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. 517 / 2009 Sr. Divisional Manager National Insurance Co. Ltd. 61, Aerodrum Road, Alwar. ----Appellant Versus 1.The Commissioner of Income Tax, Alwar. 2.The Additional CIT, Range-I, Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mr. P.K. Kasliwal & Mr. Priyesh Kasliwal For Respondent(s) : Mr. K.D. Mathur on behalf of Mr. R.B. Mathur_____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Judgment Per Hon’ble Jhaveri J. 01/02/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal and confirmed the order of the CIT(A). 2.This count has admitted the appeal on 11.11.2009 hasframed the following substantial question of law: “(i)Whether, on the facts and in thecircumstances of the case the Tribunal wasjustified in holding penallty of Rs.384497/-u/s.217C of the Income Tax Act 1961against the appellant and treated theappellant as defaulter u/s. 194A/201(1) ofthe Act, such conclusion is legallysustainable?” 2.Counsel for the appellant has contended that the issue issquarely covered by the decision of this Court in DB Income TaxAppeal No.137/2003 in the case of Divisional Manger, NewIndia Assurance Company Ltd. vs. The Dy. Commissioner ofIncome Tax (TDS), Income Tax Office, decided on 22.11.2016and more particularly in para 3 to 6, this court has observed asunder: “3.The broad facts of the case are thatappellant is Divisional Manager ofAssurance Company which is engaged inthe business of General Insurance (Non LifeInsurance). During the course of regularbusiness of the insurance company has topay compensation claims to the claimantsas awarded by Motor Accidents ClaimsTribunal which includes the amount of claimand interest thereon from the date of claimpetition to the date of award of such claimin terms of Section 171 of the MotorVehicles Act, 1988. The CIT (A) in his orderu/s 201(1) read with Section 194Aobserved that the company has madepayment of Rs. 35,79,826/- towardsinterest on compensation claims awardedby the MACT to various claimants duringthe year under consideration. He statedthat the company was liable to deduct taxat source u/s 194A on the interest paymentso made. 3.1Counsel for the appellant Mr.Jhanwarhas relied upon decision of the AllahabadHigh Court in Commissioner of Income TaxVs. the Oriental Insurance Co. Ltd., (2012)211 Taxman 369 (Allahabad), moreparticularly para 43, 44 which reads asunder: “43. The award under the Motor Vehicle Actis like a decree of the court. It do not comewithin the definition of income asmentioned in Section 194A(1) read withSection 2(28A) of the Income Tax Act.Proceedings regarding claim under MotorVehicle Act are in the nature of a garnisheeproceedings under which the MACT has aright to attach the judgment debt payableby the insurance company. Even in the MAC award, there is no direction of any courtthat before paying the award, the insurancecompany is required to deduct the tax atsource. In view of All India Reporter Ltd.Vs. Ramchandra D. Datar (supra), if noprovision has been made in the decree fordeduction of tax, before paying that debt,the insurance company cannot deduct thetax at source from the amount payable tothe legal heirs of the deceased. award, there is no direction of any courtthat before paying the award, the insurancecompany is required to deduct the tax atsource. In view of All India Reporter Ltd.Vs. Ramchandra D. Datar (supra), if noprovision has been made in the decree fordeduction of tax, before paying that debt,the insurance company cannot deduct thetax at source from the amount payable tothe legal heirs of 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 held that ifinterest is awarded by the court for losssuffered on account of deprivation ofproperty or paid for breach of contract bymeans of damages or were not paid inrespect of any debt incurred or moneyborrowed, shall not attract the provisions ofSection 2(28A) read with Section 194A(1)of the Income Tax Act.” 4.Another decision of Gujarat High Courtin New India Assurance Co. Ltd. Vs.Bhoyabhai Haribhai Bharvad (2016) 72Taxmann.com 335 (Gujarat) wherein itbeen held as under: “12. It would, therefore, be wholly incorrectto read the current provision of sub section(3) of Section 194A to argue that the casesof income credited by way of interest oncompensation awarded by the ClaimsTribunal is no longer part of sub section (3)for exclusion from purview of sub section(1) of Section 194A. In other words,worded slightly differently. The case ofcredit of interest on compensation awardedby the Claims Tribunal continues to findplace in the exclusion clause contained insub section (3) of Section 194A. In fact, itwould prima facie appear that the ceiling ofRs. 50,000/- per annum for such exclusionis now done away with in case of creditingof interest on compensation awarded by theClaims Tribunal while retaining such limit incases of payment of interest on suchcompensation. However, we need notthresh out this last part of the issue sinceadmittedly, in the present case, for none of the years under consideration, the interestincome exceeded Rs. 50,000/-. In fact, thisCourt in case ofSmt. HansagauriPrafulchandra Ladhani and ors vs. TheOriental Insurance Company Ltd (supra)provided for further splitting up of thisceiling of Rs. 50,000/- per claimant basis.Looked from any angle, the insurancecompany was not justified in deducting taxatsourcewhiledepositingthecompensation in favour of the claimants. It therefore, cannot avoid liability ofdepositing such amount with the ClaimsTribunal. The Claims Tribunal hadcommitted no error in insisting on the insurance company in making good theshortfall.” 5.Takingintoconsiderationtheaforesaid, he contended that in view of thefact that issue relates prior to amendment,the issue is squarely covered by these twojudgments. 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) 225ITR 921 wherein it has been held that thecompensation is not an income and he hasalso relied on decision of Single Bench ofKarnataka High Court in Divisional Manager,New India Assurance Co. Ltd. Vs. Income-Tax Officer & Anr., (2005) 275 ITR 227.” 3.In that view of the matter, the issue is answered in favour of the assessee and against the department. 4.The appeal stands allowed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. Asheesh kr. Yadav/92