Case Law Details
Smt. Sharda Pareek Vs ITO (ITAT Jaipur)
Conclusion: AO was directed to wait in respect of tax ability of interest income received from the insurance company on MACT claim till the Supreme Court pronounce a judgement in Sharda Pareek v. Assistant Commissioner of Income Tax & another as the same issue was pending before the Court.
Held:
AO who completed the assessment u/s 143(3) wherein the interest income received from the insurance company on MACT claim amounting to Rs. 13,80,216/- was brought to tax. Assessee claimed that the payment of interest received by assessee could not be taxed pending finalisation of the dispute regarding accident insurance compensation on which the said interest was granted. However, AO rejected the contention on the ground that the said interest income had already been credited in favour of assessee and TDS had been deducted. It was held the question relating to taxability of interest on compensation awarded by the Motor Accident Claims Tribunal was identical to the question of law framed for adjudication before the Hon’ble Supreme Court in assessee’s own case. Therefore, the claim of the assessee in terms of section 158A(3) was admitted. Given that the matter was currently pending adjudication before Supreme Court, AO was directed to apply the directions of the Hon’ble Supreme Court as soon as the same was pronounced in the present case. The matter was accordingly set-aside to the file of AO with the above directions.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of ld. CIT(A)-II, Jaipur dated 20.02.2014 for Assessment Year 2009-10.
2. Briefly stated, the facts of the case are that the assessee filed her return of income showing income of Rs. 1,38,970/-. Subsequently, the assessment was completed u/s 143(3) wherein the interest income received from the insurance company on MACT claim amounting to Rs. 13,80,216/- was brought to tax by the Assessing Officer thereby assessing the income at Rs. 15,19,186/-. The contention of the assessee, that the payment of interest received by the assessee cannot be taxed pending finalization of the dispute regarding accident insurance compensation on which the said interest was granted, was not accepted by the Assessing Officer for the reason that the said interest income has already been credited in favour of the assessee and TDS has been deducted therefrom. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who following the decision of the Co-ordinate Bench for AY 2006-07 held that the interest received on account of delay in compensation is not taxable in this year and it will be taxed in the year in which it will reach finality. Accordingly, addition towards interest income made by the Assessing Officer was deleted and the Assessing Officer was also directed to withdrawal credit of TDS on such interest granted to the assessee.
3. Now, the assessee is in appeal against the said findings of the ld. CIT(A) and has taken the following two grounds of appeal:
“1. In the facts and circumstances ofthe case and in law the ld. CIT(A) has erred in confirming the action ofthe ld. AO in not accepting the legal proposition that the interest, being part of compensation on account of death of her husband in vehicular road accident and being discretionary, is not income, hence, not liable to tax under the Income Tax Act, 1961. The action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts ofthe case. Relief may please be granted by accepting the interest being non taxable.
2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in holding that credit forTDS will be allowed in the year when compensation and interest under MACT will reach finality ignoring the settled legal position that the said interest is not at all taxable being not income under the provision of Income Tax Act, 1961. The action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing the credit of TDS deducted on such interest as claimed by the assessee and directing the same to be refunded.”
4. At the outset, the ld AR on behalf of the assessee submitted that similar questions of law are pending for adjudication before Hon’ble Supreme Court of India in Special Leave to Appeal (C) Nos. 20629- 20631/2017 titled as Sharda Pareek vs. Assistant Commissioner of Income Tax & another. The said Special Leave to Appeal related to Assessment Year 2006-07 and Assessment Year 2007-08. The following questions of law are framed in the said Special Leave to Appeal:-
A) Whether, in the facts and circumstances, the High Court wrongly held Motor Accident Compensation as received” and hence, Capital” and interest on Capital” as taxable because, no compensation has yet been paid as in the Appeal filed by the Insurance Company, the award of compensation itself is seriously disputed and there was no absolute right in the petitioner assessee to receive the compensation/interest and consequently, interest directed to be paid by the High Court by way of interim Order was contingent upon finality ofthe litigation under the Motor Vehicles Act, 1988; hence not income liable to tax?
B) Whether the impugned judgment is erroneous in law because, if, the Insurance Company succeeds finally then the petitioner-assessee (Claimant) is obliged under law to return interest amount by way of restitution under section 144 CPC?.
C) Whether interest directed to be paid under interim order of the High Court did not amount to ‘debt incurred’ as there was no pre-existing debtor-creditor relationship hence the interest did not fall within, the ambit of ‘interest’ as defined in Section 2 (28-A) of the IncomeTaxAct?
D) Whether, interest on motor accident compensation is granted by way ofdamages and not taxable?
E) Whether interest paid is discretionary as the word ‘may’ has been used and no rate and period is provided under section 171 of the Motor Vehicles Act, 1988?
F) Alternatively, if interest on compensation attracts liability to tax, then in which year taxability of interest would be attracted?
5. The ld AR submitted that the Hon’ble Supreme Court vide order dated 11-09-2017 was pleased to issue notices to the opposite party, Assistant Commissioner of Income Tax & Another and stayed the operation and effect of the impugned judgment dated 26.04.2017 passed by Hon’ble Rajasthan High Court.
6. The ld AR submitted that the questions of law in the present Appeal and the questions of law pending before Hon’ble Supreme Court in the aforesaid Special Leave to Appeal are identical and the same. It was submitted that the Appellant hereby agrees that final decision of aforesaid Special Leave to Appeal would be made applicable in the present Appeal and she will not raise further such question of law in the present Appeal before any Appellate authority. Therefore the present Appeal be kept in abeyance till final adjudication by Hon’ble Supreme Court in the said Special Leave to Appeal. It was accordingly requested that the appellant’s has moved an application under section 158A of the Income Tax Act, 1961 and the same may kindly be allowed and the present appeal may be kept in abeyance till final adjudication of the said Special Leave to Appeal. It was submitted that final decision of aforesaid Special Leave to Appeal would be made applicable in the present Appeal and she will not raise such question of law in the relevant case in appeal before any Appellant authority.
