Insurance Company Not To Deduct TDS On Interest On Compensation Awarded To The Claimant Till 01.06.2015 : Punjab & Haryana High Court

The Single Bench of Justice Arvind Singh Sangwan reiterated that 194A of Income Tax Act, 1961 is not a charging provision and hence, the provisions of Section 194A that deal with tax deducted at source, do not make the interest income chargeable to tax if it is otherwise not taxable.

The Motor Accidents Claims Tribunal (MACT) passed an award granting compensation along with interest to the claimants who met with an accident. The petitioner- New India Assurance Company Limited, an Insurance Company, was directed to deposit the TDS deducted on the amount of interest paid on the compensation granted to the claimants. Against this, the petitioner filed a revision petition before the Punjab and Haryana High Court.

The Income Tax Department submitted before the High Court that interest which has accrued on the compensation awarded in terms of an award by the Motor Accidents Claims Tribunal is taxable.

The department argued that the Madhya Pradesh High Court in Oriental Insurance Company Limited versus. Kala Bai and Ors. (2020) has held that tax is payable on the interest accrued on the amount of compensation awarded under the Motor Vehicles Act, 1988 provided that the interest should not be more than Rs. 50,000 per claimant per financial year.

Section 194A of the Income Tax Act, 1961 provides that 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 or at the time of payment, deduct income tax. Also, Section 194A (3) (ixa) provides that with respect to the income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal, no TDS is required to be deducted where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees.

The Court observed that the Bombay High Court in Rupesh Rashmikant Shah versus Union of India (2019) had held that the interest awarded in the motor accident claim cases from the date of the Claim Petition till the passing of the award, or till the date of passing of the judgment by the High Court in case of an Appeal, would not be exigible to tax since it does not constitute an income. Further, the Bombay High Court ruled that though in view of the amendment to Section 194A (3), as amended by the Finance Act, 2015 w.e.f. 1.6.2015, the insurance company would be required to deduct tax at source on interest income if the same exceeds Rs. 50,000 per claimant in a financial year, however, Section 194A does not make the interest income chargeable to tax if it is otherwise not taxable since it is not a charging provision. The Bombay High Court added that if the payee has no liability to pay such income, the liability to deduct tax at source in the hands of a payer cannot be fastened.

Further, the Court noted that the Punjab and Haryana High Court in Insurance Company Limited versus Janki (2019) had held that the Insurance Company is not required to deduct tax at source on the interest on the compensation awarded to the claimant uptil 01.06.2015, even if the interest exceeds Rs. 50,000 per claimant in the financial year.

Hence, the Court reiterated that Section 194A of Income Tax Act is not a charging provision, and in view of the amended Section 194A (3) and the catena of judgments passed by the High Courts of Gujarat, Andhra Pradesh, Himachal Pradesh and Madhya Pradesh, the Insurance Company, while depositing the interest exceeding Rs. 50,000/- per claimant per year is required to file a calculation before the MACT with respect to the amount of TDS to be deducted.

In view of the judgment in Janki's case (supra) passed by the Single Bench of this Court, prior to the amendment of Clause IX and after insertion of Clause IX-A under Section 194(A)(3) of the Income Tax Act, 1961 w.e.f. 1.6.2015 no interest will be deductable at source even if the interest is beyond Rs. 50,000/- in a particular year. Therefore, the Insurance Company has to pay the interest of compensation accrued to the claimants prior to 1.6.2015 even if the TDS is deposited with the Income Tax Authorities at that time and the claimants cannot be burdened with filing of return for seeking refund for any fault of the Insurance Company."

The High Court thus set aside the orders and remanded the matter back to the Motor Accident Claims Tribunal with a direction that if the interest on compensation is paid prior to 1.6.2015, then the petitioner may seek refund of the TDS paid to the revenue department by filing a revised income tax return and the petitioner would be required to pay the amount of the said TDS to the claimants. However, the Court added that where the interest on the compensation is paid after 1.6.2015, which is exceeding Rs.50,000/- per claimant per financial year, the petitioner would be required to pay TDS to the revenue department on securing 'Form 15-G' of Rule 29-C of the Income Tax Act/Rules.

Case Title: New India Assurance Company Limited versus Ravinder Kumar @ Vickey and others

Dated: 06.08.2022 (Punjab and Haryana High Court)

Counsel for the Petitioner: Mr. R.C. Kapoor, Mr. Sandeep Suri, Mr. Rajesh K. Sharma, Mr. Varun Sharma for Mr. Satpal Dhamija, Advocate.

Counsel for the Respondent: Mr. Ashit Malik, Mr. Lakhvir Kumar, Mr. Vinod Bhardwaj, Mr. Yogesh Putney, Mr. Prashant Bansal

Citation: 2022 LiveLaw (PH) 227 

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