No TDS shall be deducted on claim amount and interest on the deposits, made under the orders of the court in motor accident claims cases.
Circular 8/2011 issued on 14-10-2011 stated that when litigant is directed by the court that a specified amount be deposited in the bank directly or through the court w.r.t motor accident claims. The bank shall in accordance with the provisions of the Act, deduct TDS on the interest accruing on the above mentioned deposit(s) as per existing procedure and at the rates in force. The certificate of deduction of tax shall be issued by the bank in the name of ‘the depositor’.
In nutshell, above circular directed banks to deduct TDS on deposits made in banks w.r.t motor accident claims.
Now, Himachal Pradesh High Court held that compensation awarded for death of a person or bodily injury suffered in a vehicular accident is damages and cannot be treated as an income.
HC obserevd that the above circular issued by the income tax authorities, was not in tune with the mandate of Sections 2(42) and 2(31), read with Section 6 of the Income Tax Act, 1961. In addition to this, the said circular also is not in accordance with the mandate of Section 194A of the Act.
Hence, the HC quashed above mentioned, 3 years old, income tax circular which required deduction of the tax on the award amount and interest accrued on the deposits made under the orders of the court in motor accident claims cases. Further, the bench also directed that in case any such deduction already has been made by respondents, they shall refund the same, with interest at the rate of 12% from the date of deduction till payment.
The above matter was referred to the Finance/Purchase Committee for examination and the Committee at its meeting on May 20, 2014 and it was of the view that since the dispute involved is intricate and public interest is involved, it was recommended that the matter requires consideration on judicial side. The recommendation of the Committee was treated as Public Interest Litigation and suo motu proceedings were drawn.