Income Tax Appellate Tribunal - Delhi
Oriental Insurance Company Ltd. vs Income Tax Officer on 27 September, 2004
Equivalent citations: (2005)96TTJ(DELHI)589
ORDER
Bhavnesh Saini, J.M.
1. These appeals by the assessee are directed against the common order of the CIT(A), Ghaziabad, dt. 16th Oct. 2002, for the asst. yrs, 1999-2000, 2000-01 and 2001-02 under Sections 201(1) and 201(1A) of the IT Act.
2. We have heard the learned representatives of both the parties and gone through the observations of the authorities below and the details furnished in the paper book by the counsel for the assessee.
3. These appeals are filed on common grounds against the common order of the CIT(A). The AO also passed the order under Sections 201(1) and 201(1A) of the IT Act commonly in all the years. Therefore, we have heard all the matters together and dispose of the same by this common order.
4. For the sake of convenience, we reproduce the grounds of appeal taken in TDS Appeal No. 3/2003, which are as under :
"1. That the appellate authority has erred in law and on merits of the case in holding that the assessee was a person liable to deduct tax at source. The order of learned CIT(A) was contrary to law, facts and circumstances of the case and against the public interest.
2. That the learned appellate authority erred in relying on the decision pronounced by the Supreme Court in the case of Bikram Singh & Ors. v. Land Acquisition Collector & Ors. which is totally irrelevant and was clearly distinguished by the appellant during the course of appellate proceedings. In fact the above case is not applicable to the appellant's case.
3. That the learned appellate authority has failed to appreciate the fact that alleged interest does not come under the definition of interest under Section 2(28A) of the IT Act, 1961 as it is neither a debt incurred nor money borrowed.
4. That the learned appellate authority failed to appreciate the fact that such interest is nothing else but the additional compensation and is a capital receipt in the hands of the appellant. The case cited and other relevant material placed on record has not been discussed.
5. That the learned appellate authority has erred in law by ignoring the evidence and case laws furnished/cited by the appellant, wherein it was established, beyond any doubt, that interest on compensation was not an interest as understood in common parlance. Hon'ble Delhi and Chandigarh Tribunals upheld that such type of interest payment merely represents a measure for quantifying the compensation and such payments were considered as capital receipts and order under Sections 201 and 201(1A) were quashed.
...(sic) appreciate that any deduction of tax presupposes identification of claimants as an assessee. Further the deposit of amount to MACT Courts' is not a payment warranting tax deduction as the claimants were not identified and the compensation was not determined. As cheque for the amount of compensation along with alleged interest is to be submitted before the MACT Courts' and not to the claimant. If insurance company would have deducted tax at source on such payment, it was treated as contempt of Court."
5. The brief facts as taken from the record are that the AO called for the information regarding the payment of awards and the interest to the legal heirs of accident victims through summons dt. 22nd June, 2001, for all the above years. On going through the details of payment of awards and interest thereon, it was detected that no tax deduction was made by the assessee-company on the payment of interest in view of the provisions of Section 194A of the IT Act. The assessee was accordingly issued notice and it was pointed out that on the payment of interest paid on the awards through legal heirs of accident victims in three financial years no deduction of tax at source was made. The details of the payments and interest on such award are as under :
Financial year Amount
(Rs.)
1998-99 11,46,328
1999-00 42,02,969
2000-01 34,89,939
6. The assessee was specifically required to explain why short charge on account of non-deduction of tax on payment of interest may not be charged, since the assessee has failed to comply with the provisions of Section 194A. It was also required from the assessee to explain as to why interest under Section 201(1A) may not be charged on the amount chargeable as TDS from the assessee. The assessee filed reply dt. 27th Aug., 2001, wherein it was briefly submitted :
"The assessee is insurance company and carrying on the business of general insurance and pays compensation as per awards given by Motor Accident Claim Tribunal (MACT). These awards are being paid on death or injury occurred due to motor accident. Such compensation is to be made to the legal heirs or dependent in case of the death or to the injured person as the case may be."
