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TMI Blog2022 (5) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... le of restitution to place the claimant in the same position in which he would have been as the loss of life or injury would not have been suffered. Our final conclusion may be summarized as under: [a] The interest awarded by the Motor Accident Claim Tribunal u/s 171 of the Motor Vehicles Act 1988 is not taxable under the Income Tax Act, 1961. [b] The interest awarded in the motor accident claim cases from the date of the Claim Petition till the passing of the award, or in the case of Appeal, till the judgment of the High Court in such appeal, would not be exigible to tax, not being an income. This position would not change on account of clause (b) of Section 145A of the Act as it stood at the relevant time amended by Finance Act, 2009, which provision now finds place in sub-section (1) of Section 145B of the Act. Neither clause (b) of Section 145A, as it stood at the relevant time, nor clause (viii) of sub-section (2) of Section 56 of the Act make the interest chargeable to tax, whether such interest is income of the recipient or not. Section 194A of the Act is only a provision for deduction of tax at source. Any provision for deduction of tax at source in the said sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in the interest of the justice. 2. The facts giving rise to this writ application may be summarized as under: 3. The writ applicant before us is an Insurance Company. One Motor Accident Claim Petition bearing No.518 of 1999 came to be filed in the City Civil Court at Ahmedabad. The said claim petition came to be allowed by the MACT (Aux.) Judge, City Civil Court, Ahmedabad, vide judgement and award dated 18th January 2017. 4. The operative part of the order passed by the Tribunal in the above referred MACP reads thus: (a) The petitioners in MACP No. 518/1999 do recover Rs. 16.28,008/(Rs. Sixteen lacs twenty-eight thousand eight only) from the opponent 1, 2 and 3 jointly and/or severally, together with running interest at the rate of 8% p.a from the date of petition till realization of the amount along with proportionate costs of the petition. (b) The opponents are directed to follow the ratio laid down in the judgment of Hansgauri P. Ladhani V Oriental Ins. Co. Ltd, reported in 2007-GLH-2-291 as far as TDS is concerned . 5. Thus, the Insurance Company was directed to deposit the amount as awarded with interest and so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iar facts and circumstance on hand, this application is required to be partly allowed and in the interest of justice I pass the following order. ORDER The present application is hereby partly allowed. The Registry is hereby directed to send back the amount of Rs. 2,21,516/- deposited vide 'C' No.521, dated 18.05.2017, to the Oriental Insurance Co. Ltd. with a direction that the Insurance Co. shall deposit the said amount with the Income Tax department and then after would produce the necessary document regarding the same to this Court and supply the same to the applicants. The Insurance Co. Is further directed to follow the procedure regarding depositing the amount of TDS with the Income Tax department and issue the necessary certificate along with the relevant papers of depositing the amount to the applicants and the copy be send to this Court. Date : 04/08/2018. sd/- (Pratik J. Tamakuwala) MACT (Aux.) Judge, City Civil Court, Ahmedabad UNIQUE ID CODE NO.GJ00581 10. Thus, in view of the aforesaid order passed by the Tribunal, the writ applicant deposited the TDS amount with the Income Tax Department on 26th March 2019 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the MACT. 18. Mr. Raval submitted that the Finance Act, 2015 has inserted new Section 194A(3) (ixa) with effect from 1st June 2015. The effect of the amendment is as under: (1) No liability for TDS shall be attracted in respect of any income credited by way of interest on the compensation amount awarded by the MACT. (2) Such liability for deduction of tax in respect of interest on compensation will be attracted, only at the time of actual payment and only if the amount of such payment or aggregate amounts of such payments during a financial year exceeds Rs. 50,000/-. 19. Mr. Raval pointed out that in view of the aforesaid amendment to Section 194A, the TDS would have to be deducted out of the actual payment of interest on compensation. The rate would be 10% if the claimants had produced the PAN Card before the payment and 20% if the PAN Card had not been produced. Mr. Raval would submit that in spite of the aforesaid amendment, the Insurance Companies are being compelled to deposit the amount with the Tribunal itself. The Tribunal would thereafter decide accordingly. 