JUDGMENT
M.S. Shah, J.
Page 2102
1. This application involves interpretation of the provisions of Section 194A(3)(ix) of the Income-tax Act, 1961 regarding deduction at source of the income-tax payable on the interest received by the claimants on the compensation received by them pursuant to the award of the Motor Accident Claims Tribunal.
2.1 This application is filed by the heirs of deceased Prafulchandra Narbheram Ladhani, who had filed Motor Accident Claim Petition before the Motor Accident Claims Tribunal for claiming compensation of Rs. 20 lakhs on account of death of Prafulchandra Narbheram Ladhani (hereinafter referred to as “the deceased”) on 1.4.1991 in a motor vehicle accident Page 2103 between an Ambassador car in which the deceased was travelling and a public carrier truck. The claim petition was filed by Smt. Hansaguri, widow of the deceased, four daughters (claimant Nos. 2 to 5) and son Naresh (claimant No. 6).
2.2 The original claim petition being MAC Petition No. 743 of 1991 was filed on 30.9.1991 before the Motor Accident Claims Tribunal at Junagadh. Upon constitution of the Motor Accident Claims Tribunal at Veraval, the said petition was transferred to Veraval in the year 1999 and thereafter upon constitution of the Tribunal at Rajkot, the claim petition was numbered as MAC Petition No. 2240 of 2000.
Ultimately the Tribunal at Rajkot allowed the claim petition and made an award for Rs. 11,78,000/- with proportionate costs and with interest at the rate of 9% per annum from the date of filing the petition i.e. 30.9.1991 till the date of payment. It was further directed that the amount, if any, paid as interim compensation shall be adjusted against the above liability. So also the amount of deficit court fee stamp, if any, shall be deducted from the said deposit and thereafter claimant Nos. 1 and 6 shall be paid Rs. 3,89,000/- each as principal compensation amount and claimant Nos. 2 to 5 shall be paid Rs. 1,00,000/- each as principal compensation amount.
2.3 Being aggrieved by the above award, Oriental Insurance Co. Ltd., insurer of both the vehicles, has filed First Appeal No. 1392 of 2006. This Court admitted the appeal on 4.5.2006 and also directed the Tribunal to make investment of the amounts deposited before it. Pursuant to the said direction the Insurance Company has deposited an amount of Rs. 25,27,812/- before the Tribunal by cheque dated 5.7.2006. The detailed calculations given by the Insurance Company in the purshis dated 12.7.2006 is as under:
Awarded amount Less NFL Paid Balance
Rs. 11,78,000/- Rs. 25,000/-
Rs. 11,53,000/-
Plus 9% interest for 179 months
Less amount deposited before
the Hon'ble High Court
Balance Plus Costs
Rs. 15,47,902/-
Total Rs. 27,00,902/-
Rs. 25,000/-
Rs. 26,75,902/-
Rs. 22,179/-
Total Rs. 26,98,081/-
Less TDS deducted & deposited with the Income Tax Department
Rs. 1,70,279/-
Net Amount remitted Rs. 25,27,812/-
3. Civil Application No. 10031 of 2006 has been filed by the original claimants for various prayers including the prayer that the amount awarded Page 2104 by the Tribunal as compensation and the interest which has accrued on the said compensation amount be apportioned equally amongst all the claimants i.e. the widow, four daughters and one son of the deceased and thereafter disbursed. It is also submitted that the TDS certificate should be prepared on the basis of the apportionment of the compensation amount and the interest payable thereon to the respective heirs of the deceased and by spreading over such interest amount on year to year basis commencing for the period from 30.9.1991 till 5.7.2006.
4. When this application came up for hearing, the learned advocate for the claimants sought leave to join the Commissioner of Income-tax. At the last hearing on 20.9.2006, we had directed the Insurance Company to furnish the details of the amounts of interest payable to each claimant after giving the spread over of interest for the period from 30.9.1991 to 5.7.2006 when the amount was deposited.
5. Mr. Maulik J Shelat, learned advocate for the appellant Insurance Company has accordingly submitted a statement. Initially Mr. Tushar Sheth, learned advocate for the claimants had submitted that the claimants were ready and willing to divide the compensation amount equally amongst the six heirs of the deceased. However, at the suggestion of the Court, the claimants have reconsidered the matter and Mr. Tushar Sheth for the claimants states that the mother be paid 33% compensation which works out to Rs. 3,89,000/- plus proportionate interest thereon and that the balance amount may be divided equally amongst the other claimants being claimant Nos. 2 to 6 which amount works out to Rs. 1,52,800/- for each of claimant Nos. 2 to 6. On that basis Mr. Sheth has produced a statement giving detailed calculations of the interest income payable to each of the claimants from the year 1991-92 to subsequent years. It transpires from the said statement that out of the total interest of Rs. 15,47,902/-, the amount of interest income payable to all the six claimants for the period from 30.9.1991 to 31.3.1992 was Rs. 51,885/- and that for the subsequent years 1992-93 onwards the total interest amount payable to all the six claimants every year till 31.3.2006 was Rs. 1,03,770/-. The amounts are further subdivided as interest payable to each of the claimants in each of the sixteen years.
