Keeping up the spirit of social jurisprudence
evolved by writ courts in catena of cases beginning from Maneka Gandhi, the
Madras High Court has ruled a commendable opinion. In Managing Director, TN State Transport Corp v Chinnadurai[1]
the Court has declared compensation granted for motor accident not be subjected
to TDS.
The facts leading to this permissive ruling, are
straight:
“
Respondent in the instant Revision Petition
has filed an Execution Petition R.E.P.No.146 of 2010 before the
Motor Accident Claims
Tribunal, Dharmapuri in
M.C.O.P.No.879 of 2006
wherein the amount that they are entitled to Rs.4,23,271/- and in
the memo filed before the Motor Accident
Claims Tribunal, Rs.24,017/- has been
deducted for TDS. R.E.P.No.146 of 2010
that has been filed was allowed by the Court below and accordingly, the bus
belonging to the Revision Petitioner Corporation was attached and the
Corporation was directed to deposit the balance amount of Rs.30,774. Aggrieved by this order, the Petitioner has
approached this Court”[2]
The Petitioner corporation submits that as per Sections 194-A and 156 of the Income Tax Act, 1961,
the interest portion
awarded by the
Motor Accident Claims Tribunal should be subject to
TDS.
The
Question of Law
Q) Whether the provisions of the Income Tax Act 1961,
and more specifically, whether
the compensation awarded by the Motor
Accident Claims Tribunal to the victim can be classified as a taxable income under the Income Tax law?.
The HC declines to classify compensation awarded by
MACT to victim as a taxable income. To explain this conclusion the phrase
compensation is first explained:
“An act
which a Court orders to be
done, or
money which
a Court orders to be paid, by a person whose acts or omissions
have caused loss or injury to another in order that thereby
the person damnified may receive equal value for his loss, or be made whole in respect of his
injury; remuneration or satisfaction
for injury or
damage of every
description; remuneration
for loss of time, necessary expenditures and for permanent disability if
such be the result; remuneration for
the injury
directly and proximately caused
by a breach
of contract
or duty; remuneration
or wages given
to an employee or officer.”[3]
On the other hand the
Income-Tax Act, 1961 would apply when there has been generation of taxable
income, which is not the case here. In reaching to this conclusion the court
cited opinions of two High Courts
·
Court on its Motion Vs. H.P.State Co-operative
Bank Ltd & Ors 2014 SCC Online HP
4273
“13.While going through the said provisions of law, one comes to the inescapable conclusion that the mandate of the
said
provisions does not apply to the accident claim cases and the compensation awarded
under the Motor
Vehicles Act cannot be said to be taxable income. The
compensation is awarded in lieu of death of a person or bodily injury
suffered in a vehicular accident, which is damage and not income.”(emphasis supplied)
14. Chapters X and XI of the Motor Vehicles Act,
1988 provides for
grant of compensation
to the victims
of a vehicular accident. The Motor Vehicles Act has undergone a sea change and the purpose of granting
compensation under the Motor Vehicles
Act is to ameliorate the sufferings of
the victims so
that they may
be saved from social
evils and starvation, and that the victims get some sort
of help as early as possible. It is just to save them from sufferings,
agony and to rehabilitate
them. We wonder
how and under
what provisions of law the Income
Tax Authorities have treated the amount
awarded or interest accrued on term deposits made in Motor Accident Claims Cases as income. Therefore, the said Circular
is against the
concept and provisions
referred to hereinabove
and runs contrary to
the mandate of
granting compensation.
...23. Having said so, the Circular,
dated 14.10.2011, issued by the
Income Tax Authorities, whereby
deduction of income Tax
has been ordered
on the award
amount and interest accrued on the deposits made under
the orders of the Court in Motor Accident Claims Cases, is quashed and in case any
such deduction has been made by respondents, they are directed to refund the same, with interest at
the rate of 12% from the date of
deduction till payment, within six weeks from today”.[4]
·
Further
in New
India Assurance Company
Ltd. Vs.Sudesh Chawla
and others[5], the P&H HC
ruled:
“award
of compensation is on the principle of
restitution to place the claimant
in the same position in which he would have been loss of life or
injury has not been suffered and
accordingly held that the orders calling upon the Insurance Company to pay
TDS/deduct Tds on the interest part are not sustainable.”[6] (emphasis
supplied)
In HC’s view the above line of
thought is in consonance with the social objective of legislations like Motor
Vehicles Act which provided compensation to victims as sort of solatium which
is in form of remedy. A remedy cannot be treated as income for purposes of
Income-Tax Act
Also when there a conflict of
interpretation arises between a social welfare legislation and a taxation
legislation, the latter must give way for former. Courts will always approve
interpretation which involves larger public interest which is in line with
ensuring public good.
moreover the courts avoid any
pedantic or hypertechnical understanding of issues to rule something which is
against larger social interest
All these factors move on to one
stable conclusion that as far as compensation awarded to victims by MACT is
concerned it cannot be treated as taxable income for purposes of Income-Tax Act, 1961
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