Bombay High Court
The New India Assurance Co. Ltd. ... vs Hussain Babulal Shaikh And Ors on 15 November, 2016
Bench: G. S. Kulkarni
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.1770 OF 2015
The New India Assurance Co.Ltd. )
Mumbai, through Mumbai Regional )
Office-I, New India Bhavan, 2nd floor )
34/38, Bank Street, Fort, Mumbai-23 )... Petitioner.
vs
1.Hussain Babulal Shaikh ig )
Aged not known, Occupation not )
known, residing at Siddharth Nagar )
R.No.582, C-7, Worli Naka, )
Mumbai-400018. )
2.Mr.Joe Joseph, aged not know, )
Occupation not known, residing at )
Asian Building, Ground Floor, )
R.Kamani Marg, Ballard Estate, )
Mumbai. )
3. The Secretary, Union of India )
Through Ministry of Finance, )
Income Tax Department, )
Aaykar Bhavan, Marine Lines,Mumbai)...Respondents
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Mr.Devendranath S.Joshi, for the Petitioner.
Mr.Samir A.Vaidya, for Respondent No.1.
Mr.Suresh Kumar, for Respondent No.3-Union of India.
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CORAM: G.S.KULKARNI, J.
JUDGMENT RESERVED ON: 7 October 2016
JUDGMENT PRONOUNCED: 15 November 2016
Judgment : -
1. The Petitioner - New India Assurance Company Limited
has filed this petition challenging the order dated 21 November 2014
passed by the learned member of the Maharashtra Accident Claims
Tribunal, Mumbai (for short "the Tribunal") whereby an application
of Respondent No.1 for issuance of warrant of attachment against the
Petitioner in execution of an award, for not depositing part of the
award amount, on the ground that the same has been deducted as
"tax deducted at source" (TDS), stands allowed.
2. Respondent No.1 is the original claimant who sustained
injuries in a motor vehicle accident occurred on 17 October 2005.
The Respondent No.1 had filed Claim Application No.1178 of 2006,
claiming compensation of Rs.50,00,000/- from Respondent No.2 and
the Petitioner-Insurer. The learned member of the Tribunal by his
judgment and order dated 30 July 2012 awarded compensation of
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Rs.3,43,000/- inclusive of no fault liability amount together with the
simple interest at the rate of 7.5% per annum from the date of filing
of the claim petition till realisation of the said amount.
3. The case of the Petitioner is that it has satisfied the
Award of the Tribunal by depositing a cheque of an amount of
Rs.3,23,502/- towards the principal amount, after adjusting no fault
liability amount already paid and Rs.1,26,918/- towards the interest
part, after deducting of tax at source (TDS) as per the provisions of
Section 194A(3)(ix) of the Income Tax Act,1961. The TDS amount is
already deposited with the Income Tax Authority and the TDS
certificate in the form No.16A is produced before the Tribunal.
4. The Respondent No.1 would contend before the Tribunal
that the Petitioner could not have deducted tax at source but ought to
have deposited the full award amount. Respondent No.1 being
aggrieved by this action of the Petitioner thus moved Execution
Application No.38 of 2013 praying for issuance of warrant of
attachment against the Petitioner. According to Respondent No.1, the
Petitioner has defaulted in depositing the full amount as per the
Award by wrongly deducting TDS of Rs.40,034/- which was the
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balance amount liable to be paid by the Petitioner.
5. The Petitioner resisted the execution application
interalia contending that there is no liability to deposit the said
amount, inasmuch as the Petitioner was under a legal obligation to
deduct the TDS as per the provisions of the Income Tax,1961 and the
same is deposited with the income tax authorities. It is stated that
the TDS amount on interest paid as was deposited with the Income
Tax department, the Petitioner is not liable to pay any amount to
Respondent No.1. The Petitioner produced a TDS certificate and
contended that in view of the TDS certificate, Respondent No.1 can
approach the Income Tax Authorities if so permissible and make a
claim for the said amount.
