Punjab-Haryana High Court
Nirmal Devi @ Nirmal Verma vs Union Of India And Anr on 10 August, 2023
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IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
CWP No.20290 of 2020
Date of Decision: 10.08.2023
Nirmal Devi @ Nirmal Verma ... Petitioner
Versus
Union of India and another ... Respondents
CORAM: HON'BLE MS. JUSTICE RITU BAHRI
HON'BLE MRS. JUSTICE MANISHA BATRA
Present: Mr. Jitender Dhanda, Advocate and
Ms. Suman Sagar, Advocate,
for the petitioner.
Ms. Gauri Neo Rampal Opal, Senior Standing Counsel,
for the respondents.
***
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
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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
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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 of the Act, 1961 which authorized such deduction on interest
and hence there was nothing wrong in the said deduction. She further argued
that the petitioner had herself deposited Rs.2,13,631/- at the time of filing
her return and refund to the tune of Rs.10/- had also been availed and,
therefore, her claim was misconceived. She also argued that the interest on
compensation or otherwise compensation was revenue receipt exigible to tax
and, therefore, the petitioner was not entitled to any relief.
5. Before adverting to the contentions raised by the counsel
representing both the parties, it would be apposite to refer to certain relevant
provisions of MV Act and Act, 1961. Section 171 of MV Act empowers the
Tribunal to award interest on the claim made under this head from the date
of making the claim. The compensation received under this Act is either on
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account of loss of earning capacity on account of death or injury or on
account of pain and suffering. Receipt of such compensation is not by way
of earning or profit. Award of compensation is on the principle of restitution
to place the claimant in the same position in which he/she would have been,
had the loss of life or injury not been suffered. With regard to the contention
that the interest received on compensation or enhanced compensation is
deemed to be income of the assessee, it may be mentioned that the term
'income' which is inclusively defined in Section 2 (24) of the Act, 1961
does not include 'interest' as income. Section 2 (28A) of the Act, 1961
defines the term 'interest' as the interest payable in any manner in respect of
any money delayed or debt incurred and includes any service fee or other
charge in respect of the moneys charged or debt incurred or in respect of any
credit facility which has not been utilized. Section 56 (2) (viii) of the Act,
1961 says that income by way of interest received on compensation or
enhanced compensation shall be chargeable to Act, 1961 under the head
"income from other sources". Further, Section 145-B (1) of the Act, 1961
suggests that the interest received by an assessee on any compensation or
enhanced compensation, as the case may be, shall be deemed to be the
income of the previous year in which it is received.
6. It will also be relevant to refer here to the provisions of Section
194-A of the Act, 1961. As per Sub Section (1) of this Section, any person
not being an individual or a Hindu Undivided Family, who is responsible to
pay a resident, any income by way of interest other than income by way of
interest on securities, shall deduct tax at the time of credit of such income to
the account of the payee. Sub Section 3 (ix) of this Section is also important
which says that tax shall not be deducted to such income, credited by way of
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interest on the compensation amount awarded by MACT. Sub Section 3 (ix-
a) says that tax to such income paid by way of interest on compensation
amount awarded by MACT shall not be deducted where such income
received during financial year does not exceed Rs.50,000/-. The rival
contentions of the parties are to be taken into consideration keeping in view
the above discussed provisions of law.
7. Let us now ponder over the question as to whether the interest
received by the petitioner on the amount of compensation/enhanced
compensation was liable for deduction of tax. Needless to say here that the
compensation under motor accident claims is given to the legal heirs of the
deceased for loss of life of their bread earner or to the victim in case of
permanent disablement or injuries. The recipients of such award might not
even come within the ambit of Act, 1961 and that is why, there have been
several pronouncements that award of compensation under motor accident
claims cannot be regarded as income of the interest on such awards also
cannot be termed as income to legal heirs of the deceased or to the victim
himself. In this regard, reference can be made to Gobald Motor Service
Limited and another v. R.M.K. Veluswami and others, AIR 1962 SC 1,
wherein the Hon'ble Supreme Court had held that the interest on
compensation awarded by MACT is by way of capital receipt and not
income; and to, Commissioner of Income Tax v. Oriental Insurance
Company Limited reported in (2012) 27 taxmann.com 28 (All) wherein a
Division Bench of High Court of Allahabad had observed that award of
compensation under motor accident claims cannot be regarded as income
and hence the interest on such award also cannot be termed as income to the
legal heirs of the deceased; and to, Rupesh Rashmikant Shah's case
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(Supra) wherein a Division Bench of Bombay High Court had observed that
compensation or enhanced compensation in motor accident claim cases is by
way of reimbursement of the loss and cannot be treated as income and that
the interest awarded in such cases from the date of claim petition till passing
of the award or in case of Appeal, till the judgment of High Court in such
appeal, would not be exigible to tax, not being an income; and to, Managing
Director, Tamil Nadu State Transport Corporation (Salem) Limited v.
