Madhya Pradesh High Court
National Insurance Company Ltd. Thr. vs Smt. Geeta on 16 February, 2024
Author: Milind Ramesh Phadke
Bench: Milind Ramesh Phadke
1 MP-4986-2018
IN THE HIGH COURT OF MADHYA PRADESH
AT GWALIOR
BEFORE
HON'BLE SHRI JUSTICE MILIND RAMESH PHADKE
ON THE 16th OF FEBRUARY, 2024
MISC. PETITION No. 4986 of 2018
NATIONAL INSURANCE COMPANY LTD. THR.
Versus
SMT. GEETA AND OTHERS
Appearance:
Shri R.V. Sharma, learned counsel for the petitioner.
Smt. Meena Singhal, learned counsel and Shri Harshvardhan
Topre, learned counsel for the respondents.
ORDER
1. By way of instant petition under Article 227 of the Constitution of India the National Insurance Company Ltd. is seeking following reliefs:-
1. That the petition of the petitioner may kindly be allowed.
2. That the orders dated 28.08.2018, 12.09.2018 and 04.10.2018 (Annexure P/l, Annexure P/2 and Annexure P/9) in claim case No.36/2016 by 8th Additional Motor Accident Claims Tribunal, Gwalior may kindly be set aside against the petitioner and grant the relief in favour of the petitioner.
3. Other relief which is suitable in the ends of justice and facts and circumstances of the case be also allowed.
2. The facts giving rise to the present Miscellaneous Petition may be summerised as under:-
3. Against the award passed in claim case No.25/2005 present Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 2 MP-4986-2018 respondents No.1 to 5 had preferred an M.A. No.108/2006 for enhancement of compensation before this Court. In the appeal in place of claim amount of Rs.9,51,260/-, a sum of Rs.14,89,260/- was awarded and the amount of Rs.5,38,000/- in all was enhanced with an interest of 8% per annum. The petitioner Insurance Company thereafter calculated the interest amount on the aforesaid enhanced amount which amounted to Rs.3,84,058/- and out of the said amount Rs.76,812/- was deducted as TDS and was deposited with the income tax department as per the provisions contained under Section 194(A) of the Income Tax Act.
4. After after deducting and depositing the amount of TDS the petitioner field the copy of the form 16-A TDS Certificate with application dated 15.06.2015 before the Tribunal in the execution case and the copies thereof were given to the counsel for the respondents No.1 to 5.
5. Though the entire amount of the enhanced compensation was deposited with a deduction of amount towards TDS payable on the interest part, the respondents No.1 to 5 took oral objection that the amount towards TDS could not have been deducted instead of taking steps for realization for withdrawing the said TDS amount from the Income Tax Department.
6. Learned Executing Court accepted the prayer of respondents No.1 to 5 and issued a recovery warrant of Rs.76,812/- against the petitioner on 28.08.2018. The petitioner thereafter moved an application on 11.09.2018 before the Tribunal to withdraw the recovery warrant, as the execution was wholly satisfied due to deposit of the enhanced amount and prayed for its Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 3 MP-4986-2018 dismissal but without considering the legal position the petitioner's application was rejected and not only this the learned Executing Court issued a recovery warrant on 04.10.2018, which being illegal and against the provisions of law have been challenged by way of present petition.
7. Learned counsel for the petitioner/Insurance Company contends that the interest is an income distinct from the compensation and is, therefore, taxable and by virtue of clause B of Section 145(B)(1) as amended by Finance Act 2018 w.e.f. 01.04.2017) such income is taxable on the actual receipt. Heavy reliance is placed on the provisions contained in section 56(2)
(viii), section 145A(b)[amended 145b(1)] and section 194A of the Income Tax Act. It was pointed out that section 145A was amended by the Finance Act of 2009 in order to obviate the difficulties arising out the judgment of the Supreme Court in the case of Rama Bai and ors. vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad and Ors. reported in 181 ITR 400 .
8. It was further contended that looking to the above statutory provisions, any interest on compensation or enhanced compensation of motor accident claims would be chargeable to tax as income from other sources and the point of changeability would be the actual receipt and a conjoint reading of clause (viii) of sub-section (2) of section 56, clause (b) of section 145A [145B(1)]and section 194A (3) of the Act would lead to an inescapable conclusion that interest on the compensation or enhanced compensation would be chargeable as income from other sources at the point when the same is actually received by the claimants.
Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM4 MP-4986-2018
9. It was further submitted that the Finance Act, 2015 has inserted new Section 194A(3) (ix-a) with effect from 1st June 2015 and the effect of the amendment is as under:-
"(1) No liability for TDS shall be attracted in respect of any income credited by way of interest on the compensation amount awarded by the MACT.
(2) Such liability for deduction of tax in respect of interest on compensation will be attracted, only at the time of actual payment and only if the amount of such payment or aggregate amounts of such payments during a financial year exceeds Rs. 50,000/-."
10. To bolster his submissions, learned counsel for the petitioner placed reliance in the matters of United India Insurance Co. Ltd. Vs. Janki Devi and others reported in 2009 ACJ 1937 ; Shatrudhan Singh and others Vs. Devi Lal Mahota and others reported in 2009 ACJ 1938 ; United India Insurance Co. Ltd. Vs. Mitaben Dharmeshbhai Shah and others reported in 2004 ACJ 1996; New India Assurance Co. Ltd. Vs. Dharam Singh Bhai and others reported in 2004 ACJ 1998; National Insurance Co. Ltd. Subhash N. Chandrabose and others reported in 2014 ACJ 1497; Jagdishprasad Vs. Chandrakant and others reported in 2014 ACJ 1501; Oriental Insurance Co. Ltd. Vs. G.S. Diwakar (died) and others reported in 2014 ACJ 1759; Oriental Insurance Co. Ltd. Vs. Chennabasavaiah and others reported in 2016 ACJ 78; Lalitha Vs. M.R. Sunilkumar and others reported in 2016 ACJ 79.
11. On the other hand, the stand of the counsels for the respondents/claimants No.1 to 5 is that the interest component on the motor accident claim compensation paid to the petitioner is not taxable. The first contention of the counsel for the respondents No.1 to 5/claimants is that the Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 5 MP-4986-2018 interest is a capital receipt and the other contention is that the interest is compensatory in nature, and is meant to offset the erosion of the principal compensation because of passage of time and the reduction of purchasing power of rupee due to inflation. It was also contended that when the compensation itself is not taxable, the interest pendente lite which also forms part of the compensation, would not be taxable and when the receipt itself is not taxable, the question of deducting tax at source while making payment thereof would not arise and it was also contended that in any case, such interest should be spread over the entire period for which it is paid, as the interest accrues from year to year and merely because it is paid at a single point, would not mean the entire amount is taxable in the year of payment.
12. To bolster her submissions, learned counsel for the respondent placed reliance in the matters of New India Assurance Company Ltd. Vs. Hari Narayan passed in CMPMO No.159 of 2021 on 29.08.2023; National Insurance Company Ltd. Vs. Smt. Kavita and others passed by this Court in M.P. No.525/2017 on 19.11.2019; United India Insurance Co. Ltd. Vs. Ramlal and others reported in 2012 ACJ 1157; New India Assurance Co. Ltd. Vs. Remya and others reported in 2012 ACJ 1162; Shri Rupesh Rashmikant Shah Vs. Union of India & ors. passed by Bombay High Court in WP NO.29.02 of 2016 on 08.08.2019; New India Assurance Co. Ltd. Vs. Hussain Babulal Shaikh and others reported in 2017 ACJ 1775; New India Assurance Co. Ltd. Vs. Ravinder Kumar and others reported in 2023 ACJ 757. Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 6 MP-4986-2018
13. Heard learned counsel for the parties and perused the record.
14. Before analyzing the rival stands, this Court deems it necessary to briefly refer to the applicable provisions contained in the Income Tax Act. Section 2(24) of the Act defines the income:-
(i) profits and gains;
(ii) dividend ;
(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust.
