TMI Blog2012 (9) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... any service fee or other charge in respect of monies borrowed or debt incurred has been received then certainly it shall come within the definition of interest. Insertion of clause (ix) to Section 194A(3) by the Finance Act 2003 with effect from 1.6.2003 also goes to show that prior to 1.6.2003, the legislature had no intention to charge any tax on the interest received as compensation under the Motor Vehicle Act. Even under the amended Act, interest received in excess of Rs.50,000/- has been subjected to tax liability. Certainly such interest exceeding Rs.50,000/- has further to be split amongst all the claimants and has to be spread over for each of the assessment years. Accordingly there appears to be no justification to cast liability to deduct the tax at source on the amount of interest paid on compensation under Motor Vehicle Act prior to 1.6.2003. The award of compensation under motor accidents claims cannot be regarded as income. The award is in the form of compensation to the legal heirs for the loss of life of their bread earner. Hence the interest on such award also cannot be termed as income to the legal heirs of the deceased or the victim himself - The award und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Authority for all the five assessment years. 4. The Insurance Company filed second appeals before the I.T.A.T., Agra, who decided the appeals in favour of the respondent and the issue was decided against the revenue and in favour of assessee. The decision of the I.T.A.T. has been challenged before us by the revenue. 5. Heard Sri Shambhu Chopra, learned counsel for the appellant and Sri R.R. Agarwal for the respondent. 6. Learned counsel for the revenue has submitted that it was the responsibility of the payer of interest to deduct the tax on such payment of interest because Section 2(28A) clearly envisages that interest means interest payable at any manner in respect of money borrowed or debts incurred (including a deposit, claim or other similar right or obligation) and includes any services fee or other charges in respect of the money borrowed or debt incurred or in respect of any credit facility which has not been utilized. The Tribunal has not gone through the citation in Bikram Singh and others. vs. Land Acquisition Collector and others reported in 224 ITR 551(SC), in which it was held that "interest paid on the delayed payment of the compensation is a revenue receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different than compensation. However, interest on such compensation is on account of delayed payment of such compensation and therefore it is clearly an income in the hands of recipients and taxable under the I.T. Act, 1961 as such. 4.3) Interest element is different than compensation as provided in section 171 of the Motor Vehicle Act, 1988 that "Where any Claims Tribunals allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf. 4.4) The provisions of sec. 194A are very clear and there is no such exemption of TDS on interest payment by the insurance companies on MACT awards. 4.5) The actual payer of interest is the insurance company and the responsibility to deduct tax lies squarely on it and the peson making payment i.e. the Divisional Manager of the company. The provisions of sec. 204(iii) are very clear that person responsible for paying means 'in the case of credit or as the case may be, payment of any other sum chargeable under the provisions of this act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the order dated 31.01.2005 of Agra Bench in ITA No.276 280/Agra/2003 in the case of Oriental Insurance Company Ltd. vs. ITO. Respectfully folowing the order of this Bench in the case of Divisional Manager, New Insurance Company Ltd. (supra) for the A. Yrs. 1998-99 to 2002-2003 and also keeping in view that the facts of the present cases are similar, the appeals of the assessee deserve to be allowed. 4. In the result, the appeals, filed by the assessee are allowed." 11. The word "Interest" has been defined under Section 2 (28A) as follows:- " 'interest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." 12. Section 194A (as stood before amendment w.e.f. 1.6.2003) provides as under:- "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon claims for compensation in respect of motor accident, the Motor Accident Claims Tribunals have been established. The Motor Vehicle Act, 1988 further provides that in case of death, the claim may be preferred by all or any of the legal representatives of the deceased. The quantum of compensation is decided taking into consideration the nature of injury in case of injured person and the age, monthly income and dependency in case of death cases. The Motor Vehicle Act, 1988 contains the 2nd Schedule for compensation in fatal accidents and injury cases claims. While awarding general damages in case of death, the funeral expenses, loss of consortium, loss of estate and medical expenses are also considered. Undoubtedly the claims under Motor Vehicle Act are awarded with some delay which may be due to filing of the compensation claim, investigation, adjudication of claim and various other factors. Invariably the interest is also awarded on delayed payments because such claims are also challenged before the superior courts. Hence the main point for consideration is whether interest paid on such claims is covered and attracts the provision of Section 2(28A) of the Income Tax Act, 1961 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder a statute, the same is taxable, but if interest is awarded by the court for loss suffered on account of deprivation of property, it amounts to compensation, though called interest, and would not be taxable. 