20. In such circumstances referred to above, Mr. Raval prays that this Court may clarify the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be liable for tax if aggregate amount of such interest income paid during financial year does not exceed Rs.50,000/-. Relevant provisions are reproduced for ready reference: 194A. Interest other than Interest on securities . (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident 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, whichever is earlier. deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed [one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.] Explanation - For the purposes of this section, where any income by way of interest as afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Ltd. (Gujarat High Court (decision rendered on 04.10.2006) Hon ble Gujarat High Court gave detailed guidelines for the cases arising out of motor vehicle accident claims (at para 14 of the judgment) held that in order to attract provisions of TDS on interest component on compensation awarded in motor vehicle accident claims; (a) first spread the interest amount over to the relevant financial years for the period from the date of filing the claim petition till the date of deposit. (b) thereafter, if the interest for any particular financial year exceeds Rs.50,000/- separately deposit before the Tribunal the amount liable to be deducted at source under the provisions of Section 194A(3) (ix) of the Income Tax Act, 1961. Such amount shall not, however, straightway, be paid over to the Income Tax Department. (c) produce before the Tribunal a statement of computation of interest by spreading the amount over the relevant years from the date of claim petition till the date of deposit if the interest for any particular financial year exceeds Rs.50,000/- and also request the Tribunal to treat the amount as a separate deposit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest component up-to a sum of Rs.50,000/-. This exemption has to be claimed by the respondent/claimants by filing necessary returns before the assessing authority. It is the statutory obligation of the petitioner-Insurance Company to deduct the TDS from the entire interest component and deposit the same before the competent authority, which has been done in this case. A certificate to that effect has been issued to the respondent/claimants. The respondent/claimants have to make a claim for refund of the aforesaid amount before the competent authority. With these observations, writ petition is allowed. The order dated 15.9.2012 in Ex.Case No.80/2008 passed by the court below is hereby quashed. 5 New India Assurance Co. Ltd [2017] 80 taxmann.com 331 (Punjab and Haryana) (decision rendered on 30.11.2015) Whether Insurance Company can be called upon to pay the TDS /deduct TDS on the interest part upon the compensation awarded in motor vehicle accident claims? Relying on the above decision rendered in [2014] 52 taxmann.com 151 by Himachal Pradesh High Court, orders calling upon the Insurance Company to pay the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India vs. Hari Singh (Civil Appeal No.15041/2017 order dated 15th September 2017) Hon ble Supreme Court held that deduction of tax is not permissible on the compensation / enhanced compensation received by the assessee on compulsory acquisition of their agricultural land. In this case, Collector had deducted TDS on the compensation received for agricultural land as well. With regard to demand of assessee for refund of tax, Supreme Court held that assessees must necessary returns before Assessing Officer and it would be for the Assessing Officer to determine whether the land in question was agricultural land in question was agricultural land or not. Accordingly, it was made incumbent on Assessing Officer to ascertain whether refund of TDS can be made or not. 10 Iffco Tokio General Insurance Company Ltd vs. Krishnakumar Munshiram Agrawal and others (Gujarat High Court) (decision rendered on 10.11.2017) In this case, the petitioner Insurance Company deducted TDS amount from the interest accrued on awarded amount and deposited the TDS amount with Income Tax Department as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the compensation and, therefore, would fall in the bracket of interest income and would be exigible to tax under the normal provisions. (para 61) (other important paras 48 to 58) An SLP is preferred against the judgment and is pending before Hon ble Supreme Court. 13 The New India Assurance Company Limited vs. Govindlal Hiralal Mandora (Gujarat High Court decision rendered on 03.10.2019) Referring to guidelines emanating from the decision of Hansagauri, any TDS deducted in excess, assessee will have to approach Income Tax Dept. 14 Satya Narayan D. B. Civil Writ Petition No.22025/2018 (Rajasthan HC) (18/02/2022) Question whether an insurance company can deduct tax at source on the interest component of the compensation awarded in a motor vehicle accident claim was raised before Hon ble Rajasthan High Court. Taking cognizance of the decision rendered in 262 Taxman 253, Rajasthan High Court referred the present case to a large bench and is pending. PRIMARY ANALYSIS: 24. Having regard to the important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1) of section 145(B) 30. Section 194A(3)(ix) and (ixa) of the Income Tax Act is with regard to interest other than interest on securities . The same reads thus: Interest other than Interest on securities. Section 194A. . (3) The provisions of sub-section (1) shall not apply - (ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal. (ixa) To such income 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 paid during the financial year does not exceed fifty thousand rupees; 31. Section 145B(1) of the Income Tax Act is with regard to taxability of certain income . The same reads thus: Taxability of certain income. 145B. (1) Notwithstanding anything to the contrary contained in section-145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. (2) Any claim for es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be payable from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry. 34. In Rama Bai (supra), the Supreme Court held that the arrears towards interest computed on delayed or enhanced compensation under Section 28 or Section 34 of the Land Acquisition Act, 1894 shall be taxable on accrual basis from year to year basis and not at one go in the year of actual receipt of the award. 