Explanation.--For the purposes of this sub-clause, "trust" includes any other legal obligation;
(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;
(iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit ;
(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ;
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ;
(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 7 MP-4986-2018 person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub- clause referred to as the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ;
(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ;
(va) any sum chargeable to income-tax under clause (iiia) of section 28 ; (vb) any sum chargeable to income-tax under clause (iiib) of section 28 ;
(vc) any sum chargeable to income-tax under clause (iiic) of section 28 ; (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28 ;
(ve) any sum chargeable to income-tax under clause (v) of section 28 ;
(vi) any capital gains chargeable under section 45 ;
(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ; (viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;
(viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub- clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;]
(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
Explanation.--For the purposes of this sub-clause,--
(i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
(ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;
(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ;
Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM8 MP-4986-2018
(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
Explanation.--For the purposes of this clause*, the expression "Keyman insurance policy" shall have the meaning assigned to it in the Explanation to clause (10D) of section 10 ;
(xii) any sum referred to in clause (va) of section 28; (xiia) the fair market value of inventory referred to in clause (via) of section 28;
(xiii) any sum referred to in clause (v) of sub-section (2) of section 56;
(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;
(xv) any sum of money or value of property referred to in clause (vii) or clause (viia) of sub-section (2) of section 56;
(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56;
(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;
(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;
(xviib) any compensation or other payment referred to in clause (xi) of sub-section (2) of section 56;
(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than,--
(a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or
(b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be;
15. Section 2(28-A) in The Income Tax Act, 1961 defines interest 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 Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 9 MP-4986-2018 charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized ;
16. Section 56(2)(viii) of the Income Tax Act is with regard to "income from other sources". The same reads as under:-
"56. Income from other sources. -
(2) In particular and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head "Income from other sources", namely: -
(viii) income by way of interest received on compensation or on enhanced compensation referred to in [sub-section (1) of Section 145-B]"
17. Section 145 B(1) [unamended Section 145A(b)] of the Income Tax Act reads as under:-
Section 145A(b) in The Income Tax Act, 1961
(b)"recognized stock exchange" shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43;
18. Section 194(A)(3) (ix and ix-a) of the Act is with regard to "interest other than interest of securities." The same reads as under:-
Section 194A(3) in The Income Tax Act, 1961.
(3) The provisions of sub-section (1) shall not apply--
(ix) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal; (ixa) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees;
19. Lastly, Section 171 of the Motor Vehicle Act 1988, which reads thus:-
Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM10 MP-4986-2018 Section 171 in The Motor Vehicles Act, 1988
171. Award of interest where any claim is allowed. - Where any Claims Tribunal allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf.
20. In 2009, by Finance (No.2) Act, 2009, Section 145A(b) and Section 56(2)(viii) came to be amended and the said two sections were amended to provide that so far as the interest on delayed or enhanced compensation (under the Land Acquisition Act, 1894) was concerned, the same was taxable only in the year of receipts and would not be spread over the years.
21. The Finance Act, 2015 amended Section 194A(3) to divide it into two parts:
(ix) said that in relation to only credit, no TDS is required.
(ix-a) said that in relation to payment, if it is less than 50,000/-, then no TDS.
22. The aforesaid was done to rationalize Section 194-A so as to give effect of the earlier amendment of 2009, which said that the taxability of interest would arise only in the year of receipt and therefore, in the years of its accrual there was no tax incidence. Therefore, to that extent the 194A(3)
(ix) was inconsistent and was accordingly corrected.
23. Here it is also necessary to first examine the nature of compensation and the interest awarded under the Motor Vehicles Act, 1988.
Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM11 MP-4986-2018 The Act of 1988 makes a detailed provision for awarding compensation for death or disablement of any person resulting from an accident arising out of use of Motor vehicle and such claim is in the nature of tortuous liability and over a period of time, same has been substantially horrified. With exponential increase in the number of vehicles and road in network, the legislation had tried to keep up with the face to face the challenges arising out the road accidents. The concept of compulsory third party insurance has been statutorily introduced and the relationship between insurer and insured is basically a contractual relationship but interjective range of the statutory provisions. Under such contract of insurance, the insurer undertakes to magnify the insured to the extent of aggrieved and the statutory provisions contained in the Act of 1988 makes third party insurance compulsory and limit the difference, which the insurance company may raise to its liability.
24. The statement of objects and reasons for enactment of this Motor Vehicle Act records that the need was filled for consolidation by an amendment of law relating to motor vehicle and such law should take into account also changes in the road transport technology, pattern of passenger and freight movements, developments, of the road network in the country and particularly the improved techniques in the motor vehicles management. Chapter-X of the Act of 1988 pertains to liability without fault in certain cases and chapter XI of the Act of 1988 pertains to Insurance of Motor Vehicles against third party risks. Chapter XII of the Act pertains to Claims Tribunal and Section 166 of the Act of 1988 pertains to application for compensation under which a person who has sustained injury or the owner of Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 12 MP-4986-2018 the property or where death has resulted into the accident, the legal representative of the deceased could make an application for compensation to the Motor Accident Tribunal. On such an application Claims Tribunal would pass an award as provided under Section 168 of the Act of 1988. Sub- section (1) of the Section 168 of the Act of 1988 provides that on receipt of an application for compensation, the Claims Tribunal shall, after giving notice to the insurer and after giving an opportunity of being heard to the parties, holds an inquiry into the claim and may make an award determining the amount of compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid. Further, the Section 171 of the Act of 1988 provides that the Tribunal allows a claim for compensation, such Tribunal may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf.