6. The learned member of the Tribunal relying on the
decision of the Division Bench of this Court in "Gauri Deepak Patel
& Ors. Vs. New India Assurance Co.Ltd. & Anr."1 observed that the
Petitioner has not followed the guidelines as contained in the
decision for depositing the TDS amount. It is observed that the
Petitioner having knowledge of the provisions of the Income Tax Act
and the law laid down by the Division Bench ought not to have
1 2011 ACJ 1782
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deducted a lumpsum TDS and deposited the same with the Income
Tax department. It was observed that the Petitioner by deducting the
TDS amount has actually deprived Respondent No.1 from receiving
the award amount, and as the Petitioner was not ready to deposit the
amount, warrant of attachment was directed to be issued by passing
the following order:
" ORDER
Application is allowed.
igIssue attachment warrant under Order 21 rule 43
of CPC on process fee for attachment of three computers
in the office of the insurance company. If the insurance
company deposited the amount before issuance of
attachment warrant then the warrant be stayed."
7. On the above conspectus, learned Counsel for the
Petitioner submits that the action of the Petitioner in depositing the
TDS amount was legal and valid in view of the provisions of Sections
194-A(3)(ix), 145A and 56(2)(viii) of the Income Tax Act,1961. It is
submitted that the decision of the Division Bench of this Court in
Gauri Deepak Patel & Ors.(supra) relied on behalf of Respondent
No.1 and referred in the impugned order, is clearly distinguishable,
as it does not take into consideration the said three provisions of the
Income Tax Act which are required to be read conjointly. It is
submitted that even in terms of clause (vi) of the directions of the
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Division Bench in Gauri Deepak Patel & Ors.(supra), Respondent
No.1 can claim refund from the Income Tax Authorities. It is
submitted that the effect of the impugned order is that the Petitioner
is again made to pay the said amount to Respondent No.1, when the
amount is already deposited with the Income Tax Department. This
would amount to double payment. It is thus contended that the
Petitioner has rightly deducted the TDS and deposited the sum with
the Income Tax department in the name of Respondent No.1.
8. As regards the application of the above provisions of the
Income Tax Act, learned Counsel for the Petitioner would submit that
on a conjoint reading of these provisions, following interpretation is
available:- (a) The interest on compensation granted by MACT is
chargeable to tax in the year in which it is received by the Assessee-
claimant in terms of Sections 145A(b) & 56(2)(viii) of Income Tax
Act.; (b) As per Section 194A(3)(ix), the person making payment of
interest on compensation granted by MACT is liable to deduct tax at
prescribed rates at the time of Credit (Book Entry) or payment
(Actual) if interest exceeds Rs.50,000/- per claimant. The provision
nowhere requires bifurcation of interest part over the years. It
requires deduction of TDS only at the time of Book Entry or Actual
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Payment.; (c) Looking from another angle, the interest part cannot be
determined unless the Award is passed by the Tribunal hence there is
no question of its bifurcation over the years by the deductor for the
period necessarily prior to passing of Award; (d) Section 194A has to
be considered from the point of view of Deductor and not Assessee.
It cannot be seen whether the Assessee is liable to pay tax or not.; (e)
The Assesses-Claimant can always claim refund of amount from
Income Tax department if he is not liable to pay tax.
9. In support of his submissions, the learned Counsel for
the Petitioner has relied on the decision of "The New India
Assurance Co.Ltd. Vs. Mani S.Nachimuthu, N."2, decision of the
Supreme Court in the case of "Bikram Singh & Ors. Vs. Land
Acquisition Collector"3 and the decision of the learned Single Judge
of Andhra Pradesh High Court in the case of "The National
Insurance Company Ltd. Vs. Yeliminti Appanna & Anr."4.
10. On the other hand, the learned Counsel for Respondent
No.1 has supported the impugned order of the Tribunal principally
on the ground that the impugned order is in consonance with the
2 270 ITR 394 Mad.
