Quashed

Ayisha v. the New India Assurance Company Ltd.

Kerala HC21 Feb 2023WP(C)/8280/2013

Case brief

AI extract

What is this about?

The Court disposed of two writ petitions challenging an insurer's notice to deduct TDS on interest payable on motor accident compensation. The Court held that such interest is not taxable income, and the demand for tax documents was illegal. The notices and demand for tax deduction were quashed.

What did the court decide?

The communication asking petitioners to submit documents for TDS deduction on interest is quashed; there is no liability to deduct tax on such interest.

Ayisha Vs the New India Assurance Company Ltd. — Income Tax | Kerala HC (2023)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE AMIT RAWAL
TUESDAY, THE 21ST DAY OF FEBRUARY 2023 / 2ND PHALGUNA, 1944
WP(C) NO. 8280 OF 2013

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PETITIONER:

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AYISHA
W/O.LATE AHAMMED, RESIDING AT POOVKKATTIL HOUSE,
P.O. INCHAKUNDU, THRISSUR DISTRICT.

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BY ADVS.
SRI.T.C.SURESH MENON
SRI.P.S.APPU
SRI.A.R.NIMOD

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RESPONDENTS:

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1 THE NEW INDIA ASSURANCE COMPANY LTD NATTIKA P.O., TRIPRAYAR, THRISSUR-680567.

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2THE SENIOR DIVISIONAL MANAGER
THE NEW INDIA ASSURANCE COMPANY LIMITED,
DIVISIONAL OFFICE, 2ND FLOOR, KOLLANNUR BUILDING,
PALACE ROAD, P.B.NO.513, THRISSUR-680020.

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ADDL.R3THE UNION OF INDIA
REPRESENTED BY THE SECRETARY TO THE MINISTRY OF FINANCE,
DEPARTMENT OF REVENUE, CENTRAL BOARD OF DIRECT TAXES,
NEW DELHI.

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IS IMPLEADED AS PER ORDER DATED 1.8.14 IN I.A. 10283/14

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ADDL.R4 THE COMMISSIONER OF INCOME TAX (TDS), REVENUE BUILDING, I.S.PRESS ROAD, ERNAKULAM – 682 018

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IS IMPLEADED AS PER ORDER DATED 14.10.2014IN I.A.13871/14

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BY ADVS.
SRI.LAL K.JOSEPH
SRI.KKM.SHERIF
SRI.JOSE JOSEPH- SC
SRIS.MANU - DSGI

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THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON
21.02.2023, ALONG WITH WP(C).17283/2021, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:

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WP(C)Nos.8280/2013 & 17283/2021

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IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT

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THE HONOURABLE MR. JUSTICE AMIT RAWAL

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TUESDAY, THE 21ST DAY OF FEBRUARY 2023 / 2ND PHALGUNA, 1944
WP(C) NO. 17283 OF 2021

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PETITIONERS:

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1 SAJITHA

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AGED 49 YEARS

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W/O.LATE RAJAN, CHEMBANEZHATH HOUSE,
METHALAPADAM DESOM, METHALA VILLAGE,
KODUNGALLUR - 680 664.

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2 SIBILRAJ

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AGED 25 YEARS

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S/O.LATE RAJAN, CHEMBANEZHATH HOUSE,
METHALAPADAM DESOM, METHALA VILLAGE,
KODUNGALLUR - 680 664.

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3SINILRAJ
AGED 21 YEARS
S/O.LATE RAJAN, CHEMBANEZHATH HOUSE,
METHALAPADAM DESOM, METHALA VILLAGE,
KODUNGALLUR - 680 664.

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4 BALAN

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AGED 79 YEARS
S/O.SUKUMARAN, CHEMBANEZHATH HOUSE,
METHALAPADAM DESOM, METHALA VILLAGE,
KODUNGALLUR - 680 664.

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5 PADMAKSHI

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AGED 74 YEARS
W/O.BALAN, CHEMBANEZHATH HOUSE,

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METHALAPADAM HOUSE, METHALA VILLAGE,
KODUNGALLUR - 680 664.

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WP(C)Nos.8280/2013 & 17283/2021

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3

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BY ADVS.
A.R.NIMOD
M.A.AUGUSTINE

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RESPONDENTS:

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1 THE MANAGER, UNITED INDIA INSURANCE CO. LTD ALENGADAN BUILDING, FLOOR NO.2, TANA, IRINJALAKKUDA, THRISSUR - 680 121.

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2 THE COMMISSIONER OF INCOME TAX (TDS) C.R.BUILDING, I.S.PRESS ROAD, KOCHI - 682 018.

