Year-wise TDS on motor accident interest must be computed claimant-wise, not as a single lump sum deduction.

Interest on motor accident compensation is taxable as income and accrues year to year from the date of the claim petition until deposit, so TDS under section 194A must be tested on a yearly, claimant-wise basis after apportionment of shares. The insurer or vehicle owner must compute interest for each financial year, deposit only the amount actually liable to deduction, and the Tribunal must apportion and permit withdrawal where no tax liability arises. Any excess tax already deducted may be claimed as refund before the income-tax authority.

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Issues: (i) Whether interest on compensation awarded by the Motor Accident Claims Tribunal is to be treated as accruing year to year from the date of the claim petition till the date of deposit, so that tax deduction at source under section 194A of the Income-tax Act, 1961 can be applied only with reference to the interest relatable to each financial year. (ii) What directions should govern deduction, deposit, apportionment, disbursement, and refund of tax deducted at source from such interest amounts in motor accident compensation matters.

Issue (i): Whether interest on compensation awarded by the Motor Accident Claims Tribunal is to be treated as accruing year to year from the date of the claim petition till the date of deposit, so that tax deduction at source under section 194A of the Income-tax Act, 1961 can be applied only with reference to the interest relatable to each financial year.

Analysis: Compensation payable under the Motor Vehicles Act is not taxable as income, but interest on such compensation is income and must be tested on ordinary income-tax principles. The governing principle is that interest does not accrue as a single lump sum on the date of the award; it accrues from year to year from the date of the claim petition until the date of deposit. The threshold for deduction under section 194A(3)(ix) therefore has to be examined year-wise and claimant-wise, after apportionment of the award among the heirs in the relevant shares.

Conclusion: Yes. Interest on compensation is to be spread over the relevant financial years, and tax deduction at source can arise only if the interest attributable to a particular claimant in a particular year exceeds the statutory threshold.

Issue (ii): What directions should govern deduction, deposit, apportionment, disbursement, and refund of tax deducted at source from such interest amounts in motor accident compensation matters.

Analysis: The insurer or vehicle owner must first compute interest year-wise and then determine whether tax liability arises for any claimant in any financial year. If the yearly interest exceeds the threshold, only the amount liable to deduction may be separately deposited before the Tribunal and not straightaway remitted to the Income-tax Department. The Tribunal must apportion the interest according to the shares of the claimants and permit withdrawal where no tax liability arises for the relevant year. Any amount already deducted may be pursued by the claimants before the income-tax authority for refund, and such applications are required to be decided expeditiously.

Conclusion: The insurer and the Tribunal were directed to follow a year-wise apportionment mechanism, with separate deposit of only the deductible amount, and the claimants were left free to seek refund of excess tax from the income-tax authority.

Final Conclusion: The application was allowed with binding directions that TDS on interest attached to motor accident compensation must be computed with reference to annual accrual and individual claimant liability, not as a single lump sum deduction.

Ratio Decidendi: Interest on compensation awarded in motor accident claims accrues year to year from the date of the claim petition, so tax deduction at source under section 194A of the Income-tax Act, 1961 must be determined annually and with claimant-wise apportionment rather than on the entire interest as a single receipt.

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