IMPORTANT POINT
Interest on compensation awarded by the Motor Accidents Claims Tribunal is taxable under the Income Tax Act, and TDS applies when interest exceeds Rs.50,000.

JUDGMENT :

Dr. A.K.Jayasankaran Nambiar, J.

The New India Assurance Company, that was the 1st respondent in WP(C) No.8280 of 2013, is the appellant before us, aggrieved by the judgment dated 21.02.2023 of a learned Single Judge in the Writ Petition.

2. The brief facts necessary for the disposal of this Writ Appeal are as follows:

The Writ Petition was filed by one Ayisha, who was the widow of one Ahammed, who had died in a road accident. In OP(MV) No. 2402 of 2006 that was preferred in connection therewith before the Motor Accidents Claims Tribunal, Thrissur, the Motor Accidents Claims Tribunal, vide award dated 10.01.2013, assessed a compensation of Rs.3,01,000/- with interest at the rate of 8% from the date of petition till the date of realisation in favour of the petitioner. It is not in dispute that the Insurance Company accepted the amount and decided to pay the compensation awarded to the writ petitioner. At the time of making the payment of the interest portion, the appellant herein deducted tax at source at the rate of 20% on the interest component finding that as per the extent provisions of Section 194A of the Income Tax Act it was required to make such a deduction when the interest payment exceeded Rs.50,000/-.

3. In the Writ Petition that was filed, the challenge was essentially to the notice issued to the petitioner by the appellant herein intimating her of the deduction of tax that was effected from the interest amounts mentioned in the award. The petitioner also impugned Ext.P3 communication that was received from the appellant, intimating the petitioner of the payments effected based on the award, through four cheques that were drawn on the Corporation Bank, Thrissur. The prayer in the Writ Petition was essentially for quashing the communications issued to the petitioner and for issuing directions to the appellant herein to pay the interest amount without deducting tax at source.

4. The learned Single Judge, who considered the matter relied on a decision of the Gujarat High Court that had, in turn, relied on the judgment of the Madras High Court in Managing Director, Tail Nadu State Transport Corporation (Salem) Limited v. Chinnadurai [(2016) 70 Taxman.com 53(Madras)] to find that compensation awarded on the interest accruing therein from the compensation 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 do not fall under the term 'income' as defined under the Income Tax Act. Reliance was also placed by the learned Single Judge on the decision of the Supreme Court in Commissioner of Income Tax v. Ghanshyam (HUF) [(2009) 315 ITR 1 (SC)]. In the ultimate analysis, the learned Judge found that the communication of the appellant asking the petitioner to submit documents for deduction of tax at source on the interest component was illegal, and therefore, liable to be quashed. It was also declared that there could be no liability to deduct tax at source on payment of interest over and above the compensation amount awarded under orders of the Motor Accidents Claims Tribunal.

5. Before us, it is the submission of the learned Senior counsel Sri. George Cherian that the declaration by the learned Single Judge, as a general proposition, that TDS cannot be deducted in the circumstances envisaged under Section 194A of the Income Tax Act is wholly illegal and cannot be legally sustained. In particular, it is pointed out that while there was no clarity in the impugned judgment as regards what had to be done consequent to the appellant having deducted the tax at source on the interest amounts paid to the writ petitioner and having made over the said payments to the Income Tax Department, which held the same to the credit of the writ petitioner, it was also apparent that the writ petitioner herself had not taken any steps as mandated under the Income Tax Act for claiming the refund of the tax amounts that were credited to her account with the In