Compensation and interest awarded by MACT do not constitute 'income' as defined in the Income Tax Act, hence are not liable for TDS.

JUDGMENT

[WP(C) Nos.8280/2013, 17283/2021]

This order of mine shall dispose of two writ petitions W.P. (C).No.8280 of 2013 titled as Ayisha v. The New India Assurance Company Limited and Others (first writ petition) and W.P.(C).No.17283 of 2021 titled as Sajitha and Others v. The manager, United India Insurance Co.Ltd. And Others (second writ petition) where the question involved is whether the income tax deducted on the interest received on the award is permissible or not.

2. In the first writ petition, petitioner, the widow of one Ahammed, who unfortunately died in a road accident, preferred O.P.(MV)No.2402/2006 before the Motor Accidents Claims Tribunal, Thrissur along with daughter and son. On the basis of evidence on record, learned MACT vide award dated 10.01.2013 assessed the compensation of Rs.3,01,000/- with interest @ 8% from the date of petition till date of realization. Insurance Company accepted the amount but later on received a letter from the Senior Divisional Manager that the award of the Tribunal carrying interest is more than Rs.50,000/- and until and unless the details of the PAN card are not furnished, the tax will be deducted at source at the rate of 20% instead of 10%.

3. In the second case, petitioners are claimants in O.P. (MV)No.1112/2018 claiming the compensation on account of death of Rajan, occurred on 05.02.2006. On the basis evidence on record, learned MACT vide award dated 28.04.2021 assessed compensation of Rs.22,77,500/- with interest @ 8% from the date of the claim. Tribunal apportioned the total compensation in the ratio of 40:20:20:10:10 to the petitioners 1 to 5. 1st petitioner was allowed to withdraw Rs.5 lakhs from the total corpus amount and the interest from the amount due to other petitioners will be less than Rs.50,000/- per annum as explained in the tabulated form in paragraph 3 of the petition.

Company called upon the petitioners to submit the copy of IT returns for the last two preceding financial years under Sections 206AB and 206CCA of the Income Tax Act, 1961, as it accrued the interest exceeding Rs.50,000/-.

4. Learned counsel appearing on behalf of the petitioners submitted that the TDS on the amount awarded under the provisions of Income Tax Act is not maintainable for the reason that Insurance Company cannot deduct the Income Tax at source (TDS) on the interest paid on the compensation paid under the Motor Vehicles Act. The tax on the interest is payable in the year in which it has been credited and payable and secondly, TDS on interest is not payable. In support of the contention relied upon judgments of Punjab and Haryana High Court in CR.No.6784 of 2016 dated 4.4.2018 (Ext.P3 in W.P(C).17283/21) and in New India Assurance Company Ltd. vs. Sudesh Chawla & Others [CDJ 2015 PHC 553]; of High Court of Judicature at Bombay in Rupesh Rashmikant Shah v. Union of India & Others [2020 ACJ 1113]; of Madras High Court in The Managing Director, Tamil Nadu State Transport Corportation (Salem) Ltd. v. Chinnadurai [CRP (PD) No.1343 of 2012] and of Gujarath High Court in The Oriental Insurance Co. Ltd. v. Chief Commissioner of Income Tax (TDS) [R/SCA No.4800 of 2021].

5. On the other hand, learned counsel appearing on behalf of the Insurance Company submitted that no doubt they are not charging any tax on the amount of compensation but liable to deduct TDS on the payment of the interest.

6. I have heard the learned counsel for the parties and appraised the paper books.

7. It is a matter of record that whenever in an accident, claim petition is preferred, the Insurance does not agree with the claim and pay the compensation only on adjudication by the concerned Motor Accident Tribunal. The question which now arises is as to when the compensation is actually paid, the interest on the said compensation accrues on account of delayed payment; whether the interest on the compensation would be the part of compensation or would be treated as a separate component for attracting TDS. The ambit of the Motor