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BY ADVS.

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P.K.MANOJKUMAR
CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT

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THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION
ON 21.02.2023, ALONG WITH WP(C).8280/2013, THE COURT ON THE
SAME DAY DELIVERED THE FOLLOWING:

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WP(C)Nos.8280/2013 & 17283/2021

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JUDGMENT

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This order of mine shall dispose of two writ petitions W.P.

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(C).No.8280 of 2013 titled as Ayisha v. The New India Assurance Company Limited and Others (first writ petition) and W.P.(C).No.17283 of 2021 titled as Sajitha and Others v. The manager, United India Insurance Co.Ltd. And Others (second writ petition) where the question involved is whether the income tax deducted on the interest received on the award is permissible or not.

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In the first writ petition, petitioner, the widow of one Ahammed, who unfortunately died in a road accident, preferred O.P.(MV)No.2402/2006 before the Motor Accidents Claims Tribunal, Thrissur along with daughter and son. On the basis of evidence on record, learned MACT vide award dated 10.01.2013 assessed the compensation of Rs.3,01,000/- with interest @ 8% from the date of petition till date of realization.

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WP(C)Nos.8280/2013 & 17283/2021

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5

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Insurance Company accepted the amount but later on received a letter from the Senior Divisional Manager that the award of the Tribunal carrying interest is more than Rs.50,000/- and until and unless the details of the PAN card are not furnished, the tax will be deducted at source at the rate of 20% instead of 10%.

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In the second case, petitioners are claimants in O.P. (MV)No.1112/2018 claiming the compensation on account of death of Rajan, occurred on 05.02.2006. On the basis evidence on record, learned MACT vide award dated 28.04.2021 assessed compensation of Rs.22,77,500/- with interest @ 8% from the date of the claim. Tribunal apportioned the total compensation in the ratio of 40:20:20:10:10 to the petitioners 1 to 5. 1^st petitioner was allowed to withdraw Rs.5 lakhs from the total corpus amount and the interest from the amount due to other petitioners will be less than Rs.50,000/- per annum as explained in the tabulated form in paragraph 3 of the petition.

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WP(C)Nos.8280/2013 & 17283/2021

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6

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Company called upon the petitioners to submit the copy of IT returns for the last two preceding financial years under Sections 206AB and 206CCA of the Income Tax Act, 1961, as it accrued the interest exceeding Rs.50,000/-.

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Learned counsel appearing on behalf of the

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petitioners submitted that the TDS on the amount awarded under the provisions of Income Tax Act is not maintainable for the reason that Insurance Company cannot deduct the Income Tax at source (TDS) on the interest paid on the compensation paid under the Motor Vehicles Act. The tax on the interest is payable in the year in which it has been credited and payable and secondly, TDS on interest is not payable. In support of the contention relied upon judgments of Punjab and Haryana High Court in CR.No.6784 of 2016 dated 4.4.2018 (Ext.P3 in W.P©.17283/21) and in New India Assurance Company Ltd. vs. Sudesh Chawla & Others [CDJ 2015 PHC 553]; of High Court of Judicature at Bombay in Rupesh Rashmikant Shah v.

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WP(C)Nos.8280/2013 & 17283/2021

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7

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Union of India & Others [2020 ACJ 1113]; of Madras High Court in The Managing Director, Tamil Nadu State Transport Corportation (Salem) Ltd. v. Chinnadurai [CRP (PD) No.1343 of 2012] and of Gujarath High Court in The Oriental Insurance Co. Ltd. v. Chief Commissioner of Income Tax (TDS) [R/SCA No.4800 of 2021].

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5 . On the other hand, learned counsel appearing on behalf of the Insurance Company submitted that no doubt they are not charging any tax on the amount of compensation but liable to deduct TDS on the payment of the interest.

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6 . I have heard the learned counsel for the parties and appraised the paper books.

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7 . It is a matter of record that whenever in an accident, claim petition is preferred, the Insurance does not agree with the claim and pay the compensation only on adjudication by the concerned Motor Accident Tribunal. The q uestion which now arises is as to when the compensation is actually paid, the

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WP(C)Nos.8280/2013 & 17283/2021

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8

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interest on the said compensation accrues o n account of delayed payment; whether the interest on the compensation would be the part of compensation or would be treated as a separate component for attracting TDS. The ambit of the Motor Vehicles Act is to grant the compensation to bring succor to the victims of the accident or the legal representative of the deceased. It is a beneficial legislation and charging of the interest in the manner as sought to be done is wholly uncalled for. The Division Bench of Gujarat High Court while relying upon the judgment of Madras High Court in Managing