7. It was also explained that as such the assessee is not paying interest as envisaged under Section 194A of the IT Act. It was also submitted that the claim under MACT includes the amount of compensation, interest awarded under Section 171 of the Motor Vehicle Act. The interest as mentioned above is not income as it is to be paid in the form of enhanced compensation, and is outside the purview of the Section 194A of the IT Act. It was also explained that the definition or interest under Section 2(28A) of the IT Act dealt with the definition of interest which ...(sic) to the case. It was also explained that the interest paid in MACT claim was neither a money borrowed nor a debt and accordingly the insurance company was not liable to deduct tax at source as per provisions of Section 194A of the IT Act. It was also explained that the amount by way of compensation and interest are deposited with the MACT as per the direction of the Court and as such the assessee has no option but to comply with the orders of the Court. In case of any defiance, it. may amount to contempt of the Court. The AO considering the submissions of the assessee was of the view that the case of the assessee is covered by Section 2(28A) of the IT Act, by which the definition of interest includes payment of interest on a deposit, claim or other similar right or obligation. Therefore, the payment of interest on the amount of compensation awarded to the legal heirs or successors of the death victims or to the injured person is with reference to the claim filed by the successor of the victim or by the injured person himself. He has observed that the deduction of the tax at source is in no way contempt of the Court. The AO, therefore, concluded that provisions of Section 194A are applicable and as the assessee has failed to deduct tax on the amount of the interest paid on compensation therefore, the AO passed the order under Sections 201(1) and 201(1A) of the IT Act against the assessee. The impugned order was challenged before the CIT(A). The same submissions were reiterated. Decision of Hon'ble Supreme Court in the matter of Bikiam Singh and Ors. v. Land Acquisition Collector & Ors. is not applicable. The CIT(A) was of the view that the provisions of Sections 2(28A) and 194A of the IT Act are applicable. The CIT(A) thus concluded that the interest payable under Section 171 of the Motor Vehicles Act as 'awarded by the Claims Tribunal is the revenue receipt taxable in the hands of the recipients and accordingly such payment of interest by insurance company would be liable for tax deduction at source in terms of the provisions of Section 194A of the IT Act. The CIT(A), however, with regard to calculation of short deduction of interest directed the AO to work out separately. The appeal of the assessee with regard to application of Section 194A was dismissed. The appeal of the assessee was partly allowed with regard to calculation of the short deduction and interest. We may clarify that such calculation of short deduction of interest is not in dispute before us. The assessee felt aggrieved and filed all the appeals before us for the different assessment years challenging the orders of the authorities below with regard to application of Section 194A of the IT Act.
8. We have heard the learned representatives of both the parties. The learned counsel for the assessee reiterated the same submissions made before the authorities below. The learned counsel for the assessee further argued that the assessee was to indemnify the third parties as per insurance policy and many times interest was paid on the compensation in discretion of the Court. The learned counsel for the assessee referred to Sections 169 and 171 of the IT Act. The learned counsel for the assessee submitted that the point in issue is considered by Chandigarh Bench of the Tribunal in the case of United Insurance Company, Ambala and New India Assurance Company in which the Departmental appeals on the same issue were dismissed. The learned counsel for the assessee submitted that the decision of the Hon'ble Supreme Court in the case of Bikram Singh & Ors. (supra) is not applicable as it deals (with) different propositions under the Land Acquisition Act. The learned counsel for the assessee submitted that the provisions of Section 2(28A) and Section 194A of the IT Act are not applicable. The learned counsel for the assessee further submitted that the compensation is not income in the hands of the claimant/recipients. The learned counsel for the assessee filed copies of the decision of Tribunal and other High Courts to support his contention, which we shall deal with separately. The learned counsel for the assessee at the last submitted that the assessee was not aware of the deduction of TDS and this point was also not challenged by the Revenue authorities in the past. Therefore, the assessee had a reasonable cause in not deducting the TDS. Therefore, considering the facts of the case and reasonable cause of the assessee, the orders of the authorities below may be set aside.
9. On the other hand, the learned Departmental Representative supported the orders of the authorities below and argued that the interest is not the part of the compensation and it is income of the recipients. Therefore, the assessee was under obligation to deduct TDS. The learned Departmental Representative submitted that the provisions of Sections 2(28A) and 194A of the IT Act are applicable in the present case. The learned Departmental Representative also relied upon the decisions of Supreme Court reported in Dr. Shamlal Narula v. CTF , T.N.K. Govindaraju Chetty v. CIT and K.S. Krishna Rao v. CYT (1990) 181 HR 408 (SC).
