THE HONBLE SRI JUSTICE M.SEETHARAMA MURTI Civil Revision Petition No.994 of 2012 22-04-2014 The National Insurance Companu Ltd., Rep.by its Divisional Manager, Visakhapatnam...Petitioner Yeliminti Appanna and another...Respondents Counsel for the Petitioner:Sri T.Ramulu Counsel for Respondents:None Appeared. : ?.Cases referred:
2007. ACJ1897C.R.P.No.3488 of 2011, dated 04.02.2013 (APHC) 2004 ACJ19962009 ACJ19372013 (6) ALD226ORDER
: This revision petition is directed against the order dated 28.11.2011 passed by the learned Principal District Judge-cum-Chairman, Motor Accidents Claims Tribunal, Srikakulam (`the Tribunal, for short) in E.P. 79 of 2011 in M.V.O.P.No.144 of 2008. The issue involved in the revision is in regard to the correctness or otherwise of the income tax deducted [or to be deducted]. at source, the position of law and the correct procedure that ought to be followed by the Insurance Company at the time of the deduction of tax at source from the amount of compensation/ interest awarded to the claimant/s by the Motor Accidents Claims Tribunal under the provisions of the Motor Vehicles Act.
2. The facts necessary for consideration for the disposal of the present revision petition and the relevant exposition of law, in brief, are as follows: The claim petition filed by the 1st respondent/claimant/Decree Holder was allowed by the Tribunal and compensation was awarded to the claimant. After the award had attained finality, the National Insurance Company/Judgment Debtor/Revision Petitioner herein had deposited certain amount towards part satisfaction of the awarded compensation amount along with interest and costs to the credit of the Original Petition before the Tribunal. However, while making such deposit, the Insurance Company had deducted certain sum towards Income Tax Deductible at Source (TDS for short). In fact, the Insurance Company in its calculation shown in the execution proceedings had admitted that a sum of Rs.19,626/- was deducted towards TDS and that apart a balance amount of Rs.13,898/- is still to be deposited by it towards the balance decree debt. However, the Decree Holder disputed inter alia such tax deduction at source as contrary to Law and not correct. The Tribunal having followed the Division Bench decision of the High Court of Gujarat in the case of Hansaguri Prafulchandra Ladhani and Others v. Oriental Insurance Company Limited and others negatived inter alia the contention of the insurance Company that its action in deducting the income tax at source is correct. Accordingly, the Tribunal had directed the Insurance Company and also the Decree Holder to file fresh calculation memos in the execution proceedings in accord with the directions in the orders, which are impugned, so that a further direction, to deposit the balance amount, if any, can be given to the Insurance Company, after hearing on such memos. Aggrieved of the orders of the Tribunal to the extent and to the effect that the deduction of income tax by the Insurance Company was against Law, the Insurance Company had preferred the present Revision Petition.
3. Now, the only short but important issue that was raised before this Court is Whether the action of the Insurance Company in deducting the income tax at source is correct or not under facts and in Law?.
4. I have heard the submissions of the learned counsel for the revision petitioner/Insurance Company. None appeared for the decree holder, though notice was served. The learned counsel submitted that there are successive pronouncements of this Court in support of the case of the Insurance Company and that, therefore, the Tribunal had erred in following the decision of the High Court of Gujarat.
5. (a) I have perused the copies of the rulings in the following cases. (1) The New India Assurance Co. Limited, Ongole v. Banavat Ramadevi, Prakasam District , (2) United India Insurance Co. Ltd. V. Mitaben Dharmeshbhai Shah [of the Gujarat High Court]., (3) United India Insurance Co. Ltd v. Janaki Devi [of the Madhya Pradesh High Court]. and (4) Oriental Insurance Co. Ltd., Secbad v. G.S.Diwakar . The decisions in the above cases were rendered having regard to the facts peculiar to those cases. However, in the decision in Oriental Insurance Co. Ltd. (6 supra), this Court had held inter alia as follows: No doubt, the revision petitioner company could not have deducted and remitted TDS on total interest amount of all DHRs put together, but should have divided interest relating to each of the DHRs and should have remitted TDS only in respect of interest payable to that DHR whose amount exceeded Rs.50,000/-.
