2017 (3) TMI 1239 - HC - Income Tax

Insurance company's TDS deduction from compensation ruled erroneous; claimant entitled to full amount and interest.

The court held that the insurance company's deduction of TDS from the compensation awarded to the claimant was erroneous. The claimant was entitled to the ... Demand of TDS amount earlier deducted but returned later to the employees - Insurance company directed to pay/deposit amount deducted towards TDS - amount payable and paid to the original claimant so as to comply the award dated 21.02.2008 passed by the Commissioner in Claim Application filed by the claimant - Held that:- Either under misconception or on erroneous reading of the provision or under mistaken belief the Insurance Company deducted ₹ 15,793/from the amount payable towards compensation and interest pursuant to the decree by Workmen's Compensation Commissioner. The interest amount awarded by learned Commissioner was required to be spread over in respect of the period from the date of accident till the date of judgment. If the said procedure had been followed then the amount payable towards interest would not invite the obligation to deduct tax at source. However, the Insurance Company failed to follow the said procedure as explained in above mentioned decision by Hon'ble Division Bench. Instead the petitioner considered entire income of ₹ 1,53,938/as interest of the claimant for accounting year of 2008 and consequently it deducted ₹ 15,793/, from the amount payable to the claimant and deposit it with the Income Tax Department. The above discussion has also brought out the fact that in entire transaction there is no fault of the claimant and therefore claimant cannot be penalised for action and mistake of the Insurance Company. The poor workman, who is not even assessee and whose income at the relevant time was not taxable, cannot be made to undergo entire process of filing return and reclaim the amount. Therefore, there is no justification to interfere with and disturb the order passed by the Commissioner. The learned Commissioner has passed the impugned order after taking into account the direction and guidelines issued by Division Bench of this Court in Hansagauri Prafulchandra Ladhani and ors v. Oriental Insurance Company Limited and ors, (2006 (10) TMI 383 - GUJARAT HIGH COURT) and, therefore also there is no justification to interfere with the said direction. Under the circumstances, the petition should fail and should be rejected. The petition is not accepted for the reasons mentioned above and it is, therefore, rejected. It is, however, clarified that it will be open to the Insurance Company to follow such procedure as may be permissible under Law to seek refund of the amount i.e. ₹ 15,793/, which it has deposited with Income Tax Authority, if it is so permissible under applicable provisions and this order or the order passed by learned Commissioner would not stand in way of Insurance Company to claim the refund of the said amount in accordance with law, if permissible. Issues Involved:1. Deduction of TDS by the insurance company from compensation awarded by the Workmen's Compensation Commissioner.2. Refund of the deducted TDS amount to the claimant.3. Compliance with the statutory requirements under Section 194A of the Income Tax Act.4. The claimant's ability to file a tax return to reclaim the deducted amount.Issue-Wise Detailed Analysis:1. Deduction of TDS by the insurance company from compensation awarded by the Workmen's Compensation Commissioner:The insurance company deducted Rs. 15,793 as TDS from the compensation amount of Rs. 1,08,455 awarded to the claimant by the Workmen's Compensation Commissioner. The total amount payable to the claimant was Rs. 2,63,393, including Rs. 1,53,938 towards interest. The company deposited Rs. 2,46,600 after deducting the TDS amount. The claimant filed an application before the Commissioner, asserting that the TDS deduction was unwarranted and that he was entitled to the full amount and interest as awarded.2. Refund of the deducted TDS amount to the claimant:The Commissioner directed the insurance company to pay/refund the deducted amount of Rs. 15,793 to the claimant. The insurance company filed a petition against this direction, arguing that the deduction was made in compliance with Section 194A of the Income Tax Act. The claimant's advocate argued that the claimant, not being an assessee and not having taxable income, should not be required to file a return to reclaim the amount and should not be penalized for the insurance company's actions.3. Compliance with the statutory requirements under Section 194A of the Income Tax Act:The insurance company contended that the interest awarded by the Commissioner constituted 'income' under the Income Tax Act, necessitating TDS deduction under Section 194A. The company argued that it merely complied with statutory requirements by deducting and depositing the TDS amount with the Income Tax Authority. The court noted that if the interest amount had been spread over the relevant financial years, the amount would not have exceeded Rs. 50,000, and no TDS deduction would have been necessary. The company's failure to follow this procedure led to the erroneous deduction.4. The claimant's ability to file a tax return to reclaim the deducted amount:The Income Tax Department's advocate submitted that there was no provision for refund under the Act and that the claimant would need to file a return to reclaim the deducted amount. The court observed that the claimant, being a poor workman and not an assessee, should not be made to undergo the process of filing a return to reclaim the amount. The court emphasized that the claimant should not be penalized for the insurance company's mistake.Conclusion:The court held that the insurance company's deduction of Rs. 15,793 as TDS was erroneous and that the claimant should not be penalized for the company's mistake. The court upheld the Commissioner's order directing the insurance company to refund the deducted amount to the claimant. The court clarified that the insurance company could seek a refund of the amount from the Income Tax Authority if permissible under the law. The petition was rejected, and the interim relief was vacated, obliging the insurance company to comply with the Commissioner's order.