25. With regard to the interest payable on the compensation the Hon'ble Apex Court in number of cases had observed that the rate of interest must be just and reasonable depending upon the facts and circumstances of each case and taken all relevant factors including inflation, change of economy, policy being adopted by Reserve Bank of India from time to time, how long the case is pending, permanent injuries suffered by the victim, enormity of suffering, loss of future income, loss of enjoyment of life etc., into consideration. Interest is compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 13 MP-4986-2018 the money which ought to have been paid to him. For reference the judgment of the Hon'ble Apex Court in the matter of Smt. Kaushnuma Begum And Ors vs The New India Assurance Co. Ltd. And Ors reported in 2001 (2) SCC 09; United India Insurance Co. Ltd. Etc. Etc vs Patrica Jean Mahajan And Ors. reported in 2002 (6) SCC 281; Abati Bezbaruah vs Dy. Director General Geological Survey of India & Anr. reported in (2003) 1 ACJ 680, and Dharampal & Sons Vs. U.P. State Road Transport Corporation, reported in (2008) 12 SCC 208 can be looked into.
26. It can, thus, be seen that in the case of fatal accident cases, the Courts award compensation for loss of dependency benefit, loss of estate, loss of consortium in case of a spouse, loss of love and affection for the family members and funeral charges. In injury cases, generally, the compensation is computed under the heads of actual loss of income, future loss of income, pain, shock and suffering, loss of enjoyment of amenities of life, medical treatment past and future, miscellaneous heads such as attendant charges, special diet, transportation, etc.
27. It is, therefore, that while awarding compensation, though the Claims Tribunal awards future loss in praesenti, interest is awarded for the period between filing of the Claim Petition till passing of the award and, therefore, as held by the Hon'ble Apex Court in the case of Abati Bezbaruah (supra) and Dharampal (supra), such interest is considered to be part of compensation, and accretion to the compensation since the same is awarded for the compensation which is ascertained with reference to an earlier date i.e., the date of accident. At the same time, courts have not approved granting Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 14 MP-4986-2018 interest on future expenditure.
28. Now, coming to the provisions of the Income Tax Act and applying these conclusions to the relevant provisions contained therein, it could be seen that Section 56 of the Income Tax Act pertains to income from other sources. Sub-section (1) of section 56 provides that income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head of income from other sources, if it is not chargeable to income tax under any of the heads specified in section 14, items (A) to (E). Section 56(1) of the Act thus, makes a residuary provision for charging income of every kind, not falling under items (A) to (E) of section 14, to be charged as income from other sources. Sub-section (2) of section 56 provides that in particular and without prejudice to the generality of the provisions of sub- section (1), the incomes contained in the following clauses shall be chargeable to income tax under the head income from other sources. Clause (viii) inserted by the Finance Act, 2009 w.e.f. 1.4.2010 sub-section (2) of section 56 pertains to income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A [Amended 145B(1)].
29. So far as Section 56 of the Act is concerned, per se it does not make a particular receipt chargeable to tax if it otherwise does not happen to be income. This section merely provides for taxing an income not falling under the other heads as income from other sources. Sub-section (2) of section 56 when it lists various incomes, which would be treated as income Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 15 MP-4986-2018 from other sources, merely amplifies this purpose. Therefore, clause (viii) of sub-section (2) of section 56 by itself would not make the receipt of interest on compensation chargeable to tax as income from other sources, if such receipt is not income .
30. Now coming to the Section 145(A)(b) [amended 145B(1)] it provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation, as may be, shall be deemed to be income of the previous year in which it is received.
31. Thus, the context of section 56(2)(viii) and clause (b) of section 145A of the Act does not make interest on compensation or enhanced compensation taxable, if it is otherwise not exigible to tax, rather it merely provides for the point when it would be subjected to tax if otherwise taxable.
