Case Law Details
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:
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