5. (b) It is necessary to first refer to the provisions of law and the content of the related circular which are relevant. (i) Section 194 A of the Income Tax Act (the I T Act, for short), which is admittedly the relevant provision of law, reads as follows: S.194A: Interest other than ".Interest on securities"..(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called ".Interest payable account". or ".Suspense account". or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) * * * * * (3) The provisions of sub-section (1) shall not apply (i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed (a) ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act); (b) ten thousand rupees, where the payer is a co-operative society engaged in carrying on the business of banking; (c) ten thousand rupees, on any deposit with post office under any scheme framed by the Central Government and notified by it in this behalf; and (d) five thousand rupees in any other case: Provided that in respect of the income credited or paid in respect of (a) time deposits with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long- term finance for construction or purchase of houses in India ".for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36". the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be; (ii) * * * * * (iii) to such income credited or paid to (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; (iv) to such income credited or paid by a firm to a partner of the firm; (v) to such income credited or paid by a co-operative society to a member thereof or to any other co-operative society; (vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette; (vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act); (viia) to such income credited or paid in respect of, (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking; Explanation * * * * * (viii) to such income credited or paid by the Central Government under any provisions of this Act, or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974). (ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees. [Emphasis supplied]. (x) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such fund or company or public sector company or scheduled bank; Explanation 1.For the purposes of clauses (i), (vii) and (viia), ".time deposits". means deposits (excluding recurring deposits) repayable on the expiry of fixed periods. (ii) Section 2 [28 A]. of the I T Act, which defines interest, reads as under: ".Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.". As per the aforesaid provisions of the Act, the income tax is deductible at source not on the awarded compensation amount, but, on the amount of interest only that becomes payable in terms of the award on the compensation amount awarded by the Tribunal. It is also brought to the notice of this court that the circular number 7 of 2003, which explained some of the relevant provisions of the Finance Act, 2003 contains relevant guideline in regard to basic exemption limit of Rs.50,000/-[Rupees Fifty Thousands only]..
5. (c) On an earnest consideration of the admitted facts and also the relevant provisions of Law, which are indisputably applicable, it emerges that the procedure and practice stated infra is the proper procedure and practice to be followed and resorted to in the matter of the tax-deductible at source in matters of this nature. Section 194 A of the Act obligates a person responsible for paying to a resident any income by way of interest to deduct income tax from such payment of interest at the time of crediting of such amount to the account of the payee or at the time of payment thereof in cash or by cheque or draft or by any other mode. Sub-clause (ix) of the said sub-section (3) provides that the provisions of tax-deductible at source [TDS]. do not apply to the income credited or paid by way of interest on the compensation amount awarded by the Tribunal where such amount of income or, as the case may be, the aggregate amount of such income credited or paid does not exceed Rupees 50,000/-. Thus, if the amount of interest payable to a claimant does not exceed Rs.50,000/- then the person responsible for payment is not required to deduct tax at source. Since the deduction is to be made at the time of payment to a resident, the said limit will apply separately in case of each individual resident. That is to say that if the payment of interest is being made to more than one claimant then unless the interest payable to each claimant exceeds Rs.50,000/- in each case, the person responsible for payment is not obliged to deduct tax at source. To be exact, the limit of Rs.50,000/- would apply separately in case of each individual claimant and, therefore, if the payment of interest is to be made to more than one claimant then unless the interest payable to each claimant separately exceeds Rs.50,000/- in each case, the person responsible for payment or deposit of interest is not required to deduct the tax. Further, what needs to be clarified is that the lump sum interest that had accrued upto the date of payment or deposit can be taken into consideration; and, the interest awarded and arrived at in case of each claimant need not be spread over on annual basis. In other words interest amount that had accrued on the awarded compensation is liable to be taxed in a lump sum when being paid/deposited at one time and the interest calculated and arrived at in case of each claimant need not be spread over on an annual basis over the number of years for which such interest has been awarded from the date of filing of the claim petition and till the date of payment or deposit. Considering the significance of the issue involved what has been stated in the preceding paragraph can be re-stated as follows: [1]. The person paying or depositing the compensation is not obligated to deduct any income tax at source on the actual compensation amount awarded. [2]. Such person is obligated to deduct tax at source from the amount of interest only, if only, the amount of interest payable to each claimant exceeds Rs.50,000/-. However, such lump sum interest amount that had accrued up to the date of payment or deposit can be taken into consideration in case of each such claimant and such lump sum interest arrived at need not be spread over on annual basis even in cases interest accrued relates to more than one year. Thus in effect there are two filters to be applied by the person who is obligated under Law to deduct tax at source. And they are as under: First one is distributing such interest among each of the claimants, in case the claimants are more than one and there is apportionment of compensation in the award/decree. And, at the second stage the limit of Rs.50,000/- prescribed under Law is to be applied.