3 (1997)10 SCC 243
4 Civil Revn.Petition No.994/12 decided on 22.4.2014
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decision of this Court in Gauri Deepak Patel & Ors. (supra) and the
decision of the Gujarat High Court in the case "New India Assurance
Co.Ltd. Vs. Bhoyabhai Haribhai Bharvad"5. It is submitted that the
Petitioner had completely overlooked the binding mandate of the
directions as contained in the decision of the Division Bench of this
Court in Gauri Deepak Patel & Ors. (supra). It is submitted that the
TDS ought not to have been deducted from the Award amount
inasmuch as such deduction as made by the Petitioner is clearly
impermissible under Section 194A of the Act as observed by the
Division Bench. It is submitted that the Division Bench has
interpreted Section 194A(3)(ix) of the Income Tax Act and has laid
down a detailed guidelines to be followed by the Insurance
Companies for deduction of TDS in payment of the award amount,
and the effect is that the award amount stands reduced. It is
submitted that the Petitioner who is a accident victim cannot be in a
situation where he is required to again pursue proceedings with the
Income Tax Authorities in raising a claim of the TDS amount. Such
intention cannot be gathered from the provisions of the Motor
Vehicles Act. In support of his submission, the learned Counsel has
also placed reliance on the judgment of the learned Single Judge of
Madras High Court in the case "Managing Director, Tamil Nadu
5 (2016)72 Taxmann.com335 (Gujarat)
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State Transport Corporation (Salem) Ltd., Bharathipuram,
Dharmapuri Vs. Chinnadurai"6.
11. I have heard the learned Counsel for the parties. With
their assistance, I have also perused the impugned order, relevant
documents as placed in the paper book as also the various decisions
as relied on behalf of the parties.
12.
The issue which falls for consideration of the Court is
'whether the Petitioner would be justified in deducting tax at source
(TDS) in respect of the interest payment made under the award of
the Tribunal.' It would be appropriate to consider the relevant
provisions of the Income Tax under which the Petitioner has
deducted TDS in payment of the interest component under the
Award. The case of the Petitioner is that it has acted under Section
194A(3)(ix) of the Income Tax Act. The said provision reads thus:-
"Section 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
6 (2016)5 MLJ 105
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cheque or draft or by any other mode, whichever is
earlier, deduct income tax thereon at the rates in force:
(2) .....
(3) The provisions of sub-section (1) shall not apply-
(i) to (viii) ... .... ....
(ix) to such income credited or paid by way of interest
on the compensation amount awarded by the Motor
Accidents Claims Tribunal 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.
ig (emphasis supplied)
A plain reading of the above provision would indicate that when any
person not being an individual or Hindu undivided family who
becomes 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. Sub-section (3) excludes the
application of sub-section (1) and sub-clause (ix) thereof and
provides that the provisions of sub-section (1) shall not apply to such
income credited or paid by way of interest on the compensation
awarded by the Motor Accident Claims Tribunal, where the amount
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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
Rs.50,000/-. Thus for exemption from the provisions of sub-section
(1) of Section 194A, the requirement is that such income paid by way
of interest on the compensation amount awarded by the Tribunal will
not be liable for tax if the aggregate amount of such interest income
paid during the financial year does not exceed Rs.50,000/-. In view of
this clear stipulation, the contention as urged on behalf of the
Petitioner if is accepted, then, the provisions of Section 194A(3)(ix)
would be rendered meaningless which categorically provides that for
application of sub-section (1) such interest income paid during the
financial year should exceed Rs.50,000/-. The Division Bench of this
Court in the case of Gauri Deepak Patel & Ors.(supra) has accepted
the interpretation of Section 194A as laid down in the decision of the
Gujarat High Court in the case of "Smt.Hansagauri Prafulchandra
Ladhani Vs. Oriental Insurance Co.Ltd."7 and accordingly has laid
down a procedure under which the Insurance companies or the
owners of the motor vehicles depositing the amount in compliance of
the Award of the Motor Accidents Claims Tribunal.These directions of
the Division Bench lay down a complete scheme which the Insurance
company is required to follow when the amount of compensation is
7 2007 ACJ 1897 (Gujarat)
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deposited in pursuance of the Award of the Tribunal which include
the interest amount. The Division Bench issued the following
directions to be followed in all the cases arising before the Tribunal:-
"6. Accordingly, we direct that the following
procedure as laid down in the case of Hansaguri
Prafulchandra Ladhani, 2007 ACJ 1897 (Gujarat), shall
be followed in the present case and in all similar cases
arising in future before the Motor Accidents Claims
Tribunal:
(i) igThe insurance companies or the owners of the
motor vehicles depositing the amounts in compliance
with the awards of the Motor Accidents Claims Tribunal
shall:
(a) first spread the interest amount over the
relevant financial years for the period from the
date of filing the claim petition till the date of
deposit.