Chinnadurai reported in (2016) 70 taxmann.com 53 (Madras) wherein High
Court of Madras had observed that compensation awarded or the interest
accruing therein from the compensation that has been awarded by MACT
cannot be subjected to TDS and the Tax Authorities cannot insist to pay the
same since the compensation and the interest awarded therein does not fall
under the term 'income' as defined under the Act, 1961; and to, Drawing
and Disbursing Officer's case (Supra) wherein a Bench of this Court had
held that having regard to nature of receipt of compensation as per award
under the MV Act, compensation is in the nature of capital receipt for death
or injury and cannot be held to be in the nature of income. Reference can
also be made to The Oriental Insurance Company Limited's case (Supra)
which is a recent citation of the High Court of Gujarat and wherein similar
observations were made after discussing pronouncements of different High
Courts.
8. In view of ratio of law as laid down in the above cited
authorities, there is no hesitation to hold that the compensation awarded
under MV Act by MACT or the interest on the said compensation amount
cannot be termed as income. However, at this juncture, the contention as
raised by the respondents that the interest received on compensation amount
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is liable to TDS under Section 194-A (3) (ix-a) of the Act, 1961 in view of
provisions of Section 145-B (1) of the Act, 1961 is to be considered. A bare
reading of Section 145-B (1) reveals that it says that the interest received by
an assessee on any compensation or enhanced compensation, as the case
may be, shall be deemed to be the income of the previous year in which it is
received. However, in our opinion, this provision does not make the interest
chargeable to tax without considering that whether such interest is income of
the recipient or not? This section deals with the method of accounting and is
not a charging provision. The only impact that Section 145-B has on the
taxability of an income, is its timing of taxability. What is not taxable is not
made taxable under this Section and it is only what is taxable under the
mercantile method of accounting which is made taxable on cash basis of
accounting by this provision. Meaning thereby that only when the receipt is
in the nature of an income and receipt of interest is in nature of income at the
hands of assessee, that such interest can be taxed as has been made out from
the provisions of Section 56 (2) (viii) also. This question was also
considered in The Oriental Insurance Company Limited's case (Supra)
by High Court of Gujarat at Ahmedabad wherein it was observed that the
interest awarded in motor accident claim cases from the date of claim
petition till the passing of the award or in the case of Appeal, till the
judgment of the High Court in such appeal, was not exigible to tax, not
being an income. It was held that this position was not changed on account
of Clause (b) of Section 145-A of the Act, 1961 as it stood amended by
Finance Act, 2009 or on account of Sub Section (1) of Section 145-B of the
present Act. It was held that Section 194-A of the Act, 1961 was only a
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provision for deduction of tax at source and did not govern the taxability of
the receipt and the question of deduction of tax at source would also arise
only if the payment was in the nature of income of the payee. It had also
been observed that the interest was not made chargeable to tax even by
Section 56 (2) (viii) of the Act, 1961 only that part of the interest component
which deals with income from other sources. In view of this discussion, it
emerges that the interest granted on compensation or enhanced
compensation awarded by MACT or this Court from the date of filing of the
claim petition till the date of passing of the award or judgment by High
Court will not fall in the bracket of income and would not be exigible to tax.
However, in view of provisions of Section 194-A (3) (ix-a) of the Act, 1961,
only that part of the interest component which is treated as income and
which when received exceeded Rs.50,000/- and did not form part of
compensation would be exigible to tax.
9. The respondents in this case have already charged tax on the
amount of interest which was received by the petitioner along with the
amount of compensation granted by MACT and by this Court in FAO filed
by the petitioner, by treating the same as income of the petitioner. Since the
upshot of the discussion as made above is that no tax was exigible and could
be deducted from the amount of interest awarded to the petitioner by MACT
from the date of filing of claim petition till the date of passing of the award
and interest awarded on enhanced amount of compensation by High Court in
the appeal filed by the petitioner, till the judgment of the High Court, the
same not being income, therefore, the tax on these amounts so deducted by
the respondents is liable to be refunded to the petitioner. It is ordered
accordingly. The writ petition stands allowed in these terms and the
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respondents are directed to refund the amount so deducted as tax to the
petitioner within one month from the date of receipt of certified copy of this
order. There is no order as to costs.
(RITU BAHRI) (MANISHA BATRA)
JUDGE JUDGE
10.08.2023
manju
Whether speaking/reasoned Yes/No
Whether reportable Yes/No
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