Income Tax Appellate Tribunal - Delhi
Income Tax Officer vs Oriental Insurance Co. Ltd. on 6 May, 2005
Equivalent citations: (2006)100TTJ(DELHI)1140
ORDER
Vimal Gandhi, President
1. This appeal by the Revenue for asst. yr. 1999-2000 is directed against order of CIT(A) deleting demand of Rs. 2,43,362 created under Sections 201 and 201(1A) of IT Act, 1961, on account of non-deduction of tax at source from payment of interest allowed as directed by Motor Accidents Claims Tribunal (MACT).
2. The copy of the order of AO placed by the appellant is not very clear but from the portion legible, it can be made out that assessee-company paid compensation to different persons as per direction of MACT. According to the AO, compensation paid by the assessee included interest on which tax was liable to be deducted at source. The AO accordingly issued notice to the assessee to furnish details of interest paid exceeding Rs. 2,500 in motor accident claims (awards) in the financial years 1995-96 to 1999-2000.
3. The assessee in its reply dt. 10th Aug., 1999 claimed that assessee did not pay any interest to which provisions of Section 194A were applicable. It was claimed that disbursement of claim is made by the Court and not by the assessee. In support of its claim, the assessee placed reliance on the following three decisions :
(i) Bikram Singh and Ors. v. Land Acquisition Collector and Ors. ;
(ii) Dr. Sham Lal Namla v. CIT ;
(iii) T.N.K. Govinda Raju Chetty v. CIT .
4. The AO did not find any substance in any of the submissions made on behalf of the assessee. He held that the decisions cited on behalf of the assessee were not applicable. The assessee was held to be liable to deduct tax at source under Section 194A and for its failure, he was treated as assessee in default liable to pay interest under Section 201(1A) amounting to Rs. 2,43,362 (Rs. 1,98,143 and Rs. 45,209), The detail of above amount is given as per Annex. A-l to the order attached.
5. The assessee impugned above levy in appeal before the CIT(A), who, after considering facts and circumstances of the case, held that provisions of Sections 201(1) and 201(1A) were not applicable in this case. The assessee was not liable to deduct tax at source. The learned CIT(A) supported his view by relying upon the decision of Hon'ble Supreme Court in the case of Bikmm Singh and Ors. v. Land Acquisition Collector (supra).
6. The Revenue, being aggrieved, has brought the issue before the Tribunal. We have heard both the parties. The learned Counsel for assessee brought to our notice decision of Tribunal 'D' Bench in the assessee's case, Oriental Insurance Co. Ltd. v. ITO (2005) 96 TTJ (Del) 589 : (2005) 143 Taxman 12 (Del) (Mag). In the aforesaid decision, the assessee-company, as in the case before us, claimed that compensation amount is deposited by assessee with MACT as per directions of Court and it had no option but to comply with orders of the Court. The amount paid by the assessee will not fall within the definition of 'interest' as per Section 2(28A) of IT Act. The provisions of Section 194A were not applicable to the case of assessee. The Bench observed as under :
As per insurance policies, the assessee shall have to indemnify the third party for losses suffered by them on account of death, bodily injury or damages to the property provided that the conditions of the policies are not violated. The interest on the compensation would be granted in the discretion of the Court. The assessee-company is made one of the necessary party to the suit filed by the claimants or legal heirs of the deceased persons, who have suffered bodily injury or death on account of use of motor vehicle, which is insured with the assessee-company. The assessee-company is liable to pay compensation to such persons when award/decree is passed by the MACT. The assessee company is liable to satisfy the decretal amount by depositing the amount of the decree to the Court (MACT) as per direction of the Tribunal. The insurance-company cannot deal with the claimant directly unless the claim is settled in the Lok Adalat. Even if the matter is settled in Lok Adalat, the decree is to be passed in pursuance of the compromise effected between the claimants and the insurance-company through the MACT Court. Therefore, one thing is very clear from the facts available on record that the insurance-company shall have to pay the decretal amount to the claimants through the MACT. Therefore, the assessee has no option for deduction of TDS except to pay whole of amount of the decree through Court. The assessee is thus under legal obligation to pay the decretal amount by way of compensation or interest to the claimants.
What assessee, an insurance company, pays to the claimant, may be compensation and interest thereon, but legally it is the decretal amount which it is liable to pay after adjudication of the claim of the claimants through the filing of the proper suit in the MACT Court.
By applying the rule of interpretation, i.e., 'ejusdem generis' the definition of 'interest' as is provided under Section 2(28A), the specific words used in the aforesaid section are interest payable on moneys borrowed or debt incurred. These are specific words which are followed by the inclusive general words like 'deposit', 'claim' or other similar right or obligation. Therefore, the general words like deposit, claim, etc. have to be used in the sense as they are used specifically in respect of moneys borrowed or debt incurred. The inclusive definition has, therefore, to be read along with specific words of money borrowed or debt incurred. In the instant case, the claimants had received the decretal amount from the assessee-company through the Court of law (MACT). The claimants and the assessee-company as such had no connection whatsoever with regard to interest payable on moneys borrowed or debt incurred. The claimants filed claims for compensation in the Court of law for death and bodily injury suffered by them out of use of motor vehicle. Therefore, what the claimants received was not the interest as defined in Section 2(28A). The claimants had received the compensation and interest thereon being the decree passed by the Court. Therefore, as far as the assessee-company was concerned, it had paid decretal amount of the claimants or interest thereon. Therefore, Section 2(28A) was not applicable in the instant case. The authorities below had, therefore, wrongly placed the reliance upon Section 2(28A).
What the assessee-company had paid to the claimants through the MACT might be known as compensation or interest but the assessee-company in fact paid the decretal amount through the Court. The assessee-company had, therefore, no discretion whatsoever to deduct any TDS on the amount of decree payable to the claimants. The assessee would have to satisfy the decree of the Court by all means, The assessee-company had to indemnify third parties i.e., the legal heirs of the deceased or injured persons who suffered bodily injury or death by use of the motor vehicle as per insurance policy and award (decree) passed by the MACT. Therefore, the assessee was not under any legal obligation to deduct TDS on the amounts of decree paid to the claimants, which is known as interest on the compensation. Accordingly, the orders of the authorities below were to be set aside and the appeals of the assessee be allowed.
7. The aforesaid decision is on all fours and is required to be applied, Respectfully following the aforesaid decision, we hold that assessee was not liable to deduct tax at source under Section 194A of the IT Act. The levy imposed on the assessee under Sections 201 and 201(1A) are rightly cancelled by CIT(A). We hold the impugned order.
8. In the result, appeal of the Revenue is dismissed.