(b) thereafter, if the interest for any particular
financial year exceeds Rs.50,000/-, separately
deposit before the Tribunal the amount liable to
be deducted at source under the provisions of
section 194-A(3)(ix) of the Income Tax Act,1961.
Such amount shall not, however, straightaway be
paid over to Income Tax Department.
(c) produce before the Claims Tribunal a
statement of computation of interest by spreading
the amount over the relevant years from the date
of claim application till the date of deposit if the
interest for any particular financial year exceeds
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Rs.50,000 and also request the Tribunal to treat
the amount as a separate deposit.
(ii) The Tribunal shall ensure that the amount of
interest accrued each year is apportioned amongst claims
on year to year basis.
(iii) If the interest payable to any claimant during any
particular financial year exceeds Rs.50,000, Claims
Tribunal shall permit the insurance companies/owners to
pay over the amount liable to be deducted at source
under Section 194-A(3)(ix) to the Income Tax
Department in respect of that particular claimant for the
particular year, without prejudice to the claimant's case
that he is not liable to pay any income tax for that year.
(iv) For the financial year(s) for which the interest
payable to the concerned claimant does not exceed
Rs.50,000, that Tribunal may permit such claimant to
withdraw the amount deposited as per direction (i)(b)
without producing the certificate from the concerned
income tax authority that there is no income tax liability
on the interest which has accrued on the compensation
awarded by the Tribunal.
(v) It is clarified that the amount other than the
amount liable to be deducted at source under Section
194-A(3)(ix) shall be invested/disbursed by the Tribunal.
(vi) When the claimants make applications before the
authority under the Income Tax Act,1961 for the refund
of the amount deducted under the provisions of Section
194-A(3)(ix) of the Act, the concerned authority shall
decide such applications with utmost expedition."
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13. The learned Counsel for Respondent No.1 also relies on
a recent judgment of the Division Bench of Gujarat High Court in the
case "New India Assurance Co.Ltd. Vs. Bhoyabhai Haribhai
Bharvad"(supra) wherein though the Insurance Company tried to
assert the proposition on clause (ix) and (ixa) of sub-section (3) of
Section 194A of the Income Tax Act (inserted with effect from
1.6.2015 by Finance Act,2015 substituting clause (ix)), the Division
Bench however following the law laid down in the case of
Smt.Hansagauri Prafulchandra Ladhani (supra) and confirming
the interpretation as held therein wherein in a similar situation the
law laid down in the case Smt.Hansagauri Prafulchandra Ladhani
(supra) was not followed by the insurance company, it was directed
that it was open to the Insurance company to approach the Income
Tax Department for refund of tax. In the present case there is no
application of clause (ix) and (ixa) of sub-section (3) of Section 194A
as inserted with effect from 1 June 2015. It would be profitable to
note the observations of the Division Bench in paragraphs 11 and 12
which read thus:-
"11. Under Clause (ix) to sub-section (3) of Section
194A of the Act, as it originally stood, requirement of
deducting tax at source under sub section (1) would not
apply in a case where any income is credited or paid by
way of interest on compensation amount awarded by
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Motor Accident Claims Tribunal where the amount of
such income or, the aggregate amounts of such income
credited or paid during the financial year does not exceed
fifty thousand rupees. This provision of Clause (ix) is
now divide into two parts and is replaced by Clauses (ix)
and (ixa). Clause (ix), in the present form, refers to such
income credited by way of interest on the compensation
amount awarded by the Claims Tribunal. The case of
crediting of interest on compensation therefore, would
fall in Clause (ix) as it stands currently. Under Clause
(ixa) would fall, any payment of interest on
compensation awarded by the Claims Tribunal where the
amount of such income or the aggregate paid during the
financial year does not exceed fifty thousand rupees.