10. We have considered the rival submissions and the material available on record and the findings of the authorities below very carefully.
11. The point in issue is with regard to the taxability of compensation paid by the assessee-company to the victims of the accidents through the Motor Accident Claim Tribunal and the interest paid thereon. Section 165 of the Motor Vehicles Act provides compensation in respect of accident involving the death of or bodily injury to persons arising out of the use of motor vehicle or damages to any property of a third party so arises. Section 171 of the Motor Vehicles Act provides award of the interest and provides that the Motor Accident Claim may direct that in addition to the amount of compensation, simple interest shall also be paid (sic) not earlier than filing of the claim. The counsel for the assessee has filed some of the copies of the insurance policies and copies of the awards of different Motor Accident Claims Tribunals in the paper book. 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 insurance is made one of the necessary part 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 Motor Accident Claims. 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 the amount of the decree through the Court. The assessee is thus under legal obligation to pay the decretal amount by way of compensation of interest to the claimants. What the assessee-company pays to the claimant, may be a compensation and interest thereon but legally it is the decretal amount which the assessee-company is liable to pay after adjudication of the claim of the claimants through the filing of the proper suit in the MACT Court.
12. The assessee placed reliance on one sentence appearing at p. 557 of 224 ITR out of the decision in the case of Bikram Singh (supra). The CIT(A) has dealt with the contention of the assessee in the appellate order by observing that "what the apex Court has meant was that Section 194A, is not a charging section." The CIT(A) further held that the judgment of the Court has to be read as a whole and as such reliance of the decision of the Hon'ble Supreme Court in the case of Bikram Singh (supra) is misplaced. The learned counsel for the assessee also submitted during the course of argument that the decision of Supreme Court in the case of Bikram Singh (supra) is not applicable. On going through the decision of the Hon'ble Supreme Court in the case of Bikram Singh (supra), it is clear fact that in that case the appellant had received notice for payment of income-tax on the delayed interest amount recovered under the Land Acquisition Act. The matter was dealt with by the High Court and ultimately decided by the Hon'ble Supreme Court. In that case, the point for consideration was whether the interest on the compensation paid under the Land Acquisition Act was chargeable to income-tax under Sections 4 and 5 of the IT Act. The Hon'ble Supreme Court after considering the facts and decision of the High Court was of the view that the interest received as income on delayed payment of compensation determined under Sections 28 to 31 of the Land Acquisition Act is a taxable event and therefore, it was held that it is revenue receipt exigible to tax under Section 4 of the IT Act. The Hon'ble Supreme Court further observed that the Section 194A of the Act has no application for the purpose of this case as it encompasses deduction of income-tax at source. The Hon'ble Supreme Court in this case has dealt with the issue of chargeability of the interest on delayed compensation under Sections 4 and 5 of the IT Act in the hands of the appellant/claimants. The matter with regard to TDS was not at all considered and therefore, the observation of the Hon'ble Supreme Court with regard to applicability of Section 194A of the IT Act was correctly not relied upon by the CIT(A). Same is the position in the case of New India Assurance Company (ITA Nos. 1060 & 1061, dt. 21st Oct., 2002) and United Insurance Co. (ITA Nos. 1112 & 1113, dt. 1st Jan., 2003) as are decided by the Chandigarh Bench of the Tribunal (supra). The Chandigarh Bench of the Tribunal have placed reliance upon the observations of the Hon'ble Supreme Court with regard to Section 194A of the IT Act from the decision of Bikram Singh (supra). However, we have already observed above that the applicability of Section 194A was not the subject-matter before the Hon'ble Supreme Court and as such, the decision of Chandigarh Bench of the Tribunal may not be helpful to the case of the assessee. We may also mention that the facts in the case of Bikram Singh (supra) as are recorded above are, therefore, clearly distinguishable to the facts of this case. Therefore, we respectfully do not place reliance upon the decision of Hon'ble Supreme Court in the case of Bikram Singh (supra) as well as the orders of Chandigarh Bench of the Tribunal in the case of New India Assurance Company (supra) and United Insurance Co. (supra). Section 194A of the IT Act provides :
"194A. Any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee, or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force."