35. In 2003, Section 194A(3)(ix) came to be inserted to prescribe that on credit or payment of interest awarded by the MACT exceeding Rs.50,000/-, TDS is required. 36. In Hansaguri (supra), the applicant claimed before this High Court that the amount of interest awarded by the MACT should be spread across the different claimants as well as across the different years. Following Rama Bai (supra), a Coordinate Bench of this Court held that the interest would be spread over different years and if thereafter, if it exceeds Rs.50,000/- in any year, then for that year to year, the TDS would be liable to be deducted. 37. In 2009, by Finance (No.2) Act, 2009, Section 145A(b) and Section 56( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had occasion to interpret this provision. W.e.f. 01.06.2015, however, this Clause (ix) of sub section (3) of Section 194A has been omitted and is replaced by Clauses (ix) and (ixa) which read as under: (ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accident Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees. 11. Under Clause (ix) to sub section (3) of Section 194A of the Act, as it originally stood, requirement of deducting tax at source under sub section (1) would not apply in a case where any income is credited or paid by way of interest on compensation amount awarded by Motor Accident Claims Tribunal where the amount of such income or, the aggregate amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees. This provision of Clause (ix) is now divide into two parts and is replaced by Clauses (ix) and (ixa). Clause (ix), in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claimants to seek refund of such amount from the Income Tax department and permitted the insurance company to receive it back from the claimants as and when such refund would be made by the Income Tax department. However, in the present case, we are not inclined to accept such a formula. Firstly, the amount in question is not very large. Secondly, in order to provide for such formula, we would have to call upon the claimants to appear before us, a luxury which poor litigants can ill-afford. Thirdly, the insurance company should have properly adviced itself before effecting tax at source on the ground that the judgement of this Court in case of Smt. Hansagauri Prafulchandra Ladhani and ors vs. The Oriental Insurance Company Ltd (supra) was no longer good law in view of the statutory amendments. Not having done that the only course left open to the insurance company would be to approach the Income Tax department for refund, as may be adviced. 40. In the Finance Act, 2021, the erstwhile Section 145A(b) is now Section 145B( 1). 41. The case of the Revenue is that the legislative intent in insertion of Section 145A(b) is very clear. According to the Revenue, the interest r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation under the Motor Vehicles Act which is exempt does not become taxable by operation of Section 145A(b). 48. The compensation received under the compulsory acquisition of land is in any case taxable under Section 45 as the Capital Gains and therefore, the issue under the Land Acquisition with regard to interest under Sections 28 and 34 i.e limited to the extent that the same would be taxable under Section 56(2)(viii) (Section 34 interest) or Section 45 the Capital Gains (Section 28 interest that is part of the compensation) and therefore, only the year of its taxability is decided by Section 145A(b) and not the taxability of interest on the compulsory acquisition of land. Whereas under the Motor Vehicles Act, the compensation itself is exempt. The nature of interest, therefore, would assume significance and cannot be given the same treatment as interest on compensation under the Land Acquisition Act and be taxed by operation of Section 145A(b). 49. It is crucial to note that in Rama Bai (supra), the Supreme Court drew no distinction between the interest under Section 28 and interest under Section 34 of the Land Acquisition Act, 1894. Later in Ghanshyam (2009) 315 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is proposed to amend Section 145A to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, it is proposed to insert clause (viii) in subsection (2) of Section 56 to provide that income by way of interest received on compensation or on enhanced compensation referred to in sub-section (2) of Section 145A shall be assessed as income from other sources in the year in which it is received. This amendment will take effect from 1st April 2010 and shall accordingly apply in relation to the assessment year 1998-99 and subsequent assessment years. [Clauses 26, 27, 56] RATIONALISATION OF PROVISIONS RELATING TO DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITIES): 55. Under Section 194(3)(ix) of the Act, tax is not required to be deducted from the interest or paid on the compensation amount awarded by the Motor Accident Claim Tribunal if the amount of such interest credited or paid during a financial year does not exceed Rs.50,000/-. Finance (No.2) Act, 2009 amended the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essential the produce of something, which is often loosely spoken of as capital . But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production. 