Whether Income Tax Can Be Levied On Interest From Motor Accident Compensation?

 We, therefore, hold 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
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.

59. So far as the plain meaning of section 194A(1) read with
erstwhile clause (ix) and substituted clauses (ix) and (ixa) of subsection
(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.

61. We may clarify that these observations and conclusions
would apply to interest on compensation or enhanced
compensation awarded by the Motor Accident Claims Tribunal or
High Court from the date of the Claim Petition till passing of the
award or the judgment. Further interest which may be paid for

delay in depositing the awarded amount, would not form part of the
compensation and, therefore, would fall in the bracket of interest
income and would be exigible to tax under the normal provisions.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O.O.C.J.
WRIT PETITION NO.2902 OF 2016

Shri Rupesh Rashmikant Shah Vs  Union of India

CORAM: AKIL KURESHI &
S.J. KATHAWALLA, JJ.

Dated: AUGUST 8, 2019
JUDGMENT (Per Akil Kureshi, J.):

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Whether TDS can be deducted from interest paid on compensation granted by court?

The UT State Consumer Disputes Redressal Commission, headed by Justice (retd) Sham Sunder has ruled that the judgment debtor cannot deduct TDS on the amount of interest paid to a consumer in compliance with a decree passed by the consumer courts.

Earlier, in a complaint case, Shipra Estates Ltd. was held guilty of deficiency in service and vide order dated March 16, 2015, was directed to refund Rs 19,58,491 along with the interest at the rate of 10 per cent per annum from the dates of deposit which were made in 2012. An amount of Rs 50,000 was awarded as compensation and Rs 10,000 as litigation charges. The company failed to comply with the order. The complainant, Brij Mohan Jain, filed a contempt petition against the builder.

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