SMT B L CHUDAMANI vs. THE DEPUTY DIRECTOR OF INCOME TAX

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WP/14357/2026HC KarnatakaKAHC01031036202628 July 2026Author: B M SHYAM PRASAD8 pages
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What did the High Court hold?

The High Court held that compensation awarded for injuries and the interest accrued thereon cannot be termed as 'income' under Section 194A of the Income Tax Act, 1961. The court referred to the language of Section 194A, which stipulates TDS only if the payment is made as income by way of interest. The court cited the Supreme Court's decision in Haryana Urban Development Authority Vs. Dev Dutt Gandhi, which held that compensation for mental harassment and agony is not income. It also referred to a Madras High Court judgment in Managing Director, Tamil Nadu State Transport Corporation (Salem) Ltd. Vs. Chinnadurai, which stated that compensation awarded by the MACT and interest thereon does not fall under the definition of 'income' and cannot be subjected to TDS. The court allowed the petition, reserving liberty for the petitioner to file an application for refund with the jurisdictional Assessing Officer (the second respondent) within four weeks of receiving the order, enclosing a certified copy of the order. The Assessing Officer was implicitly directed to decide such application in light of the court's pronouncements.

What were the facts?

The petitioner, Smt B L Chudamani, lost her son in a road accident on February 3, 2014. The Motor Accident Claims Tribunal awarded her Rs. 12,22,400/-, which was later enhanced to Rs. 46,16,100/- by the High Court of Karnataka. The insurer deposited the compensation. The Deputy Director of Income Tax (Respondent 1) deducted Rs. 2,52,379/- from the petitioner's bank account towards Tax Deducted at Source (TDS). The petitioner challenged this deduction by filing a writ petition seeking to quash the decision of Respondent 1.

What were the issues?

1. Whether the compensation awarded for injuries in a motor accident, along with interest thereon, can be considered 'income' under the Income Tax Act, 1961, making it subject to TDS under Section 194A? Assessee's Contention: The petitioner argued that compensation for injuries and the interest accrued thereon are not 'income' and therefore not subject to TDS. They relied on a High Court decision in W.P.No.100887/2022, which was based on an earlier order in MFA No.103954/2017. Revenue's Contention: The revenue's learned standing counsels were heard in light of the court's interim order. They did not present a separate argument but were involved in the discussion regarding the disposal of the petition.

Which sections of the Income-tax Act were involved?

Section 194A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF JULY, 2026 BEFORE THE HON'BLE MR. JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 14357 OF 2026 (T-IT)

BETWEEN:

SMT B L CHUDAMANI W/O, LATE C.S. SESHADRI PRASAD, AGED ABOUT 69 YEARS, RESIDING AT KYATHASANDRA, TUMKUR-572 104.

…PETITIONER (BY SRI. RAVISHANKAR C R.,ADVOCATE) AND:

1.

THE DEPUTY DIRECTOR OF INCOME TAX CENTRALIZED PROCESSING CENTER, INCOME TAX DEPARTMENT, BENGALURU - 560 500.

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BENGALURU, BMTC BUILDING 80 FEET ROAD, 6TH BLOCK KORAMANGALA BENGALURU - 560 095.

Digitally signed by VANAMALA N Location: HIGH COURT OF KARNATAKA

3.

THE ASSISTANT UNIT, NATIONAL FACELESS ASSESSMENT CENTER, INCOME TAX DEPARTMENT, 2ND FLOOR, JAWAHARLAL NEHRU STADIUM, NEW DELHI - 110 003.

4.

THE DEPUTY COMMISSIONER OF INCOME TAX, DCIT TRANSFER PRICING 2(1)(1), BMTC BUILDING, 80 FEET ROAD, 6TH BLOCK, KORAMANGALA, BENGALURU - 560 095.

…RESPONDENTS (BY SRI.ARAVIND V CHAVAN., ADVOCATE FOR R1; SRI. E.I. SANMATHI., ADVOCATE A/W SRI. NIRMAL MATHEW., ADVOCATE FOR R2 AND R3)

THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO-QUASH THE IMPUGNED DECISION DATED 16.06.2025 TAKEN BY THE R1 THEREBY DEDUCTING THE SUM OF RS. 2,52,379/- (RUPEES TWO LAKHS FIFTY TWO THOUSAND THREE HUNDRED AND SEVENTY NINE ONLY) TOWARDS TAX/ TAN ON THE PETITIONERS BANK ACCOUNT VIDE ANNX-A.

THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD

ORAL ORDER

The petitioner has lost his son Sri Ganesh in a road accident on 03.02.2014. The jurisdictional Motor Accident Claims Tribunal [the Tribunal] by its judgment and award dated 19.09.2022 in MVC No. 5061/2026 has awarded a sum of Rs.12,22,400/-, and the petitioner's appeal as against the Tribunal's judgment is modified in the petitioner's appeal in MFA No. 7718/2022 by this Court vide the judgment dated 04.12.2024. This Court has enhanced the compensation payable petitioner Rs.46,16,100/-. The concerned Insurer has deposited the compensation with the Tribunal.

2.

Sri Ravishankar S V, the learned counsel for the petitioner, arguing in support of the petitioner's claim for refund of the Tax Deducted at Source [TDS], has relied upon a decision of this Court in W.P.No.100887/2022, which in turn is based on the orders of this Court in MFA No.103954/2017. Sri Nirmal Mathew and Sri Aravind V Chavan, the learned Standing Counsels for the respondents, are heard in the light of this Court's order [the Interim order] dated 09.08.2018 in MFA No.103954/2017].

3.

This Court, referring to Section 194A of the Income Tax Act, 1961 [for short, 'the Act'], has opined that the compensation for the injuries payable by the wrongdoer with interest on such compensation cannot be termed as 'income' and the concerned would be at liberty to seek refund from the competent authority. This Court's Order dated 09.08.2018 in this regard reads as under:

7.

The very language of Section 194A of the Act shows that the tax is deductible if payment is made as income by way of interest. Whether compensation awarded for the injuries to a person payable by the wrong doer and the interest accrued thereon on such compensation can be termed as income is the question.

8.

In this regard, the Hon'ble Supreme Court in Haryana Urban Development Autority Vs. Dev Dutt Gandhi, (2005) 9 SCC 497, has held that where the amounts are being directed be paid as compensation for mental harassment and agony and failure of public duty, are not income and there is no question deduction of TDS from that.

9.

Relying on Division Bench judgment High Court Himachal Pradesh in Court on its own motion Vs. The H.P.State Cooperative Bank Ltd., 2014 SCC Online HP 4273, the High Court Madras in Managign Director, Tamil Nadu State Transport Corporation (Salem) Ltd. Vs. Chinnadurai, held that granting

compensation under the Motor Vehicles Act is a relief under welfare legislation. Ultimately, in paragraph 18 of the judgment it was held that the compensation awarded or the interest accruing therein from the compensation that has been awarded by the MACT cannot be subjected to TDS and the same cannot be insisted to be paid to the Tax Authorities since the compensation and the interest awarded therein does not fall under the term 'income' as defined under the Act.

10.

Learned counsel for the appellant relies upon the order of this Court dated 18.02.2015 in the Oriental Insurance Co. Ltd. Vs. Chennabasavaiah, Writ Petition No.49878/2012 [GM-AC], wherein the claimant was directed to claim refund from the competent authority of the amount deducted by the insurer under Section 194A(3) of the Act.

4.

Sri E.I. Sanmathi, a learned Senior Standing Counsel, who is assisted by Sri Aravind Chavan and Sri Nirmal Mathew, the learned standing counsels for the respondents, submit that this Court

could dispose of the petition in the light of the afore exposition with liberty to the petitioner to file an application with respondent, jurisdictional Assessing Officer for refund of the TDS, and Sri Ravishankar S V joins him in saying that the petitioner will file application in terms of the liberty reserved by this Court and requests this Court to call upon respondent decide such application in the light of this Court's order dated 09.08.2018 in MFA No.103954/2017 expeditiously. In the light of the afore, the following

ORDER

[A] The petition is allowed reserving liberty to the petitioner to file an application for refund with respondent enclosing a certified copy of this order. The petitioner shall be at liberty to file

such application within four [4] weeks from the date of receipt of this order.

[B] The office is directed to transmit back the record in W.P.No.100887/2022 at the earliest.

Sd/- (B M SHYAM PRASAD) JUDGE

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