7. During the course of hearing, the report from the Assessing Officer was called for and the ITO, Ward 6(3) vide his report dated 30.07.2018 has confirmed that the issue involved in the impugned assessment year i.e. the taxability of the interest income is the same as in the case of Special leave petition which is pending adjudication before the Hon’ble Supreme Court. The contents of the Assessing Officer’s report reads as under:-
“Kindly refer to your office letter No. Addl. CIT (Sr. DR)/ITAT/JPR/2018-19/258 dated 04.07.2018 on the above mentioned subject, vide which a copy ofdeclaration filed by the assessee u/s 158A ofthe IT Act was forwarded to this office with the directions to send a report along with comments.
In this connection, it is submitted that the assessee has filed SLP in Supreme Court with SLP (Civil) No. 20629-31 of 2017 in the case of Smt. Sharda Pareek vs. ACIT for the A.y. 2006-07.
The issue involved in the SLP is as follows.
‘Whether the component of interest received on compensation awarded by the Motor Accident ClaimsTribunal payable to the claimants on the death of victim falls within the ambit of interest within the meaning of Section 2(28A) of the Income Tax Act, 1961 and can be subjected to tax?”
The Hon’ble Rajasthan High Court vide its combined order dated 26.04.2017 in DBITAppeal No. 156/2012, DBITAppeal No. 162/2012 & 199/2015 held that on plain reading of Section 2(28A), it is very clear that originally compensation was received by the claimant was not income but once amount received, it has become capital and interest on capital is liable to be taxable.
Further, the Hon ‘ble Supreme Court of India in SLP No. 20629- 20631 of 2017 filed by the assessee against the common order dated 26.04.2017(DBITAppeals No. 156 & 162 of 2012 and DBITAppeal No. 199 of 2015 of Hon ‘ble Rajasthan High Court, Jaipur), the Hon’ble Supreme Court of India has issued notices to the Income Tax Department and also stayed the operation ofthe aforesaid judgment of the High Court.
It is further submitted that the issue involved in the A~ 2009-10 is same i.e. the taxability of the interest income in the head of income from other sources.”
8. Section 158A of the Act reads as under:-
“158A (1) Notwithstanding anything contained in this Act, where an assessee claims that any question of law arising in his case for an assessment year which is pending before the Assessing Officer or any appellate authority(such case being hereafter in this section referred to as the relevant case) is identical with a question of law arising in his case for another assessment year which is pending before the High Court on a reference under section 256 or before the Supreme Court on a reference under section 257 or in appeal under section 261 (such case being hereafter in this section referred to as the other case), he may furnish to the Assessing Officer or the appellate authority, as the case may be, a declaration in the prescribed form and verified in the prescribed manner, that if the Assessing Officer or the appellate authority, as the case may be, agrees to apply in the relevant case the final decision on the question of law in the other case, he shall not raise such question of law in the relevant case in appeal before any appellate authority or for a reference before the High Court under section 256 or the Supreme Court under section 257 or in appeal before the Supreme Court under section 261
(2) Where a declaration under sub- section (1) is furnished to any appellate authority, the appellate authority shall call for a report from the Assessing Officer on the correctness of the claim made by the assessee and, where the Assessing Officer makes a request to the appellate authority to give him an opportunity of being heard in the matter, the appellate authority shall allow him such opportunity.
(3) The Assessing Officer or the appellate authority, as the case may be, may, by order in writing,-
(i) admit the claim of the assessee if he or it is satisfied that the question of law arising in the relevant case is identical with the question of law in the other case; or
(ii) reject the claim if he or it is not so satisfied.
(4) Where a claim is admitted under sub- section (3),-
(a) the Assessing Officer or, as the case may be, the appellate authority may make an order disposing ofthe relevant case without awaiting the final decision on the question of law in the other case; and
(b) the assessee shall not be entitled to raise, in relation to the relevant case, such question of law in appeal before any appellate authority or for a reference before the High Court under section 256 or the Supreme Court under section 257 or in appeal before the Supreme Court under section 261
(5) When the decision on the question of law in the other case becomes final, it shall be applied to the relevant case andthe Assessing Officer or the appellate authority, as the case may be, shall, if necessary, amend the order referred to in clause (a) of sub- section (4) conformably to such decision.
(6)An order under sub- section (3) shall be final and shall not be called in question in any proceeding by way of appeal, reference or revision under this Act.
Explanation.- In this section,-
(a) “appellate authority” means theDeputy Commissioner (Appeals)], the Commissioner(Appeals) or the AppellateTribunal;
(b) “case”, in relation to an assessee, means any proceeding under this Act for the assessment of the total income of the assessee or for the imposition ofany penalty or fine on him.”
9. Heard both the parties and perused the material available on record. The question relating to taxability of interest on compensation awarded by the Motor Accident Claims Tribunal is identical to the question of law framed for adjudication before the Hon’ble Supreme Court in assessee’s own case. Therefore, we admit the claim of the assessee in terms of section 158A(3) of the Act. Given that the matter is currently pending adjudication before the Hon’ble Supreme Court, the Assessing officer is directed to apply the directions of the Hon’ble Supreme Court as soon as the same is pronounced in the present case. The matter is accordingly set-aside to the file of the AO with the above directions.
In the result, the appeal of the assessee is allowed for statistical purposes.