The remaining section is not reproduced as may not be relevant. Section 2(28A) of the IT Act provides the definition of interest which is as under :
2(28A) "interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised."
13. The Hon'ble Supreme Court in the case of Bikram Singh (supra) by referring to the said definition of the interest observed :
"It is seen that the word 'interest' for the purpose of the Act was interpreted by the inclusive definition. A literal construction may lead to the conclusion that the interest received or payable in any manner in respect of any moneys borrowed or a debt incurred or enumerated analogous transaction would be deemed interest."
However, no specific finding is given with regard to interpretation of Section 2(28A) of the IT Act in the aforesaid decision. As is noted above, the definition of interest under the IT Act means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation). The learned Departmental Representative submitted that the inclusive definition, i.e., claim would be included in the definition of the interest, and as such the claim of the claimants for the purpose of receiving interest on the compensation is also interest for the purpose of Section 2(28A) of the IT Act. On the other hand, the learned counsel for the assessee submitted that the definition of interest should and would include the interest payable in any manner in respect of any moneys borrowed or debt incurred and the inclusive definition is to be read with the terms "borrowed or debt incurred". On going through the submissions of the parties on this issue, it is clear that originally the definition of the interest provides interest payable in any manner in respect of any moneys borrowed or debt incurred. The inclusive definition provides interest on deposit, claim or other similar right or obligation.
14. In this connection, we would like to refer to rule of "ejusdem generis". The words "ejusdem generis" means of the same kind or nature. The rule of ejusdem generis is that where particular words are followed by general, the general words should not be construed in their widest sense but should be held as applying the objects, persons or things of the same general nature as close as those specifically enumerated, unless of course there is a clear manifestation of a contrary purpose. Or to put it in a slightly different language, where general and special words which are capable of analogous meaning are associated together, they take colour from each other and the general words are restrained and limited to a sense analogous to the less general. Where general words immediately follow as are closely associated with specific words, their meaning must be limited by reference to the preceding words. By applying the above rule of interpretation, i.e., "ejusdem generis" the definition of interest as is provided under Section 2(28A) of the IT Act, 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 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 present case, the claimants have received the decretal amount from the assessee-company through the Court of law (MACT). The claimants and the assessee-company as such have 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 injuries suffered by them out of use of motor vehicle, Therefore, what the claimants received was not the interest as defined in Section 2(28A) of the IT Act. The claimants have received the compensation and interest thereon being the decree passed by the Court. Therefore, as far as the assessee-company is concerned, it has paid decretal amount to the claimants through the Court though it may be given the name of compensation or interest thereon. Therefore, considering the above discussion, we are of the view that Section 2(28A) of the IT Act is not applicable in the present case. The authorities below have therefore, wrongly misplaced the reliance upon Section 2(28A) of the IT Act.
15. The learned counsel for the assessee relied upon the following decisions :
(1) Delhi Development Authority v. ITO (1995) 52 TTJ (Del) 107, in which the Tribunal 'B' Bench, Delhi, on consideration of the fact that the interest payable to allottees for delay in construction within the stipulated period, which is adjusted at the time of payment of final instalment held that the transaction is not covered by Section 2(28A) defining the interest. Therefore, the provisions of Section 194A of the IT Act are not applicable.
(2) In the case of Ghaziabad Development Authority v. Dr. N.K. Gupta (2002) 258 ITR 337 (NCDRC) in which National Consumer Disputes Redressal Commission headed by the Hon'ble Mr. Justice D.P. Waxhaw considering the facts that on delay in handing over flat and that facilities not provided the allottee refused to take possession and demanded refund of the amount with interest. Interest ordered to be paid. The National Commission held that in view of the definition of interest in Section 2(28A) of the IT Act, the provisions of Section 194A were not applicable and the petitioner authority was wrong in deducting tax at source from the interest payable to the respondent (complainant). The National Commission also considered the cases relied upon by the learned Departmental Representative in the case of Smt Rama Bai v. CIT (1990) 184 ITR 400 (SC) and Dr. Shyam Lai Narula (supra) and distinguishing those cases of the Hon'ble Supreme Court, decided the issue above.