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Director, Tamil Nadu State Transport Corporation (Salem) Ltd. v. Chinnadurai reported in [2016] 70 taxmann.com 53 (Madras) held that compensation awarded or the interest accruing therein from the compensation that has been awarded by the Motor Accident Claims Tribunal, cannot be subjected to TDS and the same cannot be insisted to be paid to the Tax Authorities since the compensation and the

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9

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interest awarded does not fall under the term ‘income’ as defined under the Income Tax Act. The compensation is being received under the Motor Vehicle Act either on account of loss of earning capacity or on account of death or injury or on account of pain and suffering and thus, such receipt is not by way of earning or profit. Compensation is on the basis of the principles of restitution to place the claimant in the same position in which he or she would have been, had the loss of life or injury would not have been suffered.

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Apex Court in case titled as Commissioner of

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Income Tax v. Ghanshyam (HUF) reported as (2009) 315 ITR 1 (SC) 1 held that interest is different from compensation therefore the interest paid on the excess amount under Section 28 of the erstwhile Land Acquisition Act 1894 depends upon a claim by a person whose land is acquired whereas the interest under Section 34 is for delay in making payment, thus, there is vital difference between the two provisions. It

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10

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was a case where the circular dated 14.10.2011 of Income Tax Authority envisaging the deduction of Income Tax on the awarded amount and interest accrued on the deposits made under the orders of the court of MACT case was made applicable and after deliberation was quashed. The claimants would be liable to pay double tax, one on receipt of the compensation which would be added in the income and other where TDS details would be deducted by the Insurance Company. Thus it would amount to putting an onerous liability on tax payers as they are liable to pay tax two times. Payment of compensation on account of death and injury is not a business transaction or a receipt of any charges on account of services rendered by any other party.

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It is a matter of record that the judgment Ext.P3 dated 04.04.2018 was assailed by the Insurance Company before the Supreme Court in SLP Civil No.029913/2018 and the same was dismissed in limine vide order dated 20.10.2018. The same

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WP(C)Nos.8280/2013 & 17283/2021

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reads as under:

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“Permission to file SLPs is granted.

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Delay condoned.

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We do not find any merit in these Special Leave Petitions. The Special Leave Petitions are, accordingly, dismissed.”

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For the reason aforementioned, I am of the view that the communication of the Insurance Company asking the petitioners to submit the documents for deduction of the tax at source for the interest is wholly illegal, abberrative, fallacious and the same is quashed. There shall be no liability of tax TDS on the payment of interest over and above the amount of compensation awarded under the orders of the learned MACT.

Sd/-

AMIT RAWAL

JUDGE

nak

WP(C)Nos.8280/2013 & 17283/2021

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12

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APPENDIX OF WP(C) 17283/2021

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PETITIONER EXHIBITS

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Exhibit P1TRUE COPY OF THE AWARD IN
M.V.O.P.NO.1112/2018 ON THE FILE OF THE
MOTOR ACCIDENT CLAIMS TRIBUNAL,
IRINJALAKKUDA DATED 28/04/2021.
Exhibit P2TRUE COPY OF THE COMMUNICATION, DATED
05/08/2021.
Exhibit P3A TRUE COPY OF THE JUDGMENT IN CR
6784/2016 OF PUNJAB & HARYANA HIGH COURT
DATED 04/04/2018.
Exhibit P4A TRUE COPY OF THE JUDGMENT IN SLP (C)
NO.029913/2018 DATED 22/10/2018.
Exhibit P5A TRUE COPY OF THE JUDGMENT IN SLP(C)
NO.031807/2018.

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WP(C)Nos.8280/2013 & 17283/2021

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APPENDIX OF WP(C) 8280/2013

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PETITIONER EXHIBITS

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EXHIBIT-P1: TRUE COPY OF THE AWARD IN O.P.(MV)
NO.2402/2006 ON THE FILE OF THE MOTOR
ACCIDENTS CLAIMS TRIBUNAL, THRISSUR DATED
10.1.2013.

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EXHIBIT-P2: TRUE COPY OF THE LETTER ISSUED BY THE 2ND
RESPONDENT DATED 18.2.2013.

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EXHIBIT-P3: TRUE COPY OF THE STATEMENT OF DEPOSIT
ISSUED BY THE 2ND RESPONDENT DATED
8.3.2013.

Ayisha v. the New India Assurance Company Ltd.

Case brief

What is this about?

What did the court decide?

Ayisha v. the New India Assurance Company Ltd.

Case brief

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