Kusum Chauhan Vs ITO (ITAT Chandigarh)
MACT Interest Not Taxable Until Received – Addition of ₹15.13 Lakh Deleted
The Chandigarh Bench of the Income Tax Appellate Tribunal allowed the appeal of Mrs. Kusum Chauhan for AY 2020-21, holding that interest on motor accident compensation (MACT) is not taxable when it is compensatory in nature and not actually received by the assessee.
Key takeaways from the ruling are:
Facts of the Case:
The assessee received compensation pursuant to a MACT award for the death of her son. While the principal compensation was accepted as a capital receipt, the Assessing Officer taxed interest of ₹15,13,626 on a protective basis, even though the amount was lying in court-ordered fixed deposits under lien due to a pending High Court appeal by the insurance company.
No Real Income – Funds Not Received:
The Tribunal noted that neither the compensation nor the interest was released to the assessee. Since the amount was withheld by court order, no real income accrued or was received, and hypothetical accrual cannot be taxed.
Interest on MACT Compensation Is Capital in Nature:
Relying on Punjab & Haryana High Court (Nirmal Devi), Himachal Pradesh High Court, and Gujarat High Court, the Tribunal held that interest awarded under the Motor Vehicles Act is an integral part of compensation and retains the character of capital receipt, not “income from other sources”.
