Sr. Divisional Manager,, National Insurance Co. Ltd v. The Commissioner Of Income Tax,, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 394 / 2008 Sr. Divisional Manager,, National Insurance Co. Ltd. 61, Aerodrum Road, Alwar ----Appellant Versus 1. The Commissioner of Income Tax,, Alwar 2. The Income Tax Officer ,, TDS Range-I, Alwar ----Respondents _____________________________________________________ For Appellant(s) : Mr. P.K. Kasliwal For Respondent(s) : Mr. K.D. Mathur for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHURJudgment 31/01/2017 1.By way of this appeal the appellant has assailed thejudgment and order of the Tribunal, whereby the Tribunal hasdismissed the appeal of the assessee as well as Department. 2.This court while admitting the matter on 10.11.2008 hasframed the following questions of law: “(i) Whether, the Tribunal was justified in holdingthat the appellant was responsible to deduct the taxat source u/s 194A of the Act on amount of interestpaid by an Insurance Company in addition to theamount of compensation paid in consequent to thedirection of the Motor Accidents Claims Tribunalunder the Provisions of Section 171 of the MotorVehicle Act, 1988, such Conclusion of the Tribunal islegally sustainable?that the appellant was responsible to deduct the taxat source u/s 194A of the Act on amount of interestpaid by an Insurance Company in addition to theamount of compensation paid in consequent to thedirection of the Motor Accidents Claims Tribunalunder the Provisions of Section 171 of the MotorVehicle Act, 1988, such Conclusion of the Tribunal islegally sustainable? (ii) Whether, the Tribunal was justified in holdingthat the appellant is liable to deduct tax at source ofRs. 3,84,497/- u/s 194A of the Act on an amount ofRs. 37,69,586/- paid by the appellant to theclaimants towards interest paid on compensationthat the appellant is liable to deduct tax at source ofRs. 3,84,497/- u/s 194A of the Act on an amount ofRs. 37,69,586/- paid by the appellant to theclaimants towards interest paid on compensation and was further justified in holding the appellant asdefaulter u/s 194A read with Section 201(1) of theAct, such conclusion is legally sustainable in the eyeof law?” 3.However, counsel for the appellant contended that identicalissue came for consideration of this Court in New India AssuranceCo. Ltd. Vs. Dy. C.I.T., D.B. Income Tax Appeal No. 137/2003,decided on 22.11.2016, wherein this Court held as under: 3.1Counsel for the appellant Mr.Jhanwar hasrelied upon decision of the Allahabad High Courtin Commissioner of Income Tax Vs. the OrientalInsurance Co. Ltd., (2012) 211 Taxman 369(Allahabad), more particularly para 43, 44 whichreads as under: “43. The award under the Motor VehicleAct is like a decree of the court. It donot come within the definition of incomeas mentioned in Section 194A(1) read withSection 2(28A) of the Income Tax Act.Proceedings regarding claim under MotorVehicle Act are in the nature of agarnishee proceedings under which the MACThas a right to attach the judgment debtpayable by the insurance company. Even inthe MAC award, there is no direction ofany court that before paying the award,the insurance company is required todeduct the tax at source. In view of AllIndia Reporter Ltd. Vs. Ramchandra D.Datar (supra), if no provision has beenmade in the decree for deduction of tax,before paying that debt, the insurancecompany cannot deduct the tax at sourcefrom the amount payable to the legal heirsof the deceased. 44. In Commissioner of Income Tax Vs.Chiranji Lal Multani Mal Rai Bahadur (P.)Ltd. (supra), Ghaziabad DevelopmentAuthority Vs. Dr. N.K. Gupta (supra),Commissioner of Income-tax Vs. H.P.Housing Board (supra), Commissioner ofIncome-tax Vs. Sahib Chits (Delhi) (Pvt.)Ltd. (supra), it has been clearly heldthat if interest is awarded by the courtfor loss suffered on account ofdeprivation of property or paid for breachof contract by means of damages or werenot paid in respect of any debt incurredor money borrowed, shall not attract theprovisions of Section 2(28A)read withSection 194A(1)of the Income Tax Act.” 4.Another decision of Gujarat HighCourt in New India Assurance Co. Ltd. Vs. Bhoyabhai Haribhai Bharvad (2016) 72Taxmann.com 335 (Gujarat) wherein it beenheld as under: “12. It would, therefore, be whollyincorrect to read the current provision ofsub section (3) of Section 194A to arguethat the cases of income credited by wayof interest on compensation awarded by theClaims Tribunal is no longer part of subsection (3) for exclusion from purview ofsub section (1) of Section 194A. In otherwords, worded slightly differently. Thecase of credit of interest on compensationawarded by the Claims Tribunal continuesto find place in the exclusion clausecontained in sub section (3) of Section194A. In fact, it would prima facie appearthat the ceiling of Rs. 50,000/- per annumfor such exclusion is now done away within case of crediting of interest oncompensation awarded by the ClaimsTribunal while retaining such limit incases of payment of interest on suchcompensation. However, we need not threshout this last part of the issue sinceadmittedly, in the present case, for noneof the years under consideration, theinterest income exceeded Rs. 50,000/-. Infact, this Court in case ofSmt.Hansagauri Prafulchandra Ladhani and orsvs. The Oriental Insurance Company Ltd(supra) provided for further splitting upof this ceiling of Rs. 50,000/- perclaimant basis. Looked from any angle, theinsurance company was not justified indeducting tax at source while depositingthe compensation in favour of theclaimants. It therefore, cannot avoidliability of depositing such amount withthe Claims Tribunal. The Claims Tribunalhad committed no error in insisting on theinsurance company in making good theshortfall.”5.Takingintoconsiderationtheaforesaid, he contended that in view ofthe fact that issue relates prior toamendment, the issue is squarely coveredby these two judgments.6.However, Mr. Mathur appearing for theDepartment contended that in view ofDivision Bench judgment of this Courtreported in Kailash Narain Gupta Vs.Commissioner of Income Tax, (1997) 225 ITR921 wherein it has been held that thecompensation is not an income and he hasalso relied on decision of Single Bench ofKarnataka High Court in DivisionalManager, New India Assurance Co. Ltd. Vs.Income-Tax Officer & Anr., (2005) 275 ITR227.6.1. We have heard the learned counsel forthe parties.7.In view of the decision of theAllahabad High Court which is prior to amendment and this appeal also relatesprior to amendment, we are of the opinionthat parties will be governed by the saiddecision and both the issues are requiredto be answered in favour of assesseeagainst the Department. It is made clearthat we have not considered the case afterthe amendment.8.Consequently, the appeal is allowed.It is directed that no TDS is required tobe deducted.9.However, it will be open to raise theissue after amendment in appropriate case. 4.In that view of the matter issues are now covered by the aforesaid judgment of this Court. 5.The issue is answered in favour of the assessee against theDepartment. The appeal stands allowed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. Bm gandhi/84