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2011 (3) TMI 1671 - HC - Income TaxInterest component in MACT Award to be treated as Taxable income or as part of compensation which being in the nature of capital receipt is not Taxable - Assessee failed to deduct tax at source out of interest income received by the claimants as per awards by MACT the assessee was held to be assessee in default HELD THAT - In our view interest component is a part of compensation which being in the nature of capital receipt is not taxable. Admittedly compensation under the award of MACT is not income. The expression income used in Entry 82 of List I of Seventh Schedule to the Constitution can be given widest meaning. Under Section 2(24) inclusive and not exhaustive definition has been given . In absence of an express provision to the contrary income can be held to refer to something earned. What is received as compensation for loss in one or the other form may not be income. In SENAIRAM DOONGARMALL VERSUS COMMISSIONER OF INCOME-TAX ASSAM 1961 (3) TMI 7 - SUPREME COURT the question was whether compensation received from military authority on account of loss of earning of tea estate was income or capital receipt. It was observed that quality of payment was decisive of the character of income and compensation received was not income. In the context of compensation received under the Motor Vehicle Act the compensation is either on account of loss of earning capacity on account of death or injury or on account of pain and suffering. Such receipt 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 would have been had the loss of life or injury not been suffered. In GOBALD MOTOR SERVICE LTD. ANOTHER VERSUS R.M.K. VELUSWAMI OTHERS. 1961 (4) TMI 100 - SUPREME COURT The claim for damages falls under two separate heads. First if the deceased had not been killed but had eked out the full span of life to which in the absence of the accident he could reasonably have looked forward what sums during that period would he probably have applied out of his income to the maintenance of his wife and family Having regard to nature of receipt of compensation as per award under the M.V.Act compensation is in the nature of capital receipt for death or injury and cannot be held to be in the nature of income. It appears to be for this reason that the said receipt is not sought to be treated as income. Interest on account of delay in adjudication - Part of compensation or a separate component of income?- Receipt of interest after amount has been received by the claimant u/s 194A(3)(ix) - HELD THAT - In context of compensation under the provisions of Land Acquisition Act 1894 the Hon ble Supreme Court in COMMISSIONER OF INCOME-TAX FARIDABAD VERSUS GHANSHYAM (HUF) 2009 (7) TMI 12 - SUPREME COURT held that interest paid by the Collector was part of compensation and was treated to be at par with the compensation for purposes of taxability. The principle in Ghanshyam applies to award of interest from the date of claim to the date of receipt of the awarded amount under the Land Acquisition Act. The apex Court in TUTICORIN ALKALI CHEMICALS FERTILIZERS LTD VERSUS COMMISSIONER OF INCOME-TAX 1997 (7) TMI 4 - SUPREME COURT had noted that ordinarily the interest received is income but it would not be of revenue nature where it is received by way of damages or compensation. In view of the above the interest component in compensation awarded by MACT is part of compensation and has to be treated as capital receipt and not income till the claimant received the amount in pursuance of award. However different consideration will prevail for interest earned by the claimant on the amount so received after the receipt thereof. Section 194A(3)(ix) refers to the provision of receipt of interest after amount has been received by the claimant in pursuance of the award. We are thus of the opinion that question of law raised on behalf of the assessee has to be answered in its favour. The view of the Tribunal that interest allowed by the MACT in an accident case was income from interest and thus revenue in nature is not sustainable - Decision in favour of Assesee
Issues Involved:
1. Whether interest allowed by the MACT in an accident case on the amount of award can be termed as 'Income from interest' or is it a part of compensation for the delay caused in legal proceedings? 2. Whether the department can initiate action afterwards when it has already made the assessment and no infirmity was pointed out at the time of assessment? 3. Whether an order passed by the court is absolute and has to be complied with in Toto? 4. Whether the Judgment Debtor can make deductions and if so, whether it would amount to contempt of court? 5. Whether interest allowed on compensation amount can be equated with interest earned on Principal amount? 6. Whether the interest awarded by the MACT is not a part of compensation? Issue-wise Detailed Analysis: 1. Interest Allowed by MACT: Income or Part of Compensation? The court examined whether the interest component in the Motor Accident Claims Tribunal (MACT) award should be treated as taxable income or part of compensation. The assessee argued that interest under statutory provisions becomes part of the principal amount of compensation and partakes the same character as compensation itself. The court held that the interest component is indeed a part of compensation and is not taxable. The court referenced Section 194A(3)(ix) of the Income Tax Act and Section 171 of the Motor Vehicle Act (M.V. Act) to support this conclusion. 2. Department Initiating Action Post Assessment The judgment did not specifically address this issue in detail, focusing primarily on the nature of the interest component in compensation awards. 3. Compliance with Court Orders The judgment did not delve into this issue, maintaining its focus on the taxability of the interest component in compensation awards. 4. Judgment Debtor Making Deductions and Contempt of Court The judgment did not specifically address this issue. The primary focus was on the nature of the interest component in compensation awards. 5. Equating Interest on Compensation with Interest on Principal Amount The court distinguished between interest allowed on compensation and interest earned on the principal amount post-receipt. It held that the interest component awarded by MACT is part of the compensation and should be treated as a capital receipt, not income, until the claimant receives the amount in pursuance of the award. However, interest earned by the claimant on the amount received after the award is a different consideration and would be treated as income. 6. Interest Awarded by MACT as Part of Compensation The court concluded that interest awarded by MACT is part of the compensation. It referenced multiple cases, including Commissioner of Income Tax Vs. Ghanshyam (HUF) and Central Bank of India Vs. Ravindra, to support its decision that interest for delay in adjudication becomes part of the compensation and is not a separate component of income. Conclusion: The court allowed the appeals, holding that the interest component in compensation awarded by MACT is part of the compensation and should be treated as a capital receipt, not taxable income, until the claimant receives the amount. The view of the Tribunal that interest allowed by the MACT in an accident case was income from interest and thus revenue in nature was deemed unsustainable.
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