Oriental Insurance Co. Ltd. Vs CCIT (TDS) (Gujarat High Court)
Conclusion: Interest paid for the delay in depositing the awarded amount allowed by the MACT in the accident case would not form part of the compensation and, therefore, would fall into the bracket of interest income and would be eligible to tax under the normal provisions.
Held: The issue raised was whether interest allowed by the MACT in the accident case on the amount of award could be termed as “Income from Interest” or if it was a part of compensation for the delay caused in the legal proceedings. Also, whether interest allowed on the compensation amount could be equated with interest earned on the principal amount and whether the interest awarded by the MACT was not a part of compensation. The court held that the interest awarded in the motor accident claim cases from the date of the claim petition till the passing of the award, or in the case of an appeal, till the judgement of the High Court in such an appeal, would not be eligible for taxation as it would not be an income. Neither clause (b) of Section 145A, as it stood at the relevant time, nor clause (viii) of sub-section (2) of Section 56 make interest taxable, whether the recipient’s income was or was not. The question of the deduction of tax at source would arise only if the payment was in the nature of the income of the payee. The insurance companies or the owners of the motor vehicles depositing the requisite amount in due compliance with the awards of the Motor Accident Claims Tribunals should deposit the full amount with the Tribunal and should not deduct tax u/s 194A on the interest awarded by the Motor Accident Claims Tribunal. The court clarified that the observations and conclusions would apply to interest granted on compensation or enhanced compensation awarded by the Motor Accident Claims Tribunal or the High Court from the date of the claim petition till the passing of the award or judgement. The court held that the interest that might be paid for the delay in depositing the awarded amount would not form part of the compensation and, therefore, would fall into the bracket of interest income and would be eligible to tax under the normal provisions.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
By this writ application under Article 226 of the Constitution of India, the writ applicant – an Insurance Company has prayed for the following reliefs:
“(A) Your Lordships be pleased to admit and allow this petition.
(B) Your Lordships be pleased to issue an appropriate writ/direction/order to quash and set aside the order at ANNEXURE A issued by the respondent and thereby allow waiver of interest charged u/s 201(1A) of the Income Tax Act, 1961.
(C) Your Lordships be pleased to as an ad-interim ex-parte relief to stay the impugned order at Annexure A.
(D) Your Lordships may be pleased to quash and set aside any penalty / interest that may be levied by the Income Tax Department pursuant to the Annexure A order.
(E) Your Lordships may be pleased to lay down a fixed procedure to deal with the TDS issue in the MACP cases across the state.
(F) Your Lordships be pleased to pass such other and further orders may be deemed just and proper looking to the facts and circumstances of the case and in the interest of the justice.”
2 The facts giving rise to this writ application may be summarized as under:
3 The writ applicant before us is an Insurance Company. One Motor Accident Claim Petition bearing No.518 of 1999 came to be filed in the City Civil Court at Ahmedabad. The said claim petition came to be allowed by the MACT (Aux.) Judge, City Civil Court, Ahmedabad, vide judgement and award dated 18th January 2017.
4 The operative part of the order passed by the Tribunal in the above referred MACP reads thus:
“(a) The petitioners in MACP No. 518/1999 do recover Rs. 16.28,008/-(Rs. Sixteen lacs twenty-eight thousand eight only) from the opponent 1, 2 and 3 jointly and/or severally, together with running interest at the rate of 8% p.a from the date of petition till realization of the amount along with proportionate costs of the petition.
(b) The opponents are directed to follow the ratio laid down in the judgment of Hansgauri P. Ladhani V Oriental Ins. Co. Ltd, reported in 2007-GLH-2-291 as far as TDS is concerned”.
5 Thus, the Insurance Company was directed to deposit the amount as awarded with interest and so far as the TDS was concerned, the Insurance Company was directed to follow the decision of this High Court rendered in the case of Hansaguri Prafulchandra Ladhani and others vs. The Oriental Insurance Company Ltd rendered in 2007 ACJ 1897.