The statement submitted by Mr. Sheth is taken on record.
6. Mr. Sheth has contended that the Insurance Company is not justified in paying the amount of Rs. 1,70,249/- to the Income-tax Department as Tax Deducted at Source. It is contended that if the details given in the chart produced today are taken into consideration, there would not be any tax liability of the claimants for all the years. A separate statement dated 22.9.2006 is produced giving Permanent Account Numbers and the total income as per the returns filed for some of the relevant years 1999-2000 to 2005-06. It is also stated that claimant No. 5 is not filing any return. It is, therefore, submitted that the question of liability to pay income-tax would arise only where the interest (on compensation payable to the Page 2105 concerned claimant) together with the income already returned as per the income-tax returns filed earlier for the relevant year exceeds the taxable income. It is also submitted that if at all any tax liability arises, it would be dependent upon the rate of income-tax chargeable for the relevant year.
In short, Mr. Sheth for the original claimants has submitted that the tax deduction of Rs. 1,70,269/- should not have been made by the Insurance Company and that in any view of the matter, since the tax is already deducted at source and paid to the Income-tax Department, the claimants may be given liberty to move the Income-tax Department for refund of the excess tax recovered from the claimants.
Mr. Sheth has also relied on the decision of the Apex Court in Rama Bai v. Commissioner of Income-tax, AP 181 ITR 400.
7. Mr. Maulik Shelat for the Insurance Company has submitted that the Insurance Company has deducted a total sum of Rs. 1,70,269/- as the tax at the rate of 11% on the total interest amount of Rs. 15,47,902/- and that the Insurance Company has done so only in discharge of its statutory obligations under Section 194A of the Income-tax Act.
8. Mr. Tanvish U Bhatt, learned standing counsel for the Commissioner of Income-tax has invited our attention to the provisions of Section 194A of the Income-tax Act, 1961 which imposes liability on a person paying interest to deduct the tax at source. Mr. Bhatt has submitted that in the facts of the present case, the interest amount payable by the Insurance Company for each year was more than Rs. 50,000/- and, therefore, the Insurance Company was justified in deducting the tax at source. Otherwise, it would be difficult for the department to levy, assess and recover tax from the claimants.
9. Before dealing with the rival submissions, we may first refer to the undisputed legal position that compensation to be paid under the Motor Vehicles Act, 1939/1988 is not taxable as income. The relevant provisions of Section 194A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) read as under:
194A. Interest other than ‘Interest on securities’.
(1) Any person, not being an individual or a Hindu undivided family, 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.
Provided that…
(3) The provisions of Sub-section (1) shall not apply –
(i) to (viii)…
(ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accident Page 2106 Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees.
10. While at the first blush the provisions may prima facie justify the deduction of tax at source by the Insurance Company, it cannot be overlooked that income-tax is ultimately a tax on income. In a similar case arising under the Land Acquisition Act, 1894, in Rama Bai v. Commissioner of Income-tax, AP , the Apex Court has held that interest on enhanced compensation for land compulsorily acquired under the Land Acquisition Act, 1894, awarded by the Court on a reference under Section 18 of the Act or on further appeal has to be taken to have accrued not on the date of the order of the Court granting enhanced compensation but as having accrued year after year from the date of delivery of possession of the land till the date of such order, and that such interest cannot be assessed to income-tax in only lump sum in the year in which the order is made.
11. The same principle will apply to interest on compensation awarded by the Motor Accident Claims Tribunal in a claim petition under the Motor Vehicles Act, 1939 or Motor Vehicles Act, 1988 or on further appeal by this Court or the Apex Court. Section 171 of the Motor Vehicles Act, 1988 reads as under:
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.
The interest on the compensation awarded by the Tribunal or enhanced compensation awarded by the appellate Court cannot be taken to have accrued on the date of the award of the Tribunal grating compensation or from the date of the award of the appellate Court granting enhanced compensation, but has to be taken as having accrued year after year from the date of filing of the claim petition till the date of deposit by the Insurance Company.