32. In order to ascertain the taxability of interest on compensation or enhanced compensation in motor accident claim cases, the true nature of interest would have to be ascertained. In the context of the nature of the interest awarded by the Claims Tribunal or this Court on motor accident claim compensation or enhanced compensation, decisions of the Supreme Court including in cases of Abati Bezbaruah (supra), Kaushnuma Begum (supra), Patricia G. Mahajan (supra) and Dharampal (supra) have been referred. These decisions suggest that the interest is awarded for delayed computation of compensation and right to award interest flows from section 170 of the Motor Vehicles Act, 1988. As it is well settled that the authority Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 16 MP-4986-2018 of the Court to award interest must be traced to a statutory provision or should be in agreement between the parties and in absence of section 170 of the Motor Vehicles Act, perhaps it would not be lawful for the Tribunal or this Court to award interest on compensation. Thus, from the discussion in the judgments cited above it could be very well said that the interest is compensatory in nature and thus, forms part of the compensation itself. Compensation is computed with reference to the date of accident and all calculations are based on such reference point and such interest is awarded keeping in mind the rate of inflation, effort thus is to award just compensation and, therefore, awarding interest for delayed computation of compensation is an integral part of this exercise.
33. In the matter of Rupesh Rashmikant Shah vs Union Of India passed on 08.08.2019 in W.P. No.2902 of 2016 the Division Bench of Bombay High Court, has been observed that in the context of interest, there are three crucial dates. First is the date of the accident is a date in reference to which the entire compensation is calculated, second is the date of filing of the claim petition is the date from which the claimant can seek interest on the compensation awarded by the Claims Tribunal, under section 170 of the Motor Vehicles Act and the interest cannot be awarded for a period prior to filing of the Claim Petition and thirdly is the date of passing of the award by Claims Tribunal is the date on which the compensation is determined and the right to receive interest pendente lite ceases. The interest for the period between the filing of the claim petition and passing of the award thus, is for the period when the claimant for the first time approached the Claims Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 17 MP-4986-2018 Tribunal asking the Tribunal to assess and award compensation and the time consumed in disposing of the Claim Petition. This Court has also observed that the interest can be awarded even though part of the compensation would comprise of future loss of income because, the multiplier method factors this aspect also. At the same time, the Courts should not award interest on future expenditure since the amount is being paid to the claimant for an expenditure which may be incurred at a later point of time. This dichotomy, thus, between awarding interest on future income while not awarding interest for future expenditure brings out the true character of the interest being awarded.
34. In the light of aforesaid, it can, therefore, be 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 case of Appeal, till the judgment of the Appellate Court in such Appeal, would not be exigible to tax, not being an income. This position would not change on account of clause (b) of section 145-A of the Act as it stood at the relevant time amended by Finance Act, 2009 which provision now finds place in sub-section (1) of section 145B(1) of the Act. Neither clause (b) of section 145B(1), nor clause (viii) of sub- section (2) of section 56 of the Act shall make the interest chargeable to tax whether such interest is income of the recipient or not. Section 194-A of the Act is only a provision for deduction of tax at source. Any provision for deduction of tax at source in the said section would not govern the taxability of the receipt. The question of deduction of tax at source would arise only if the payment is in the nature of income of the payee.
35. The Division Bench of the Bombay High Court in the matter of Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 18 MP-4986-2018 Rupesh Rashmikant Shah vs Union of India (Supra) in paragraph 58 and 59 has discussed the provisions of Section 194-A, clauses (ix) and (ixa) of sub- section (3) of section 194.The relevant extract is reproduced herein below:-
58. We are not oblivion to erstwhile clause (ix) of sub-section (3) of section 194A or the newly amended clauses (ix) and (ixa) thereof substituting original clause (ix) w.e.f. 1.6.2015 by Finance Act, 2015.
Subsection (1) of section 194A provides for deduction of tax at source upon payment of any income by way of interest. Sub-section (3) of section 194A contains exclusion clauses from the purview of sub- section (1). Clause (ix) contained in sub- section (3) prior to amendment pertained to income credited or paid by way of interest on the compensation amount awarded by the Motor Accident Claims Tribunal where such amount did not exceed Rs.50,000/-. In substitution of this provision, clause (ix) now provides that the provision of sub-section (1) will not apply to such income credited by way of interest on the compensation awarded by the Motor Accident Claims Tribunal. Clause (ixa) virtually retains the original provision of unamended clause (ix). The learned ASG would, therefore, contend that by virtue of these provisions, requirement of deducting tax at source on interest income would not arise only if the same does not exceed Rs.50,000/- in a financial year or where such income is merely credited. In other words, at the time of payment of interest, the provision for deduction of tax at source would kick in.
