Neo Built Corporation Vs Union of India (Calcutta High Court)
Calcutta High Court examined whether the Union of India, acting through Metro Railway as an award-debtor, was entitled to deduct 10% tax at source (TDS) from an arbitral award amount while making payment to the award-holder. The arbitral award had attained finality after dismissal of the challenge under section 34 of the Arbitration and Conciliation Act, 1996, as well as the subsequent appeal. The Court had earlier directed the award-debtor to release the full awarded amount with interest, leading to partial payment being made.
Although the award-debtor recorded disbursement of approximately ₹3.88 crore, the award-holder received only about ₹3.50 crore, with the shortfall of around ₹38.98 lakh explained as TDS deducted at 10%. The award-debtor relied on a Railway Board memorandum dated 5 March 2008, which provided for deduction of tax at source on arbitration awards under section 194A of the Income Tax Act, 1961.
The Court analysed settled legal principles governing payment of decretal or awarded sums and relied on the Supreme Court decision in All India Reporter Ltd. v. Ramchandra D. Datar. That decision held that once an amount crystallises into a judgment-debt, the judgment-debtor cannot satisfy claims of third parties, including tax authorities, by deducting tax at source unless the decree itself so provides. The decretal amount must be paid in full to the decree-holder. This principle had been reiterated by the Calcutta High Court and followed by the Delhi High Court in similar cases involving deduction of TDS from decretal or awarded sums.
