Interest on compensation is to be treated as a capital receipt and not income until received by the claimant, based on the interpretation of Section 194A of the Income Tax Act, 1961, and various judgments.

JUDGMENT :

AMOL RATTAN SINGH, J.

1. These two revisions have been filed by the National Insurance Company Limited, challenging two orders of the learned Motor Accident Claims Tribunal, Moga, both dated July 20, 2016, passed in two separate execution applications filed by the claimants in whose favour the Tribunal had earlier passed Awards granting them certain compensation.

The challenge is on account of the fact that the Tribunal has directed the petitioner company to deposit tax at source, on the component of interest payable to the claimants pursuant to the Awards in their favour.

The contention of the petitioner is that, in fact, it had already deposited the tax deducted at source, with the income tax authorities; and consequently the direction by the Tribunal, vide the impugned orders, is wholly uncalled for, as the company would therefore be paying the said component of the compensation again.

While issuing the aforesaid direction, the Tribunal had relied upon a judgment of a Division Bench of this court, in Drawing and Disbursing Officer v. Income Tax Officer (ITA no.495 of 2009), decided on 30.03.2011, with the Tribunal observing in its order that in the said judgment, this court had framed specific issues after referring to various authorities of the Supreme Court, and had thereafter held that the interest component in the compensation awarded by a Motor Accident Claims Tribunal, being a part of compensation so awarded, is to be treated as a capital receipt and not income, till the claimant has actually received the amount.

2. Notice of motion having been issued in both these petitions, as per the report of the Registry, the respondents in CR no.6419 of 2016, i.e. the claimants before the learned Motor Accident Claims Tribunal, stand duly served. However, despite that, they have chosen not to appear and contest the petition.

In CR no.6320 of 2016, the report is to the effect that the claimant has expired. However, her son, Suraj Kumar, is the one who actually submitted her death certificate to the learned District Judge, Moga, (upon a direction from this court, there being some confusion on whether she had died or not).

Obviously therefore, with her son fully aware of the notice issued in the petition, he has still not chosen to appear and contest the case.

3. Before this court, Mr. Neeraj Khanna and Mr. Ravinder Arora, learned counsel appearing for the petitioner company in these two cases, have first referred to Section 194-A of the Income Tax Act, 1961, the relevant extract of which, as amended, reads as follows:-

"194A. (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 the monetary limits specified under clause (a) or clause (b) of section 44AB 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 aforesaid is credited to any account whether called "Interest payable account" or" Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

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The provision of sub-section (1) shall not apply-

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[(ix) to such income credited by way of interest on the compensation amount award