12. It would, therefore, be wholly incorrect to read the
current provision of sub-section (3) of Section 194A to
argue that the cases of income credited by way of interest
on compensation awarded by the Claims Tribunal is no
longer part of sub section (3) for exclusion from purview
of sub-section (1) of Section 194A. In other words,
worded slightly differently. The case of credit of interest
on compensation awarded by the Claims Tribunal
continues to find place in the exclusion clause contained
in sub-section (3) of Section 194A. In fact, it would
prima facie appear that the ceiling of Rs.50,000/- per
annum for such exclusion is now down away with in case
of crediting of interest on compensation awarded by the
Claims Tribunal while retaining such limit in cases of
payment of interest on such compensation. However, we
need not thresh out this last part of the issue since
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admittedly, in the present case, for none of the years
under consideration, the interest income exceeded
Rs.50,000/-. In fact, this Court in case of
Smt.Hansagauri Prafulchandra Ladhani (supra)
provided for further splitting up of this ceiling of
Rs.50,000/- per claimant basis. Looked from any angle,
the insurance company was not justified in deducting tax
at source while depositing the compensation in favour of
the claimants. It therefore, cannot avoid liability of
depositing such amount with the Claims Tribunal. The
Claims Tribunal had committed no error in insisting on
the insurance company in making good the shortfall."
14. Learned Counsel for Respondent No.1 has then placed
reliance on a recent decision of the learned Single Judge of the
Madras High Court in "Managing Director, Tamil Nadu State
Transport Corporation (Salem) Ltd., Bharathipuram,
Dharmapuri Vs. Chinnadurai" (supra). Though this decision does
not consider the decision of the Division Bench in "Gauri Deepak
Patel" (supra), the Court has held that the Motor Vehicles Act is a
social welfare legislation and if there is conflict between the social
welfare legislation and a tax legislation, in that case the social
welfare legislation will prevail, since it sub-serves larger public
interest. The learned Judge coming to this conclusion has followed
the decision of the Division Bench of the Himachal Pradesh High
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Court in the "Court on its Motion vs. H.P.State Co-operative Bank
Ltd. & Ors"8 wherein the Division Bench of the Himachal Pradesh
quashed the circular dated 14 October 2011 issued by the Income
Tax Department which had directed deduction of income tax on the
award amount and interest accrued on the deposit made under the
order of the Court in Motor Accident Cases. The observations of the
learned Single Judge read thus:-
"15. Following the Division Bench Judgment, a learned
Single Judge of the Punjab and Haryana High Court, in a
recent decision, in New India Assurance Company Ltd.
Vs. Sudesh Chawla and others, CR.No.430 of 2015
(O&M), reiterating the reasoning given by the Division
Bench of Himachal Pradesh High Court, has opined that
award of compensation is on the principle of restitution
to place the claimant in the same position in which he
would have been loss of life or injury has not been
suffered and accordingly held that the orders calling
upon the Insurance Company to pay TDS/deduct TDS on
the interest part are not sustainable.
16. If we look at other jurisdictions like Australia,
Unites States and United Kingdom, even there, the
matters where a person has suffered an injury or there
has been a loss of life and a compensation has been paid
in lieu of that, then it has been held by the Courts that
there cannot be any Tax deduction on such
compensation. The underlying basis behind this is that a
person who suffers a loss cannot be asked to part with
the solatium he receives since it is the only remedy he has
been provided with by the law.
