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Supreme Court Dismisses PIL Challenging TDS Deduction For Interest On MACT Award

Mehal Jain
20 Dec 2021 6:31 AM GMT
Supreme Court Dismisses PIL Challenging TDS Deduction For Interest On MACT Award
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Noting that a challenge of this nature would have to be brought before the Court by a person aggrieved, the Supreme Court has dismissed a writ petition which sought to challenge the validity of Section 194A(3)(ixa) of the Income Tax Act 1961 under which tax is deducted at source on the interest payable under an award of the Motor Accident Claims Tribunal. The bench of Justices D....

Noting that a challenge of this nature would have to be brought before the Court by a person aggrieved, the Supreme Court has dismissed a writ petition which sought to challenge the validity of Section 194A(3)(ixa) of the Income Tax Act 1961 under which tax is deducted at source on the interest payable under an award of the Motor Accident Claims Tribunal. 

The bench of Justices D. Y. Chandrachud and A. S. Bopanna recorded that, "The petitioner had filed a writ petition initially before the High Court of Delhi which was disposed of by granting him liberty to move the Central Board of Direct Taxes in a representation". "The fresh writ petition challenging the decision of the CBDT was dismissed both on the grounds of locus and delay with liberty to file a public interest litigation," noted the bench.
"The petitioner is not personally aggrieved by the award of the MACT. A challenge of this nature would have to be brought before the Court by a person aggrieved. We see no reason to entertain a petition which is styled one filed in public interest. In the circumstances, this Court is not expressing any opinion on the question of law raised. The petition is dismissed on the grounds which are set out above," the bench says in its order, after hearing petitioner-in-person and Advocate Amit Sahni.
The present Writ petition under Article 32 of the Constitution of India was filed by the Petitioner thereby seeking the intervention of the Top Court for issuing appropriate Writ, Order or Direction holding that the interest accrued upon compensation awarded by Motor Accident Claim Tribunal (hereinafter referred to as "MACT") cannot be subjected to tax and the Tax Deducted at Source (hereinafter referred to as TDS) on such interest is illegal and unlawful.

Further Writ/Order/Direction was prayed for to quash section 194 A (3) (ixa) of Income Tax Act, 1961 (as amended up to date), which mandates deduction of TDS on the interest (exceeding Rs. 50,000/- in a financial year) accrued upon MACT Award by holding the same as unconstitutional and in the direct conflict with the object and spirit of the Social Welfare Legislation i.e. Motor Vehicle Act, 1988 and Motor Accident Claim Tribunals set up under the said Act. And for setting aside the Order dated 26-06-2019 passed by the Respondent No. 2- CBDT justifying the exercise of levying tax on interest accrued on compensation or award made by MACT.

"The compensation awarded by MACT established under Motor Vehicle Act, 1988 is meant to substitute the loss of potential income of the victim, and in most cases is in fact determined as a multiple of the victim's income. Under tax laws, it is well settled that if a receipt is meant to substitute a source of income, it is a capital receipt. Capital receipts are generally not taxable as income unless they are specifically roped in into the definition of income as such compensations are not specifically included, they are therefore not taxable. The receipts of compensations are not taxable under the Income Tax Act and therefore the interest under motor accident claims should not be made taxable. But the insurance companies deduct TDS on the interest accrued upon the compensation awarded by the MAC Tribunal in view of section 194A (3) (ixa) of the Income Tax Act, 1961," it was submitted.

It was averred that the Petitioner had approached the Delhi High Court to decide upon the question of law and to set aside section 194A (3) (ixa) of the Income Tax Act, 1961. The High Court vide its order dated 16.04.2019 directed the Respondent No. 2 to pass a reasoned order and decide the representation dated 14.12.2018 filed by the petitioner as well as issue raised in the said Writ Petition. The Respondent No. 2 i.e. CBDT vide its Order dated 26-06-2019 rejected the representation holding that the interest accrued upon the award passed by Motor Accident Claim Tribunal (MACT) falls in the category of income and levying Tax on interest accrued upon compensation or award made by MACT is in consonance with the constitution of India. The Petitioner, thereafter, challenged the said order dated 26.06.2019 passed by Respondent No. 2 before the Hon'ble High Court of Delhi in a subsequent W.P. (C) No. 7337 of 2019 but the same was dismissed by the Hon'ble Court observing that the Petitioner does not have 'locus standi' to maintain the Writ Petition. The Hon'ble High Court, however, clarified that the petitioner may file a Public Interest Litigation (PIL) in this regard.

"That various High Courts of the Country have different opinion regarding the question of law raised herein, leading to utter confusion and therefore, intervention of this Hon'ble Court is required. Hon'ble High Court of Chhatisgarh and Karnataka have held that the compensation earns interest by way of delayed payment and is liable to TDS and exemption could be claimed only by way of filing necessary returns before the assessing authority. However, Hon'ble High Courts of Madras, Himachal and Punjab & Haryana High Court have held that compensation awarded by MACT and interest accrued upon such compensation is not 'income' and therefore the same cannot be subjected to TDS. It is worthwhile to mention that this Hon'ble Court dismissed such SLP filed by Tax Authorities against the judgment dated 04-04-2018 passed by Punjab and Haryana High Court at Chandigarh holding that interest accrued upon MACT Award cannot be subjected to TDS. However, the question of law involved in the matter was kept open. In view of decisions of various High Courts, the issue requires indulgence of this Hon'ble Court and if this Hon'ble Court hold that TDS cannot be deducted upon interest accrued upon MACT Award resultantly, section 194A (3) (ixa) of the Income Tax Act, 1961 becomes infructuous and the same requires to be struck down," it was urged.

Case Title: Amit Sahni v. Union Of India & Anr.

Click Here To Read/Download Order



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