6 The writ applicant herein in due compliance of the judgement and award passed by the Tribunal, deposited the entire amount along with the TDS. The TDS to the tune of Rs.2,21,516/- was deposited through a cheque on 26th May 2017.
7 The deposit of the TDS referred to above was in accordance with the judgement of this High Court in the case of Hansaguri (supra).
8 It appears that thereafter, the original claimants preferred a Miscellaneous Application No.298 of 2017 before the Motor Accident Claim Tribunal, City Civil Court at Ahmedabad with a prayer to release the amount of Rs.2,21,516/- deducted towards the TDS as referred to above.
9 The Miscellaneous Application came to be partly allowed by the Tribunal vide order dated 4th August 2018, which reads thus:
“ORDER BELOW EXHIBIT – 1
1. The present application has been given by the applicants to release the amount of Rs.2,21,516/- deducted towards TDS which has been deposited in the Tribunal vide ‘C’ No.521, on 26.05.2017.
2. Against the afore stated application, Advocate for the Insurance Co. has made an endorsement stating that he has no objection for withdrawal as no appeal or review has been filed by the Insurance Co.
3. Considering the papers on record, it transpires that the Tribunal has passed an order in MACP No.518/1999 on 18.01.2017, allowing the said petition and award of Rs.16,28,008/- was passed. The Insurance Co. has deposited the awarded amount with the Interest and had deducted the amount of Rs.2,21,516/- being the amount of TDS out of the interest amount. As regards the aforestated amount of TDS is concerned, no dispute has been raised by the applicant and they have also admitted that the amount deducted towards TDS is proper.
4. As far as the aforestated amount is concerned, the said amount is deposited as Tax in the income-tax department but the Insurance Co. said amount has deposited the in the court. So, the said amount is required to be sent back to the insurance Co. for depositing the same with the Income Tax department and in my view it cannot be given to the applicants. So, considering the peculiar facts and circumstance on hand, this application is required to be partly allowed and in the interest of justice I pass the following order.
ORDER
The present application is hereby partly allowed.
The Registry is hereby directed to send back the amount of Rs. 2,21,516/- deposited vide ‘C’ No.521, dated 18.05.2017, to the Oriental Insurance Co. Ltd. with a direction that the Insurance Co. shall deposit the said amount with the Income Tax department and then after would produce the necessary document regarding the same to this Court and supply the same to the applicants.
The Insurance Co. Is further directed to follow the procedure regarding depositing the amount of TDS with the Income Tax department and issue the necessary certificate along with the relevant papers of depositing the amount to the applicants and the copy be send to this Court.
Date : 04/08/2018.
sd/-
(Pratik J. Tamakuwala)
MACT (Aux.) Judge,
City Civil Court, Ahmedabad
UNIQUE ID CODE NO.GJ00581”
10 Thus, in view of the aforesaid order passed by the Tribunal, the writ applicant deposited the TDS amount with the Income Tax Department on 26th March 2019 and also filed correction statement for 26Q for the Q-1 of F. Y. 2017-18, which resulted in the demand of interest of Rs.69,741/- under Section 201(1A) of the Income Tax Act, 1961.
11 It appears that the directions issued by the Tribunal as above were challenged by the writ applicant herein by filing the Special Civil Application No.10060 of 2019 on 10th June 2019.
12 The Insurer filed an application dated 19th June 2019 with the Income Tax Department requesting waiver of the additional late payment interest of Rs.69741/- against processing of the latest correction statement for the F. Y. 2017-18.
13 The writ applicant herein also preferred an application to implead the Income Tax Department in the Special Civil Application No.10060 of 2019.
14 A learned Single Judge of this Court, vide order dated 30th August 2019, directed that no coercive steps shall be taken against the Insurance Company till the issue of TDS was not set at rest.
15 It appears that although this Court had passed an interim order in the Special Civil Application No.10060 of 2019 as above, yet the Income Tax Department proceeded to pass an order dated 22nd January 2021, whereby the department rejected the application filed by the Insurer seeking waiver of interest for the late deposit of the TDS amount.
16 In such circumstances referred to above, the writ applicant – Insurance Company has come up with the present writ application.
