Interest paid along with the compensation as a result of the order of the Tribunal or of the superior Court is not liable for TDS.

KULDIP SINGH J.

1. Impugned in the present revision petitions are the different orders passed by Motor Accident Claims Tribunal, Bathinda, whereby the J.D.-Insurance Company was directed to deposit within 15 days the TDS amount, which has been deducted at source. The J.D. was given liberty to withdraw the TDS amount from Income Tax Department.

2. I have heard learned counsel for the parties and also examined the matter with the valuable assistance rendered by Mr. Yogesh Putney, Amicus Curiae, appointed by this Court and the learned counsel for the parties.

3. The point for determination before this Court is “whether Insurance Company can deduct income tax at source (TDS) on the interest paid on the compensation paid under Motor Vehicles Act, 1988?”

4. The learned Amicus Curiae has argued that in view of the amendment carried out w.e.f. 01.04.2010, in Section 194-A and Section 56 (2)(viii) of the Income Tax Act, 1961 (for short 'the Act'), which empowers the deduction of TDS on the interest to be deducted in the year of receipt read with provisions of Section 194(A)(ixa) of the Act, the income tax on the interest to the extent of Rs.50,000/- is exempted, whereas beyond that it is to be deducted at source.

5. Learned counsel for the respondent(s) has argued that at the first instance, the tax on the interest is payable in the year in which it was credited and payable and secondly, TDS on interest part is not payable.

6. Learned counsel for the respondent(s) has relied upon the Single Bench judgment of this Court delivered in case of “New India Assurance Company Ltd. vs Sudesh Chawla and others”, 2016(1) PLR 505.

7. A perusal of the said authority shows that in the said case, circular dated 14.10.2011, issued by the Income Tax Authorities, was quashed. However, Section 56(2)(viii) and Section 194 (ixa) of the Act were not discussed and decided.

8. Moreover, the said judgment though specifically lay down that the compensation is not the income but it does not say in so many words that the interest on the compensation is also not income.

9. Learned counsel for the respondent(s) has referred to the definition of 'income' as laid down under Section 2(24) of the Act, wherein the compensation or interest on the compensation is not laid down as income.

10. Section 2(28A) of the Act defines the interest as under:

“interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;”

Under Section 4 of the Act, the income tax is to be deducted at source.

11. Under Section 56(2)(viii) of the Act, the income by way of interest received on the compensation or enhanced compensation referred to Clause (b) of Section 145A of the Act is to be treated as income from other sources.

12. Section 145 A(b) of the Act provides that the interest received by an assessee on the 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.

13. As per Section 190 of the Act, the tax on the income is to be deducted for collection at source.

Section 194A of the Act provides as under:

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:”

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As per sub Section 3, the provisions of sub-section (i) shall not apply.

(i) ------------------------------------------------------ (ix)

Section 194 (ixa)

“