rs.50,000/- has been subjected to tax liability. Certainly such interest exceeding Rs.50,000/- has further to be split amongst all the claimants and has to be spread over for each of the assessment years. Accordingly there appears to be no justification to cast liability to deduct the tax at source on the amount of interest paid on compensation under Motor Vehicle Act prior to 1.6.2003. 40. Further more the definition as provided under Section 194A(1) is also relevant which provides that if any person is responsible for paying to a resident any income by way of interest on securities, shall at the time of credit of such income to the account of the payee deduct income tax thereon at the rates in force. 41. To our opinion, the award of compensation under motor accidents claims canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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