20. In Ghaziabad Development Authority Vs. Dr. N.K. Gupta, (2002) 258 ITR 0337, the National Consumer Disputes Redressal Commission interpreting Section 194A of the Income Tax Act, 1961 has held that if proper infrastructure facilities have not been provided to a person who was provided with a flat, is entitled to the refund of amount paid by him along with the interest at the rate of 18% and the paying authority was not entitled to deduct income tax on the said amount of interest. The Commission further held as follows:- "The word used in the order of the State Commission was not "interest" as defined in section 2(28A). Interest, in the order of the Commission, meant compensation or damages for delay in construction or handling over possession of the same causing consequential loss to the complainant by way of escalation in the price of the property and also on account of distress and disappointment faced by him. Interest, in the order, had been used merely as a conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the discount charges paid were not in respect of any debt incurred or money borrowed. Hence the tax was not taxable at source on the amount. 23. In Commissioner of Income-tax Vs. Sahib Chits (Delhi) (Pvt.) Ltd., (2010) 328 ITR 0342, the Delhi High Court interpreting Section 2(28A) of the Income Tax Act, 1961 has held that the contribution given by the subscribers/members, every month in a chit fund scheme is not a deposit with the chit fund company and the amount of bid disbursed equally among the members is not to be treated as interest payable on money borrowed, therefore, the chit fund company is not required to deduct the tax at source within the meaning of Section 194A of the Income Tax Act. 24. In Commissioner of Income-tax Vs. Govinda Choudhury and Sons, (1993) 203 ITR 0881, hon'ble the Supreme Court has held that when there were disputes with the State Government with regard to payments under the contracts, receipt of certain amount under the award of the arbitrators and the interest for delay in payment of amounts due to it, such interests were only an accretion to the respondent's receipts from the contract and was attributable to and incidental to the business carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived on belated payment of compensation is a revenue receipt exigible to income-tax and it is income and the claimants are liable to pay the tax as provided under the relevant provisions of the Income-tax Act, 1961. Tax has to be deducted at source on such interest. 30. In Lt. Col. K.D. Gupta Vs. Union of India and another, (1990) 181 ITR 530, hon'ble the Supreme Court directed to pay an amount of Rs.4,00,000/- to the petitioner who was a member of the Armed Forces but Rs.1,20,000/- was withheld from this amount on the plea that the Union of India had the obligation to deduct the tax at source on it. Hon'ble the Apex Court directed the petitioner to file his income tax return for decision of the question of liability to tax. 31. In T.N.K. Govindaraju Chetty Vs. Commissioner of Income Tax, Madras, (1967) 66 ITR 465, hon'ble the Supreme Court regarding interest on compensation awarded for acquisition of land, has held that if the source of the obligation imposed by the statute to pay interest arises because the claimant is kept out of his money, the interest received is chargeable to tax as income, will apply if interest is payable under the terms of an agreement, express or im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue relates to interest paid on the delayed payment of compensation awarded under Land Acquisition Act. The award under Land Acquisition Act and the award under Motor Vehicle Act cannot be equated for the simple reason that in land acquisition cases, the payment is made regarding the price of the land and on such price, the provisions of Capital Gain Tax are attracted, while in the motor accidents claims, the payment is made to the legal representatives of the deceased for loss of life of their bread earner. In most of the cases under motor vehicle accidents claims, the recipients of awards are poor and illiterate persons who even do not come within the ambit of Income Tax Act. The amount of compensation under Motor Vehicle Act, also do not come within the definition of "income". Therefore, the analogy of compensation under land acquisition cannot be applied to the motor vehicle accidents claims. 36. The word "interest" as defined under Section 2(28A) has to be construed strictly. We may refer to Polestar Electronic (Pvt.) Ltd. Vs. Addl. CST (1978) 41 STC 409, in which hon'ble the Apex Court has held as under:- "if there is one principle of interpretation more well settled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me by way of interest on securities, shall at the time of credit of such income to the account of the payee deduct income tax thereon at the rates in force. 41. To our opinion, the award of compensation under motor accidents claims cannot be regarded as income. The award is in the form of compensation to the legal heirs for the loss of life of their bread earner. Hence the interest on such award also cannot be termed as income to the legal heirs of the deceased or the victim himself. 42. Learned Commissioner of Income Tax (Appeals)-I, Agra in his order dated 28.3.2003 has discussed most of the cases relating to interest on land acquisition cases which have also been cited by learned counsel for the revenue before us. But as mentioned above, the award under land acquisition can not be equated in any way with the award under motor accidents claims. 43. The award under the Motor Vehicle Act is like a decree of the court. It do not come within the definition of income as mentioned in Section 194A(1) read with Section 2(28A) of the Income Tax Act. Proceedings regarding claim under Motor Vehicle Act are in the nature of a garnishee proceedings under which the MACT has a right to at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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