58. In Rani Amrit Kunwar Vs. Commissioner of Income Tax, C.P. U.P. (1946) XIV ITR 561, the Allahabad High Court observed:- Under Indian law, therefore, we come back in my opinion, to the relatively simple test whether in the ordinary parlance of language what the assessee receives is income or not. I should not dream of suggesting that every payment made by one person to another is necessarily the recipient's income since it may, as Viscount Dunedin has said, be merely a casual payment or, as Sir George Lowndes has suggested, a mere windfall. Such sweeping proposition would be absurd. Many things have to be considered. In the case of a payment by a parent to a child or by a husband to a wife or by one relation to another obvious questions arise whether in the particular circumstances of each cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances surrounding the particular payments and receipts in question, what is received is of the character of income according to the ordinary meaning of that word in the English language or whether it is merely a casual receipt or mere windfall. 59. In Raghuvanshi Mills Ltd., Bombay Vs. Commissioner of Income Tax, Bombay City, (1952) XXII ITR 484 while considering the nature of receipt of insurance claim for the business loss, the Supreme Court observed:- It is true the Judicial Committee attempted a narrower definition in Commissioner of Income-tax v. Shaw Wallace Co., by limiting income to a periodical monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources but, in our opinion, those remarks must be read with reference to the particular facts of that case. The non-recurring aspect of this kind of receipt was considered by the Privy Council in The King v. B.C. Fir and Cedar Lumber Co. and we do not think their Lordships had in mind a case of this nature when they decided Shaw Wallace Company's case. 60. In Raja Bahadur Kamakshya Narain Singh of Ramgarh Vs. Commissioner of Income-Tax, Bih ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital receipt. The compensation for loss of agency was held to be a capital receipt on the ground that the agency was a capital asset in that case. It was observed:- 35. .....The agency agreements in fact formed a capital asset of the assessee's business worked or exploited by the assessee by entering into contracts for the sale of the charminar cigarettes manufactured by the Company to the various customer and dealers in the respective territories. This asset really formed part of the fixed capital of the assessee's business. It did not constitute the business of the assessee but was the means by which the assessee entered into the business transactions by way of distributing those cigarettes within the respective territories. It really formed the profit-making apparatus of the assessee's business of distribution of the cigarettes manufactured by the Company. If it was thus neither circulating capital nor stock-in-trade of the business carried on by the assessee it could certainly not be anything but a capital asset of its business and any payment made by the Company as and by way of compensation for terminating or cancelling the same would only be a capital r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of compensation is the same sum as the total of the income that has been lost. 65 In CIT v. G.R. Karthikeyan, 1993 Supp 3 SCC 222, it was observed:- 7. It is not easy to define income. The definition in the Act is an inclusive one. As said by Lord Wright in Kamakshya Narayan Singh v. CIT, (1943) 11 ITR 513 (PC) income ... is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation . In Gopal Saran Narain Singh v. CIT (1935) 3 ITR 237 (PC) the Privy Council pointed out that anything that can properly be described as income is taxable under the Act unless expressly exempted . This Court had to deal with the ambit of the expression income in Navinchandra Mafatlal v. CIT, (1954) 26 ITR 758. The Indian Income Tax and Excess Profits Tax (Amendment) Act, 1947 had inserted Section 12(B) in the Indian Income Tax Act, 1922. Section 12(B) imposed a tax on capital gains. The validity of the said amendment was questioned on the ground that tax on capital gains is not a tax on income within the meaning of Entry 54 of List 1, nor is it a tax on the capital value of the assets of individuals and compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t I of the Seventh Schedule to the Government of India Act). 66 . In the context of compensation received under the Motor Vehicles Act, the compensation is either on account of loss of earning capacity on account of death or injury or on account of pain and suffering. Such receipt is not by way of earning or profit. Award of compensation is on the principle of restitution to place the claimant in the same position in which he would have been had the loss of life or injury not been suffered. In Gobald Motor Service Ltd. and another Vs. R. M. K. Veluswami and others [AIR 1962 SC 1], it was observed:- The same principle was restated with force and clarity by Viscount Simon in Nance v. British Columbia Electric Railway Co. Ltd., 195l AC 601. There, the learned Lord was considering the analogous provisions of the British Columbia legislation, and he put the principle thus at p. 614: The claim for damages in the present case falls under two separate heads. First, if the deceased had not been killed, but had eked out the full span of life to which in the absence of the accident he could reasonably have looked forward, what sums during that period would he probably h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be given different meanings at different places in the language of same section, i.e. Section 34 of C.P.C. 68. In Drawing and Disbursing Officer vs. Income Tax Officer [Income Tax Appeal No.495 of 2009 decided on 30th March 2011], the Punjab and Haryana High Court held as under: 21. Having regard to nature of receipt of compensation as per award under the M.V. Act, compensation is in the nature of capital receipt for death or injury and cannot be held to be in the nature of income. Learned counsel for the revenue also fairly accepts this legal position. It appears to be for this reason that the said receipt is not sought to be treated as income. 