17. If there is a conflict between a social welfare
legislation and a taxation legislation, then, this Court is
of the view that a social welfare legislation should prevail
since it subserves larger public interest. The Motor Vehicle
Act is one such legislation which has been passed with a
8 2014 SCC Online HP 4273
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benevolent intention for compensating the accident
victims who have suffered bodily disablement or loss of
life and the Income Tax Act which is primarily intended
for Tax collection by the State cannot put spokes in the
effective and efficacious enforcement of the Motor
Vehicles Act. In fact, if one might deeply analyse, it could
be seen that there is no direct conflict between any
provisions of the Income Tax Act and the Motor Vehicles
Act and it is only by the interpretation of the provisions
the concept of compulsory payment of TDS has crept into
the realm of compensation payment in Motor Vehicle
Accident cases.
18. Hence, with due respect I am unable to concur
with the findings of the Karnataka High Court, the
Chattisgarh High Court and this Court cited by the
Revision Petitioner. This Court is of the view that the
Division Bench judgment of the Himachal Pradesh high
Court and the judgment of the Single Judge of the Punjab
and Haryana High Court lay down the right law and
hence, this Court arrives at the conclusion that the
compensation awarded or the interest accruing therein
from the compensation that has been awarded by the
Motor Accident Claims Tribunal cannot be subjected to
TDS and the same cannot be insisted to be paid to the
Tax Authorities since the compensation and the interest
awarded therein does not fall under the term 'income' as
defined under the Income Tax Act, 1961.
19. Therefore, this Court directs that the Petitioner
Corporation cannot deduct any amount towards TDS
and the same shall also be deposited in addition to the
amount that has already been deposited to the credit of
M.C.O.P.No.879 of 2006, on the file of the Motor
Accident Claims Tribunal, Additional District Judge, Fast
Track Court, Dharmapuri, within a period of four weeks
from the date of receipt of a copy of this order and the
Respondent is entitled to take appropriate steps in a
manner known to law to withdraw the amount."
Thus the above decision of the learned Single Judge of
Madras High Court reflects a different perspective, as also what has
pvr 19 wp1770-15.odt
been held by the Division Bench of the Himachal Pradesh High Court,
is to apply then, surely, it is an issue to be considered by the
appropriate authorities.
15. The submissions on behalf of the Petitioner relying on a
cumulative reading of Sections 56, 145A and 194A(3)(ix) of the Act
cannot be accepted for two reasons, firstly there cannot be any
dispute in the context what Section 56 and 145A would provide in
respect of tax to be paid on interest directed to be paid on the
compensation awarded by the Tribunal, as these provisions would
stipulate and secondly, in view of the above clear position in law as
laid down by the Division Bench of this Court in Gauri Deepak Patel
& Ors. (supra) as also reiterated in the decision of the Division Bench
of the Gujarat High Court in the this Court in "New India Assurance
Co.Ltd. Vs. Bhoyabhai Haribhai Bharvad" (supra) interpreting
Section 194(3)(ix) of the Act, relevant in the present context. Thus,
the reliance on behalf of the Petitioner on the decision of the learned
Single Judge of the Madras High Court in "The New India Assurance
Co.Ltd. Vs. Mani S.Nachimuthu, N." and the decision in the case
"Bikram Singh & Ors. Vs. Land Acquisition Collector & Ors."9 may
not assist the Petitioner.
9 JT 1996(8) SC 678
pvr 20 wp1770-15.odt
16. Resultantly the action of the Petitioner deducting tax at
source on the interest awarded by the Tribunal, without following the
mandate of the Division Bench of this Court in Gauri Deepak Patel
& Ors. Vs. New India Assurance Co.Ltd. & Anr. (supra) was wholly
unjustified and illegal. The Petitioner should have properly advised
itself before deducting the tax at source on the interest amount
following the law laid down in the case of Gauri Deepak Patel &
Ors. Vs. New India Assurance Co.Ltd. & Anr. (supra)
17. The Writ Petition is without any merit and is accordingly
rejected. No costs.
(G.S.Kulkarni,J.)