59. So far as the plain meaning of section 194A(1) read with erstwhile clause (ix) and substituted clauses (ix) and (ixa) of sub- section (3) is concerned, there can be no doubt or dispute. However, the fundamental question is does section 194A make the interest income chargeable to tax if it otherwise is not. The answer has to be in the negative. The provision for deduction of tax at source is not a charging provision. It only makes deduction of tax at source on payment of same, which, in the hands of payee, is income. If the payee has no liability to pay such income, the liability to deduct tax at source in the hands of payer cannot be fastened. In other words, the provision of deducting tax at source cannot govern the taxability of the amount which is being paid.
36. In the light of aforesaid, in para 62 and 63 it has concluded as under:-
62. Before closing we would tie a few loose ends-Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM
19 MP-4986-2018
(i) Learned Counsel for the petitioners had not made any submissions on the vires of the provisions of the Act, virtually giving up the challenge. We have therefore not examined the same.
(ii) Though no serious opposition was raised to the petition on the ground of availability of statutory appeal, we think it is our duty to explain why this petition was entertained. In the present case, only question was of charging interest on compensation/enhanced compensation of motor accident to tax. This was a pure question of law. No facts were to be ascertained. It was otherwise important that such a question is decided by the High Court. We had, therefore, entertained the petition.
(iii) The Assessing Officer has passed the order of assessment. He has made a bonafide assessment. With his approach, there can be no criticism. But when it comes to issuing notice for penalty, it defies logic. The petitioner despite his stand that the interest is not taxable, filed the return, offered the interest to tax and also deposited such tax under protest. What was the purpose of issuing notice for penalty is difficult to understand
63. In the result, we find that the Assessing Officer had committed an error in levying tax on the interest component of the compensation awarded to the petitioner till the date of the judgment of the High Court. On any interest paid to him post the judgment, tax had to be collected as income from other sources. We, therefore, set aside the impugned order of assessment and place the assessment of the petitioner back to the Assessing Officer for passing fresh order in line with this judgment. Before closing, we record our appreciation for the industry and punctuality with which the learned Senior Counsel Mr.Jamshed Mistri, the Amicus Curiae, had assisted the Court in the present petition.
37. A similar view has been taken by Division Bench of Gujarat High Court in the matter of The Oriental Insurance Co. Ltd. Vs. Chief Commissioner of Income Tax (TDS) in Special Civil Application No.4800/2021 dated 05.04.2022 and para 73, 74 and 75 thereof are reproduced herein below:-
73 The upshot of the aforesaid discussion is that the compensation received under the Motor Vehicles Act is either on account of loss of Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM 20 MP-4986-2018 earning capacity on account of death or injury or on account of pain and suffering and such receipt is not by way of earning or profit. The award of compensation is on the principle of restitution to place the claimant in the same position in which he would have been as the loss of life or injury would not have been suffered.
74 Our final conclusion may be summarized as under:
[a] The interest awarded by the Motor Accident Claim Tribunal u/s 171 of the Motor Vehicles Act 1988 is not taxable under the Income Tax Act, 1961.
[b] 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 Appeal, till the judgment of the High Court in such appeal, would not be exigible to tax, not being an income. This position would not change on account of clause (b) of Section 145A of the Act as it stood at the relevant time amended by Finance Act, 2009, which provision now finds place in sub- section (1) of Section 145B of the Act. Neither clause (b) of Section 145A, as it stood at the relevant time, nor clause (viii) of sub-section (2) of Section 56 of the Act make the interest chargeable to tax, whether such interest is income of the recipient or not. Section 194A of the Act is only a provision for deduction of tax at source. Any provision for deduction of tax at source in the said section would not govern the taxability of the receipt. The question of deduction of tax at source would arise only if the payment is in the nature of income of the payee.
[c] 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 shall deposit the full amount with the Tribunal and shall not deduct tax u/s 194A of the Income Tax Act on the interest awarded by the Motor Accident Claims Tribunal.
75 We may clarify that the aforesaid 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 the judgment.
38. In the result, this Court holds that the tax deducted on the interest on the enhanced compensation by the Insurance Company was not justified.
Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM21 MP-4986-2018
39. Accordingly, it is held that the executing Court has rightly rejected the application preferred by the petitioner/Insurance Company for withdrawing the recovery warrant in whole satisfaction of the execution proceedings.
40. The petition is hereby dismissed.
Certified copy as per rules.
(MILIND RAMESH PHADKE) JUDGE neetu Signature Not Verified Signed by: NEETU SHASHANK Signing time: 8/1/2024 5:23:45 PM