Interest awarded as compensation under MV Act is deemed a capital receipt, not taxable under the Income Tax Act, thus refund of incorrectly deducted tax is warranted.

JUDGMENT

MANISHA BATRA, J.

1. The instant petition invoking writ jurisdiction of this Court had been filed by the petitioner by submitting that after the unfortunate death of her husband in a motor vehicle accident on 10.05.2003, she had filed a petition seeking compensation under the provisions of MOTOR VEHICLES ACT , 1988 (for short “MV Act”). The Motor Accident Claims Tribunal, Patiala (for short “MACT”) awarded her compensation to the tune of Rs.7,60,000/-. She approached this Court for enhancement of compensation amount by filing an FAO No.2013 of 2005. Vide order dated 01.08.2018, the same was allowed and compensation amount was enhanced to the tune of Rs.14,79,221/- payable with interest @7.5% per annum. In the execution petition filed by her before MACT, the Insurance Company deposited an amount of Rs.12,39,188/- while deducting TDS at the rate of 10% which came to be Rs.1,23,919/-. Then at the time of filing her ITR for the assessment year (A.Y.) 2019-20 subsequently, she was further made to pay tax to the tune of Rs.2,13,631/-. She has prayed for issuance of a writ of mandamus thereby directing the respondents to refund the amount of tax so deposited by submitting that the same was got deducted in an illegal and arbitrary manner on the interest amount received by her on account of delayed payment of the compensation amount under the provisions of MV Act, which was not taxable.

2. The respondents in the reply filed by them resisted the claim of the petitioner by submitting that the same was misconceived as the interest awarded to the petitioner was in the nature of revenue receipt which was taxable and was required to be deducted under Section 194-A of the INCOME TAX ACT , 1961 (for short “Act, 1961”). It was submitted that the petitioner herself having filed return of income for the A.Y. 2019-20 and offering the amount of interest received by her to tax, was not entitled to challenge the same. More so, she herself had claimed refund of a sum of Rs.10/- on the tax deduced at source and the credit thereof had been given to her while processing her return under Section 143 (1) of the Act, 1961 and, therefore, no cause of action survived in her favour. Accordingly, the respondents prayed for dismissal of the petition.

3. Learned counsel for the petitioner argued that she was entitled to refund of the amount deducted as tax on the interest amount received by her along with compensation as awarded by this Court and the MACT as interest was awarded under a social welfare legislation which in case of conflict with taxation legislation, was to prevail. He submitted that the interest paid on compensation which was in the nature of capital receipt was to be treated at par with the compensation for the purpose of taxability and could not be regarded as income liable to tax. In support of his contention, learned counsel relied upon authorities cited as The New India Assurance Co. Ltd. v. Savitri Devi and another, CR No.6784 of 2016, decided on 04.04.2018; National Insurance Company Limited v. Janki, CR No.6320 of 2016, decided on 08.08.2019 and Drawing and Disbursing Officer v. Income Tax Officer, ITA No.495 of 2009, decided on 30.03.2011 by Co-ordinate Benches of this Court; The Oriental Insurance Company Limited v. Chief Commissioner of Income Tax (TDS), 2022 (445) ITR 300 & Rupesh Rashmikant Shah vs Union Of India , 2019 SCC OnLine Bombay 518 .

4. Per contra, learned counsel for the respondents argued that the Insurance Company had deducted tax on the interest component under Section 194-A o