22. We may now consider the question whether interest on account of delay in adjudication becomes part of compensation or can be treated as a separate component of income. 23. Section 171 of the M.V.Act authorizes the Tribunal to award interest on the claim made under the Act from the date of making the claim. It reads thus: 171. Award of interest where any claim is allowed: Where any Claims Tribunal allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... physical damages. Clearly, such a receipt, in principle, is a capital receipt and beyond the ambit of taxability of income since only such capital receipts can be brought to tax as are specifically taxable under section 45. Hon'ble Supreme Court has, in the case of Padmaraje R. Kadambande vs. CIT [(1992) 195 ITR 877 (SC)], observed that, . . . . we hold that the amounts received by the assessee during the financial years in question have to be regarded as capital receipts and, therefore, are not income within meaning of s. 2(24) of the Income Tax Act. [Emphasis supplied]. This clearly implies, as is the settled law, that a capital receipt, in principle, is outside the scope of 'income' chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of a revenue receipt or is specifically brought within ambit of 'income' by way of specific provisions of the Income Tax Act. The accident compensation is thus not taxable as income of the assessee. What is termed as interest also is of the same character and it seeks to compensate the time value of money on account of delay in payment. On the first principles, such an interest cannot have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest is awarded, itself is outside the ambit of taxation, similar fate must follow for the subsidiary transaction, i.e. interest for delay in payment of compensation, as well. Touching a different chord but coming to the rescue of the assessee, Hon ble Punjab Haryana High Court, in the case of CIT Vs B Rai [(2004) 264 ITR 617 (P H)], draws a line of demarcation between the interest granted under the statutory provisions and interest granted under discretion of the court, and holds that the latter is outside the scope of income which can be brought to tax under the Income Tax Act, 1961. As Their Lordships stated, in so many words, where interest is to be paid is in the discretion of the court, as in the present case, the said interest would not amount to income for the purposes of income tax . That precisely is the situation before us as well. 6. Revenue, however, does not even challenge these propositions, and, in our considered view, rightly so; it is only on the scope of provisions of Section 145A(b) and section 56(2)(viii) that they rest their case. It is, therefore, perhaps only appropriate to appreciate the scope of these provisions and take a look at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said case; the only dispute was the year in which the income should be taxed. The amendment in law, therefore, deals with the point of time when an income is it to be taxable. It does not bring to tax an income which was, until the point of time when amendment was made, not taxable earlier. Section 145A, it is important to bear in mind, deals with the method of accounting on cash or mercantile basis which again has its focus on the point of time when an income is taxable rather than taxability of income itself. When an income is not taxable, section 145A has no relevance. It is in this backdrop that we can take a look at Section 145A which is as follows: Section 145A: Method of accounting in certain cases- Notwithstanding anything to the contrary contained in section 145,- (a) ..(not relevant for our purposes) (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. 9. Section 145A starts with a non obstante clause which restricts the scope of Section 145 dealing with the method of accounting. It is not a charging provision. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to tax is like putting the cart before the horse. The very approach of the authorities below is devoid of legally sustainable merits. The authorities below were thus completely in error in bringing the interest awarded by Hon ble Supreme Court to tax. The question of deduction under section 57(iii), given the above conclusion, is wholly irrelevant. We vacate this action of the Assessing Officer, and disapprove the CIT(A) s action of confirming the same. Grievance of the assessee is thus upheld. 