Tamil Nadu State Transport Corporation (Salem) Ltd vs. Chinnadurai (Madras High Court)
June, 06th 2016
Compensation awarded by the Motor Accident Claims Tribunal, and interest accruing thereon, is to ameliorate the sufferings of the victims and does not have the character of "income". If there is a conflict between a social welfare legislation and a taxation legislation, the social welfare legislation will prevail since it subserves larger public interest. CBDT Circular dated 14.10.2011 is not good law
(i) The question is whether the provisions of the Income Tax Act 1961, and more specifically, whether the compensation awarded by the Motor Accident Claims Tribunal to the victim can be classified as a taxable income under the Income Tax law?. The answer to this question in the opinion of this Court is in the negative. Compensation cannot be categorized or even described as income as it has already been stated that the intention of the legislature in awarding compensation to the victims of Motor Accident cases is to restitute them and rehabilitate them.
(ii) The Income Tax Department appears to have issued a circular dated 14.10.2011 whereby deduction of Income Tax has been ordered on the award amount and the interest accrued on the deposits made under the order of the Court in Motor Accident Cases. Taking serious view of this circular, the Division Bench of the Himachal Pradesh High Court took Suo-Moto cognizance of the matter and considered the same as a Public Interest Litigation in the judgment reported in Court on its Motion Vs. H.P.State Co-operative Bank Ltd & Ors 2014 SCC Online HP 4273 and has quashed the circular and in an elaborate and well considered judgment, His Lordship the Hon’ble Chief Justice Mansoor Ahmed Mir has held that:
“13.While going through the said provisions of law, one comes to the inescapable conclusion that the mandate of the said provisions does not apply to the accident claim cases and the compensation awarded under the Motor Vehicles Act cannot be said to be taxable income. The compensation is awarded in lieu of death of a person or bodily injury suffered in a vehicular accident, which is damage and not income.
14. Chapters X and XI of the Motor Vehicles Act, 1988 provides for grant of compensation to the victims of a vehicular accident. The Motor Vehicles Act has undergone a sea change and the purpose of granting compensation under the Motor Vehicles Act is to ameliorate the sufferings of the victims so that they may be saved from social evils and starvation, and that the victims get some sort of help as early as possible. It is just to save them from sufferings, agony and to rehabilitate them. We wonder how and under what provisions of law the Income Tax Authorities have treated the amount awarded or interest accrued on term deposits made in Motor Accident Claims Cases as income. Therefore, the said Circular is against the concept and provisions referred to hereinabove and runs contrary to the mandate of granting compensation.
…23. Having said so, the Circular, dated 14.10.2011, issued by the Income Tax Authorities, whereby deduction of income Tax has been ordered on the award amount and interest accrued on the deposits made under the orders of the Court in Motor Accident Claims Cases, is quashed and in case any such deduction has been made by respondents, they are directed to refund the same, with interest at the rate of 12% from the date of deduction till payment, within six weeks from today”.
(iii) Following the Division Bench Judgment, a learned Single Judge of the Punjab and Haryana High Court, in a recent decision, in New India Assurance Company Ltd. Vs.Sudesh Chawla and others, CR.No.430 of 2015 (O&M), reiterating the reasoning given by the Division Bench of Himachal Pradesh High Court, has opined that award of compensation is on the principle of restitution to place the claimant in the same position in which he would have been loss of life or injury has not been suffered and accordinly held that the orders calling upon the Insurance Company to pay TDS/deduct Tds on the interest part are not sustainable.
(iv) If we look at other jurisdictions like Australia, Unites States and United Kingdom, even there, the matters where a person has suffered an injury or there has been a loss of life and a compensation has been paid in lieu of that, then it has been held by the Courts that there cannot be any Tax deduction on such compensation. The underlying basis behind this is that a person who suffers a loss cannot be asked to part with the solatium he receives since it is the only remedy he has been provided with by the law.
(v) If there is a conflict between a social welfare legislation and a taxation legislation, then, this Court is of the view that a social welfare legislation should prevail since it subserves larger public interest. The Motor Vehicle Act is one such legislation which has been passed with a benevolent intention for compensating the accident victims who have suffered bodily disablement or loss of life and the Income Tax Act which is primarily intended for Tax collection by the State cannot put spokes in the effective and efficacious enforcement of the Motor Vehicles Act. In fact, if one might deeply analyse, it could be seen that there is no direct conflict between any provisions of the Income Tax Act and the Motor Vehicles Act and it is only by the interpretation of the provisions the concept of compulsory payment of TDS has crept into the realm of compensation payment in Motor Vehicle Accident cases.
(vi) Hence, with due respect I am unable to concur with the findings of the Karnataka High Court, the Chattisgarh High Court and this Court cited by the Revision Petitioner. This Court is of the view that the Division Bench judgment of the Himachal Pradesh High Court and the judgment of the Single Judge of the Punjab and Haryana High Court lay down the right law and hence, this Court arrives at the conclusion that the compensation awarded or the interest accruing therein from the compensation that has been awarded by the Motor Accident Claims Tribunal 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 Income Tax Act, 1961.