5. (d) It is also settled legal position, as on today that in a case where the claimant is an income tax assessee and is having a PAN then, in case of such a claimant, the percentage of deduction of tax at source is 10%. But, where such claimant is not having a PAN, in his case, the deduction of tax at source shall be at the rate of 20%. Therefore, the payer like the insurance company shall, make a sincere effort to know from the claimant/payee as to whether he is having PAN or not and then proceed to make the deduction having regard to the said fact.
6. To sum up, the Tribunals have to take note of the following guidelines while dealing with the aspect of determination of correctness or otherwise of the TDS (Tax Deducted at Source) in cases of Motor Accident Compensation claims. (1) The person or insurance company paying or depositing the compensation is not obligated to deduct any income tax at source on the actual compensation amount awarded. (2) Such person or insurance company is obligated to deduct tax at source from the amount of interest only, if only, the amount of interest payable to each claimant exceeds Rs.50,000/-. However, such lump sum interest amount that had accrued up to the date of payment or deposit can be taken into consideration in case of each such claimant for purpose of TDS and such lump sum interest arrived at in case of each claimant need not be spread over on annual basis even in cases where the interest accrued and payable relates to a period of more than one year. (3) In a case where the claimant is an income tax assessee and is having a PAN and furnishes the required details, then, in case of such a claimant, the percentage of deduction of tax at source shall be at the rate of 10%. But, where such claimant is not having a PAN and also fails to furnish the required form, in case of such claimant, the deduction of tax at source shall be at the rate of 20%. Thus, in cases where the Decree Holder/claimant concerned fails to submit the PAN or the required form to the Insurance Company or the payer, as the case may be, then the TDS shall be at the rate of 20%, at present. Be it noted that in case a claimant furnishes a declaration, on Form No.15 G of R. 29C of the IT Rules in terms of Section 197(1A) of the IT Act or such other declaration on such Form as may be applicable, for each financial year, either to the person concerned or in the office of insurance company, in such a case the person/the insurance company is relieved of his/its obligation of payment of TDS. It is appropriate to mention that the TDS deducted on interest shall be deposited within the statutory period and the Person/the insurance company shall also file either the quarterly return or such return as prescribed and applicable to the case and shall furnish to the claimant a certificate either on Form No.16A or on such form as may be prescribed and applicable to the case to enable the claimant to either avail the benefit of the tax deducted at source or to claim refund of the tax as the case may be.
7. Coming to the facts of the instant case, it is not clear from the record as to how the Tax Deductible at Source was arrived at in a sum of Rs.19,626/-. However, at this stage, it cannot be said that the insurance company is not entitled to deduct income tax at source on the interest amount without first ascertaining whether the interest amount payable to the claimant had exceeded the prescribed limit of Rs.50,000/- or not. Therefore, as rightly urged by the learned counsel for the revision petitioner, this Court is of the well- considered view that this is a fit case to set aside the orders of the Tribunal and remit the matter to the Tribunal to decide afresh on the requirement, if any, and the correctness or otherwise of the amount deducted at source towards income tax and then dispose of the execution petition in accordance with the procedure established by law.
8. Accordingly, the Civil Revision Petition is allowed and the impugned order is set aside and the matter is remitted to the Tribunal with a direction to decide the issue involved in the execution petition afresh keeping in view the legal position enunciated and thus dispose of the execution petition on merits and in accordance with the procedure established by law. Both the parties are given liberty to file fresh calculation memos. The Court of execution may also permit the parties to adduce fresh oral and documentary evidence, if the parties so desire. No costs. Miscellaneous Petitions, if any, pending in this revision shall stand dismissed. _____________________ M.SEETHARAMA MURTI, J22d APRIL201