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Income Tax Appellate Tribunal, KOLKATA BENCH ‘SMC’ KOLKATA
Before: Shri J. Sudhakar Reddy, AM]
order September 20, 2017 ORDER This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals) dated 19.02.2016 for the assessment year 2008-09.
The assessee received compensation from New India Insurance Co. Ltd. as she lost her husband and two children in a car accident. The insurance company delayed the payment of compensation. The assessee filed an appeal before the Hon’ble High Court and the Hon’ble High Court directed the insurance company to pay the compensation of Rs. 10,26,500/- plus interest @ 9% for the period Assessment Year: 2008-09 Smt. Sikha Sadhukhan from the date of filing of the claim till the deposit of the said amount. The assessee had received an amount of Rs. 7,23,683/- towards interest on delayed payment of compensation. The Assessing Officer held that this receipt of interest is taxable under section 194A of the Income Tax Act, 1961. This view of the AO was upheld by the Ld. CIT (A). Aggrieved the assessee has filed this appeal on the following grounds:
1. That the Ld. Commissioner (Appeals) was not justified in dismissing the ground of appeal relating to addition of Rs. 7,23,683/- made by the Income Tax Officer to the total income of the appellant on account of interest on compensation.
2. That the Ld. Commissioner (Appeals) acted arbitrarily in not allowing legal expenses amounting to Rs. 4,37,546/-.
3. That the appellant Craves Leave to add or amend any ground of appeal at the time of hearing.
3. We have heard this. Shri Pratyush Jhunjhunwala, the learned counsel appearing on behalf of the Assessee and Shri Saurav Kumar, Addl. CIT appearing on behalf of the Revenue.
4. The contention of Mr. Jhunjhunwala is that the interest received on delayed compensation under Motor Vehicles Act is not income. It was argued that the provision of section 2(28A) and section 194A of the Act are not applicable. Reliance was placed on the judgment of the Hon’ble Supreme Court of India in the case of All India Reporter vs Ramchandra D Dutta for the proposition that the amount in question is a judgment debt and not interest. He submitted that what is paid as interest has no connection whatsoever with regard to the interest Assessment Year: 2008-09 Smt. Sikha Sadhukhan payable on monies borrowed or debt incurred. The amount that paid as interest this case, the only compensation and hence cannot be taxed. Reliance was placed on the following decisions CIT vs B. Rai (2003) 264 ITR 617 (P&H); CIT vs Chiranjit Jawa (2004) 270 ITR 173 (P&H); Oriential Insurance Company Ltd. vs Income Tax Officer ITAt, (Delhi) ‘D’ Bench (2005) 96 TTJ (Del) 589 and Managing Director, Tamil Nadu State Transport Corporation (Salem) Ltd. (2016) 385 ITR 656 (Mad). Court on its Motion vs H.P. State Co-operative Bank Ltd. 2014 SCC online HP 4273 and New India Assurance Company Ltd. vs Sudesh Chawla (2016) 380 ITR 467 (P&H).
The learned department represented on the other hand relied on the order of the Ld. CIT (A) as well as that of the A.O. and submitted that the interest is taxable under section 194A of the Act.
After hearing rival submissions and perusing the papers on record as well as the case law was cited I hold as follows. Section 194A is not a charging section. Nothing can be brought tax by invoking the section.
The Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (1997) 227 ITR 172 held as under: “It is also well-settled that interest income is always of a revenue nature unless it is received by way of damages or compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. In this way it is part and parcel of the compensation. The Hon’ble Supreme Court in the case of Tejinder Singh Assessment Year: 2008-09 Smt. Sikha Sadhukhan Gujral, 1 SCC 508 (2007). Similarly in case of Abati Bexbaruah vs Dy. Director General, GSI, 3 SCC 148 has held that interest is compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money which ought to have been paid to him. In case of Dharampal & Others vs U.P. State Road Transport Corporation, (2008) ACJ 2041 (SC) the Hon’ble Supreme Court has held that interest is compensation for forbearance or detention of money which ought to have been paid to the claimant.”
The Hon’ble Madras High Court in the case of Managing Director, Tamil Nadu State, Transport Corporation (Salem) Ltd. (Supra) held as follows: “The compensation awarded by the Motor Accident Claims Tribunal or the interest accruing thereon cannot be subjected to deduction of tax at source and since the compensation and the interest awarded therein do fall under the term ‘income’ as defined under the Income Tax Act, 1961.”
The Hon’ble Himachal Pradesh High Court in the case of Court on its own motion vs H.P. State Cooperative Bank Ltd. “The Circular dated 14.10.2011 issued by the income-tax authorities, is not in tune with the mandate of sections 2(42) and 2(31), read with section 6. The said circular also in not in accordance with the mandate of section 194A (Para 7) Section 194A clearly provides that any person not being an individual or a Hindu undivided family, responsible for paying to a “resident” any income by way of interest, other than income by way of interest on securities shall deduct income tax on such income at the time of payment thereof in cash or by issue of a cheque or by any other mode. (Para 9) While going through the said provisions of law, one comes to the inescapable conclusion that the mandate of the said provision does not apply to the accident claim cases and the compensation awarded under the Motor Vehicles Act is a