HC Reiterates: No TDS deduction permissible on interest component of claimed amount [Read Judgment]

The Bombay High Court allowed the petition and directed the Insurance Company to pay the TDS amount deducted from the interest component of the claim amount.

A single judge bench of this Court comprising Hon’ble Justice Arun R. Pendekar reiterated the law that till the date of the Judgment of the High Court, no TDS can be deducted on the interest component and, as such, the deduction done by the Insurance Company on the interest component of the claim amount is bad in law.

Brief Facts:

The Petitioner was serving in the Police Station as a Police Constable. He met with an accident at the age of 35 and sustained 100% disability. His claim before the Motor Accident Claims Tribunal, Ahmednagar was allowed and on an Appeal filed by the Petitioner, the same was enhanced to Rs.16,19,875/- with interest @9% from 01/08/2000 to 18/07/2018. The following chart indicates the payment made to the Petitioner-

In this petition, the Petitioner challenged the deduction of the TDS on the interest component of compensation awarded under the Motor Vehicles Act.

Contentions of the Petitioner:

The learned counsel for the Petitioner submitted that the TDS deducted on the interest component of the claim amount is unlawful.

Contentions of the Respondent:

The learned Counsel for the Respondent submitted that it is permissible to deduct TDS on the interest component, as the same is permitted under Section 194A of the Income Tax Act, 1961, and since no exemption is permitted from TDS, it is to be deducted.

Observations of the Court:

This Court observed that the issue raised in this petition had been considered by the Division Bench in the case of Rupesh Rashmikant Shah Vs. Union of India and others, Writ Petition No.2902 of 2016, dated 08.08.2019. In this case, the division bench held that “Section 194A of the Income Tax Act is only a provision for deduction of tax at source. Any provision for deduction of tax at source in the said section would not govern the taxability of the receipt. The question of deduction of tax at source would arise only if the payment is in the nature of income of the payee”.

In Rupesh (supra) case, it was clearly held that till the date of the Judgment of the High Court, no TDS can be deducted on the interest component and, as such, the deduction done by the Insurance Company on the interest component of the claim amount is bad in law. In view of the above case, this Court passed the following order-

• Any interest on the claim amount after the date of the High Court Judgment, tax has to be collected as income from other sources, and, as such, the Insurance Company would be entitled to claim TDS on that component of interest, which accrues after the High Court Judgment.
• Directed the Insurance Company to pay the TDS amount deducted on the interest component of the claim amount, up till the date of the High Court Judgment along with 9% interest.

The decision of the Court:

The Bombay High Court allowed the Petition and directed the insurance company to pay the TDS amount deducted on the interest component of the claim amount, up till the date of the High Court Judgment along with 9% interest.

Case Title: Balkrishna vs State of Maharashtra and others

Coram: Hon’ble Justice Arun R. Pendekar

Case no.: WRIT PETITION NO.496 OF 2021

Advocate for the Appellant: Mrs. M. A. Kulkarni

Advocate for Respondent no.4: Mr. P. G. Godhamgaonkar

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