10. As we part with the matter, we must say that, as fellow citizens, we are deeply anguished to take note of the long journey that the assessee had to undertake to get her dues and then to fight this unjust income tax demand on her. In order to ensure that others do not have to tread the same arduous path- at least with respect to the tax demand, and to bring an element of certainty, we would suggest that the Central Board of Direct Taxes may as well take a conscious call on issuing appropriate administrative instructions in this regard and ensuring that what was brought as a measure of relief to the taxpayers is not used, by the field officers, as a source of taxation. Such a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor Vehicles Act, 1988 provides for grant of compensation to the victims of a vehicular accident. The Motor Vehicles Act has undergone a sea change and the purpose of granting compensation under the Motor Vehicles Act is to ameliorate the sufferings of the victims so that they may be saved from social evils and starvation, and that the victims get some sort of help as early as possible. It is just to save them from sufferings, agony and to rehabilitate them. We wonder how and under what provisions of law the Income Tax Authorities have treated the amount awarded or interest accrued on term deposits made in Motor Accident Claims Cases as income. Therefore, the said Circular is against the concept and provisions referred to hereinabove and runs contrary to the mandate of granting compensation. ...23. Having said so, the Circular, dated 14.10.2011, issued by the Income Tax Authorities, whereby deduction of income Tax has been ordered on the award amount and interest accrued on the deposits made under the orders of the Court in Motor Accident Claims Cases, is quashed and in case any such deduction has been made by respondents, they are directed to refund the same, with interest at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Himachal Pradesh high Court and the judgment of the Single Judge of the Punjab and Haryana High Court lay down the right law and hence, this Court arrives at the conclusion that the compensation awarded or the interest accruing therein from the compensation that has been awarded by the Motor Accident Claims Tribunal cannot be subjected to TDS and the same cannot be insisted to be paid to the Tax Authorities since the compensation and the interest awarded therein does not fall under the term 'income' as defined under the Income Tax Act, 1961. 19. Therefore, this Court directs that the Petitioner Corporation cannot deduct any amount towards TDS and the same shall also be deposited in addition to the amount that has already been deposited to the credit of M.C.O.P.No.879 of 2006, on the file of the Motor Accident Claims Tribunal, Additional District Judge, Fast Track Court, Dharmapuri, within a period of four weeks from the date of receipt of a copy of this order and the Respondent is entitled to take appropriate steps in a manner known to law to withdraw the amount. 71. A Division Bench of the Allahabad High Court in the case of Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a deposit, claim or other similar right or obligation, or any service fee or other charge in respect of monies borrowed or debt incurred has been received then certainly it shall come within the definition of interest. 38. The word claim used in the definition may relates to claims under contractual liability but certainly do not cover the claims under the statutory liability. The claim under the Motor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed, shall not attract the provisions of Section 2(28A) read with Section 194A(1) of the Income Tax Act. 72. In the last, we take notice of a very recent pronouncement of the Bombay High Court in the case of Shri Rupesh Rashmikant Shah vs. Union of India and others [Writ Petition No.2902 of 2016 decided on 8th August 2019], wherein the following has been held: 57. We, therefore, hold that the interest awarded in the motor accident claim cases from the date of the Claim Petition till the passing of the award or in case of Appeal, till the judgment of the High Court in such Appeal, would not be exigible to tax, not being an income. This position would not change on account of clause (b) of section 145A of the Act as it stood at the relevant time amended by Finance Act, 2009 which provision now finds place in sub-section (1) of section 145B of the Act. Neither clause (b) of section 145A, as it stood at the relevant time, nor clause (viii) of sub-section (2) of section 56 of the Act make the interest chargeable to tax whether such interest is income of the recipient or not. Section 194A of the Act is only a provision for deduction of tax at source. Any provision for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Prafulchandra (supra), the Court had no occasion to decide the taxability of interest on compensation or enhanced compensation of motor accident cases. This was also the position in the case of decision of this Court in the Gauri Deepak Patel ors. (supra). 61. We may clarify that these observations and conclusions would apply to interest on compensation or enhanced compensation awarded by the Motor Accident Claims Tribunal or High Court from the date of the Claim Petition till passing of the award or the judgment. Further interest which may be paid for delay in depositing the awarded amount, would not form part of the compensation and, therefore, would fall in the bracket of interest income and would be exigible to tax under the normal provisions. 73. The upshot of the aforesaid discussion is that the compensation received under the Motor Vehicles Act is either on account of loss of earning capacity on account of death or injury or on account of pain and suffering and such receipt is not by way of earning or profit. The award of compensation is on the principle of restitution to place the claimant in the same position in which he would have been as the loss of life ..... X X X X Extracts X X X X X X X X Extracts X X X X
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