12. It was in view of above legal position that we had directed the parties to place on record the details of computation of interest from year to year commencing from the date of filing of the claim petition (30.9.1991) till the date of deposit i.e. 5.7.2006. We may also point out that as per the apportionment made by us with the consent of the claimants, the amount of compensation is required to be apportioned amongst the widow and five children of the deceased in the ratio of 33% for the widow and the balance amount to be equally divided amongst the five children (claimant Nos. 2 to 6). On that basis, Mr. Sheth has submitted Page 2107 the detailed calculations. Even from the statement submitted by the Insurance Company, it is clear that the amount of interest accrued on the amount of compensation awarded by the Tribunal is total amount of Rs. 51,885/- in the year ending on 31.3.1992 and in each of the subsequent years the total amount of interest accrued every year was Rs. 1,03,770/-. In each year, therefore, the interest accrued will have to be apportioned amongst the six claimants in the aforesaid ratio as per the statement produced by Mr. Sheth. As per the said statement, in the last 15 years, the interest earned by claimant No. 1 Hansaguriben (widow of the deceased) on the compensation awarded to her was Rs. 35,010/- every year and the interest earned by each of the five children every year was Rs. 13,752/-. On behalf of the claimants, claimant No. 6 Naresh Prafulchandra Ladhani, son of the deceased, has filed affidavit dated 22.9.2006 giving particulars about Permanent Account Nos. and the years in which claimant Nos. 1 to 4 and claimant No. 6 have filed income-tax returns and the income returned therein. It is also stated that claimant No. 5 (respondent No. 5 in the appeal) has not received any income and, therefore, he has not filed any return. It also appears that the returns were filed for the year 1999-2000 and/or thereafter.
13. Accordingly, the income-tax liability of the concerned claimants to pay tax on the interest accrued on the compensation awarded to them shall arise if such interest income accrued in the concerned financial year together with other income of the respective claimants in that financial year exceeds the chargeable limit as specified in the provisions of the Income-tax Act, 1961 in force for the relevant years. It will, therefore, be open to the claimants to make appropriate applications/representations before the concerned income-tax authority for refund of such amount/s as may be due to them out of the amount of Rs. 1,70,269/- which has already been deducted by the Insurance Company as tax deducted at source under the provisions of Section 194A of the Act.
14. It is necessary to obviate such a situation in future for other claimants who may be awarded compensation with interest thereon, and the amount of interest being deposited exceeds Rs. 50,000/-, but who may not be liable to have any tax deducted at source as per the interpretation placed by us on the provisions of Section 194A of the Act.
We, therefore, direct that –
I. The Insurance Companies or the owners of the motor vehicles depositing the amounts in compliance with the awards of the Motor Accident Claim Tribunals shall –
(a) first spread the interest amount over to the relevant financial years for the period from the date of filing the claim petition till the date of deposit.
(b) thereafter, if the interest for any particular financial year exceeds Rs. 50,000/-, separately deposit before the Tribunal the amount liable to be deducted at source under the provisions of Section 194A(3)(ix) of the Income-tax Act, 1961. Such amount Page 2108 shall not, however, straightaway, be paid over to the Income-tax department.
(c) produce before the Tribunal a statement of computation of interest by spreading the amount over the relevant years from the date of claim petition till the date of deposit if the interest for any particular financial year exceeds Rs. 50,000/- and also request the Tribunal to treat the amount as a separate deposit.
II. (i) The Tribunal shall take into account the principles laid down in this judgment and ensure that the amount of interest accrued each year is apportioned amongst the claimants on year to year basis.
(ii) If the interest payable to any claimant for any particular financial year exceeds Rs. 50,000/-, the Tribunal shall permit the Insurance Companies/owners to pay over the amount liable to be deducted at source under Section 193(3)(ix) of the Income-tax Department in respect of that particular claimant for that particular year, without prejudice to the claimant’s case that he is not liable to pay any income-tax for that year.
(iii) for the financial year/s for which the interest payable to the concerned claimant does not exceed Rs. 50,000/-, the Tribunal may permit such claimant to withdraw the amount deposited as per direction I(b) without producing the certificate from the concerned income-tax authority that there is no income-tax liability on the interest which has accrued on the compensation awarded by the Tribunal.
(iv) It is clarified that the amount other than the amount liable to be deducted at source under Section 194A(3)(ix) shall be invested/disbursed by the Tribunal.
III. When the claimants make applications/representations before the authority under the Income-tax Act, 1961 for refund of the amount deducted under the provisions of Section 194A(3)(ix) of the Act, the concerned authority shall decide such applications/representations within six months from the date of receipt of the applications/representations.
15. In the facts of the present case, since the Insurance Company had deducted tax on compensation under Section 194A(3)(ix) of the Act by treating the entire interest amount as one lumpsum amount, we direct that after giving the claimants the details of the amounts of interest spread over the relevant financial years and the break-up amongst several claimants, the Insurance Company shall, within one month from the date of receipt of a certified copy of this order, furnish to the claimants the certificate indicating the interest amounts computed for each year and with the break-up of the interest amounts payable to each claimant in each of those years as per the apportionment made in this order.
Thereafter it will be open to the claimants to make applications/representations before the appropriate income-tax authority which shall decide the same within six months from the date of receipt thereof.
Page 2109
16. We are not passing any orders on the prayers for disbursement of the amounts as the learned advocate for the claimants seeks leave to file a separate application with all necessary facts in support of the prayer.
Leave as prayed for is granted.
Subject to the said liberty, Rule is made absolute.
The application is accordingly allowed in the aforesaid terms.
The Registry shall circulate a copy of this order amongst all the Motor Accident Claims Tribunal in the State.