In CR-527-2019 (O&M)-PUNJ HC-Insurance Company has to pay interest of compensation accrued to motor accident claimants prior to June 1, 2015 even if TDS is deposited with Authorities at that time; Claimants cannot be burdened with filing of return for seeking refund for any fault of Company: P&H HC Justice Arvind Singh Sangwan [06-08-2022]

Read Order: New India Assurance Company Limited v. Ravinder Kumar @ Vickey and Others

Monika Rahar

Chandigarh, August 10, 2022: The High Court of Punjab and Haryana has held that as per interpretation of Section 194-A(1) read with erstwhile clause (IX) and substituted Clause (IX and IX-A) of sub-Section (3) of Section 194A of the Income Tax Act, 1961 (IT Act), it is clear that the interest on ‘income’ is chargeable to tax, if it otherwise is not, as the provision for deduction of tax at source is not a charging provision.

The Court was dealing with a bunch of revision petitions  arising out of the different orders of the Motor Accidents Claims Tribunal, wherein the common question was whether directions can be issued to Judgement Debtor-Insurance Company to deduct TDS at source on the amount of interest paid on the compensation under the IT Act read with Motor Vehicles Act, 1988.

After taking into consideration a bunch of decisions of various Court as also the submissions of the parties, the Court was of the considered opinion that as per interpretation of Section 194-A(1) read with erstwhile clause (IX) and substituted Clause (IX and IX-A) of sub-Section (3) of the IT Act, it is clear that the interest on ‘income’ is chargeable to tax, if it otherwise is not, as the provision for deduction of tax at source is not a charging provision. 

Further, in view of the judgement of a Division Bench of the Gujarat High Court in New India Assurance Company Limited Vs. Bhoyabhai Hirabhai Bharvag (2016); Andhra Pradesh High Court judgement in The National Insurance Company Limited Vs. Yliminti Appanna and another (2014); Himachal Pradesh High Court judgement in Oriental Insurance Company Limited Vs. Viyasan Devi and others (2010) and Madhya Pradesh High Court judgement in Ram Khiloni @ Khiloni and others Vs. National Insurance Company Limited (2020), the Court observed that the Insurance Company, while depositing the interest exceeding Rs. 50,000/- per claimant per year will file a calculation before the MACT as to how much TDS is to be deducted.

Also, in view of the verdicts of the above-stated High Courts, the Court added that at the first instance, the Insurance Company will apply to MACT for obtaining a declaration ‘Form 15-G’ of Rule 29-C of Income Tax Act/Rules from the claimants at the time of making payment with interest in order to get relief of responsibility or obligation towards the Income Tax Department and M.A.C.T. will release payment in favour of claimants after the requisite form is signed or thumb-marked by claimants or guardians where claimants are minor.

And lastly, in view of the judgement of the Single Bench of the High Court of Punjab and Haryana in Insurance Company Limited Vs. Janki (2019), the Court stated that prior to the amendment of Clause IX and after insertion of Clause IX-A under Section 194(A)(3) of the Income Tax Act, 1961 w.e.f. June 1, 2015 no interest will be deductible at source even if the interest is beyond Rs. 50,000/- in a particular year. 

“Therefore, the Insurance Company has to pay the interest of compensation accrued to the claimants prior to 1.6.2015 even if the TDS is deposited with the Income Tax Authorities at that time and the claimants cannot be burdened with filing of return for seeking refund for any fault of the Insurance Company”, the Bench held. 

Accordingly, two petitions were dismissed and the others were disposed of by setting aside the impugned orders and the cases were remanded back to the concerned Motor Accident Claims Tribunal with a direction that if the interest on compensation was paid prior to June 1, 2015, then the Insurance Company will pay the amount of tax deducted at source to claimants and the Insurance Company may seek refund from the Income Tax Authorities by filing a revised income tax return. 

Further, the Court added that where the interest on the compensation was actually paid after the said date of June 1, 2015, which was exceeding Rs.50,000/- per claimant per financial year, the Insurance Company will pay on securing the ‘Form 15-G’ of Rule 29-C of the Income Tax Act/Rules. 

Thus, the parties were directed to appear before the Motor Accident Claims Tribunal, concerned on August 31, 2022 and thereafter, fresh orders were directed to be passed within a period of one month.