TDS on MACT compensation interest depends on actual payment date and threshold compliance after the statutory amendment.

Interest on compensation awarded by a Motor Accident Claims Tribunal was treated as part of the compensation until actual receipt, and for the relevant pre-amendment period it was not regarded as taxable revenue income in the claimant's hands. The later insertion of clause (ixa) in Section 194A(3) clarified that tax deduction at source applies only when such interest is actually paid and the annual paid amount exceeds the prescribed threshold. On that basis, deductions made before 01.06.2015 were inconsistent with the court's applied legal position, while post-01.06.2015 payments crossing the threshold could attract deduction. The impugned deduction orders were set aside and the matters remanded for determination of payment date and threshold compliance.

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Issues: Whether interest on compensation awarded by a Motor Accident Claims Tribunal was subject to deduction of tax at source under Section 194A of the Income-tax Act, 1961, and how the liability was to be worked out where the interest was paid before or after 01.06.2015.

Analysis: The applicable legal framework treated interest on compensation awarded by a Motor Accident Claims Tribunal as part of the compensation until actual receipt, and the court followed its earlier Division Bench view that such interest was not taxable as revenue income in the hands of the claimant for the relevant period. The later insertion of clause (ixa) in Section 194A(3) clarified that tax deduction at source would arise only where interest on such compensation was actually paid and the amount or aggregate exceeded the statutory threshold in a financial year. On that basis, if the interest had been paid before 01.06.2015, any deduction made by the insurer was inconsistent with the governing law as applied by the court, whereas if payment was after 01.06.2015 and the threshold was crossed, deduction at source was permissible.

Conclusion: The impugned orders directing deduction at source were set aside and the matters were remanded to the Tribunal for fresh determination on the date of payment and the threshold amount, with consequential directions as to refund or withholding of tax deducted at source.

Ratio Decidendi: Interest on MACT compensation is to be tested for tax deduction at source according to whether it was actually paid and, after the statutory amendment, whether the annual paid amount exceeded the prescribed threshold; pre-amendment payments did not attract deduction on the footing applied in the judgment.

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