High Court Of Madras
New India Assurance Co. Ltd. vs. Mani & Ors.
Section 194A(3)(ix)
M. Thanikachalam, J.
Civil Revision Petn. No. 2628 of 2003 & Civil Misc. Petn. No. 19850 of 2003
7th July, 2004
Counsel Appeared
N. Vijayaraghavan, for the Petitioner : N. Manoharan, for the Respondents
JUDGMENT
M. Thanikachalam, J. :
The New India Assurance Co. Ltd., aggrieved by the order of the trial Court, that the insurance company is not entitled to deduct the income-tax at source, and further direction directing it to deposit the entire amount, has challenged the same by way of this revision.
2. The first respondent in this revision as claimant, had filed a claim petition in M.C.O.P. No. 311 of 1993 before the Motor Accidents Claims Tribunal, at Erode for compensation for the permanent disability, said to have been sustained by him, in the road accident. After contest, on 8th Sept., 1999, compensation was ordered, directing some of the respondents, including the insurance company, to pay a sum of Rs. 75,000 with interest thereon at 12 per cent per annum from the date of the petition till the date of payment. The claimant, not satisfied with the amount awarded, had preferred an appeal before this Court in A.A.O. No. 211 of 2000 and this Court had enhanced the compensation to Rs. 1,50,000, thereby the claim had come to an end. The insurance company, which is liable to pay the compensation amount as per the contract of insurance, has not paid the amount and, therefore, execution petition was filed, for releasing the amount. At that time, the insurance company, after deducting the income-tax for the income derived by way of interest, as per s. 194A of IT Act, deposited the balance. The executing Court has not accepted the same and issued a direction, holding that the insurance company is not entitled to deduct income-tax at source and it should pay the balance of the amount so deducted within 15 days from the date of the said order, which is now under challenge in this revision.
3. Heard counsel for both parties.
4. Learned counsel for the revision-petitioner submits that the insurance company is duty bound to deduct the income-tax from the aggregate amounts of such income credited or paid during the financial year as interest, since it exceeded Rs. 50,000, as contemplated under s. 194A(3)(ix) of the IT Act. The relevant amended provision reads thus : “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 credited or paid during the financial year does not exceed fifty thousand rupees.”
5. Opposing the above contention as well as the interpretation of the above amended provision, learned counsel for the respondent submits that because of the delayed payment of the compensation amount, interest has been accumulated and in fact, the entire interest amount liable to be paid by the insurance company is not payable during the financial year, in which the deposit has been made and in this view, the interest shall not exceed Rs.50,000 and therefore, the insurance company is not entitled to deduct the tax at source, as did in this case.
6. A plain reading of s. 194A of the IT Act would indicate that the insurance company is bound to deduct the income-tax amount on interest, treating it as revenue, if the amount paid during the financial year exceeds Rs.50,000. In this case, admittedly, when the compensation amount has been deposited during the financial year, including interest, the interest amount alone exceeded Rs. 50,000 and therefore, the insurance company has no other option, except to deduct the income-tax at source for the interest amount, exceeding Rs. 50,000, failing which, they may have to face the consequences, such as prosecution, even. In this view alone, when the execution petition was filed for the realisation of the award amount, deducting the income-tax at source for the interest, since it exceeded Rs. 50,000, on the basis of the above said provision, the balance alone had been deposited, for which, the Court cannot find fault.
7. The stand taken by the revision-petitioner and the act performed by them, are supported by the ratio laid down by the apex Court in Bikram Singh & Ors. vs. Land Acquisition Collector & Ors. (1997) 139 CTR (SC) 475 : (1997) 224 ITR 551 (SC). The apex Court in the above ruling had considered the payment of interest on delayed compensation, whether it is a revenue receipt, exigible to income-tax, and it is observed : “Interest received on delayed payment of the compensation under the Land Acquisition Act, is a revenue receipt exigible to income-tax. The amended definition of interest in s. 2(28A) of the IT Act, 1961, was not intended to exclude the revenue receipt of interest on delayed payment of such compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest.”
8. Following the above decision, a Division Bench of the Delhi High Court has held in Bhika Ram & Ors. vs. Union of India & Ors. (2000) 159 CTR (Del) 462 : (1999) 238 ITR 113 (Del) : “the petitioner was liable to be taxed on the interest on delayed payment of compensation for compulsory acquisition of land. However, the petitioner was at liberty to have the income on account of interest assessed by seeking spread over.” The same view was once again reiterated by another Division Bench of the Delhi High Court in Shankar & Ors. vs. Union of India & Ors. (2002) 178 CTR (Del) 26 : (2003) 260 ITR 284 (Del). Thus, it is made clear that the compensation amount which earned interest, because of the delayed payment, is liable to be taxed and because of the amended provision, when the interest amount exceeding Rs. 50,000 has been paid by the insurance company, during the financial year, they are bound to deduct the income-tax at source and there is no escape.
The trial Court without considering the actual effect of the amendment to s. 194A of the IT Act, which came into effect from 1st June, 2003, had erroneously directed the insurance company to deposit the entire amount including the deduction made statutorily. It is not the case of anybody that the amount was deducted by the insurance company and appropriated and in fact, this shall go to the Government. If the petitioner is not liable to pay tax, his remedy is to approach the Department concerned for refund of the amount, requesting that the period of interest should be spread over, since he had filed the claim petition elsewhere in 1993, from which date, the interest was calculated and deposited in the financial year. As such, it is not within the power of the executing Court, to direct the insurance company not to deduct the amount and pay the entire amount, thereby compelling the insurance company to commit an illegal act, violating the statutory provisions. For the foregoing reasons, the revision is well founded and the same deserves acceptance. The direction and the order of the trial Court dt. 19th Sept., 2003, are set aside.
The petitioner is at liberty to approach the concerned authority, for spreading the income over the period for which payment of interest came to be made, so that the income for the purpose of assessing tax for the relevant assessment year, could be computed and in case, the petitioner is not liable to pay the income-tax, on that score, there is possibility of the petitioner getting refund of the amount.
In the result, the civil revision petition is allowed. No costs. Consequently, connected miscellaneous petition is closed.
[Citation : 270 ITR 394]