(3) CIT v. Chiranji Lal Multanimal Rai Bahadur (P) Ltd. , in which the Hon'ble Punjab & Haryana High Court considered the facts that the interest awarded by the Court for loss suffered on account of deprivation of the property amounts to compensation and is not taxable and therefore, not assessable as income. In the case of G.D.A. v. Balbir Singh decided by the Hon'ble Supreme Court in Civil Appeal No. 7173 of 2003, vide order dt. 17th March, 2004, the Hon'ble Supreme Court held that the commission might also compensate for harassment/injury both mental and physical. It is not just interest on the amount invested but also compensation for the harassment and agony caused to the allottee.
(4) In the case of All India Reporter v. Ramchandra D. Datar , the Hon'ble Supreme Court held as follows ;
"We are not concerned to decide in this appeal whether in the hands of the respondent the amount due to him under the decree, when paid, will be liable to tax; that question does not fall to be determined in this appeal. The question to be determined is whether as between the appellant-company and the respondent, the amount decreed is due as salary payment which attracts the statutory liability imposed by Section 18. The claim decreed by the civil Court was for compensation for wrongful termination of employment, arrears of salary, salary due for the period of notice and interest and costs, loss withdrawals on salary account. The amount for which execution was sought to be levied was the amount decreed against which was set off the claim under the cross decree. A substantial part of the claim decreed represented compensation for wrongful termination of employment and it would be difficult to predicate of the claim sought to be enforced what part thereof, if any represented salary due. Granting that compensation payable to an employee, by an employer for wrongful termination of employment be regarded as in the nature of salary, when the claim is merged in the decree of the Court, the claim assumes the character of a judgment debt, and to judgment debts Section 18 has not been made applicable. The decree passed by the civil Court must be executed subject to the deductions and adjustment permissible under the CPC. The judgment debtor may, if he has a cross decree for money, claim to set off the amount due there under. If there be any adjustment of the decree, the decree may be executed for the amount due as a result of the adjustment. A third person who has obtained a decree against the judgment creditor may apply for attachment of the decree and such decree may be executed subject to the claim of the third person; but the judgment debtor cannot claim to satisfy, in the absence of a direction in the decree to that effect the claim of a third person against the judgment creditor and pay only the balance. The rule that the decree must be executed according to its tenor may be modified by a statutory provision. But there is nothing in the IT Act which supports the plea that in respect of the amount payable under a judgment debt of the nature sought to be enforced, the debtor is entitled to deduct income-tax which may become due and payable by the judgment creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary."
In this case, the Hon'ble Supreme Court also observed that the amount payable by. the appellant-company to the respondent was not salary but a judgment debt and before paying that debt, the appellant-company could not claim to deduct the tax at source payable by the respondent. Nor could the appellant-company seek to justify its plea on the ground that the judgment creditor was indebted to a third person. These decisions are squarely applicable to the case of the assessee.
16, The learned Departmental Representative, however, relied upon the decisions of Hon'ble Supreme Court in the matter of T.N.K. Govindaraju Chetty (supra), Dr. Shyam Lai Narula (supra) and K.S. Krishna Rao (supra). In these pronouncements, it was held that the interest received on delayed payments of compensation under the Land Acquisition Act is revenue receipt exigible to income-tax. In these authorities, applicability of Sections 2(28A) and 194A of the IT Act is not considered and as such the same would be of no help to the Revenue.
17. Now coming back to the facts of this case, it is clear from the above discussion that what the assessee-company has paid to the claimants through the MACT may be known as compensation or interest but the assessee-company has in fact paid the decretal amount through the Court. The assessee-company has therefore, no discretion whatsoever to deduct any TDS on the amount of decree payable to the claimants. The assessee shall have to satisfy the decree of the Court by all means. The assessee-company has 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 Motor Accident Claim Tribunal. We have already held that the provisions of Section 2(28A) of the IT Act are not applicable to the facts of the case. 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. The point of taxabilities of compensation decreed by MACT is not agitated by both parties, therefore, we do not propose to decide the same issue as it is not relevant to deduction of tax at source. We accordingly set aside the orders of the authorities below and allow the appeals of the assessee.
18. As aresult, all the appeals of the assessee are allowed.