2022 (2) TMI 236 - HC - Income Tax

Court sets aside Tribunal's order for TDS deposit, emphasizes no double payment

Bajaj Allianz General Insurance Company Ltd. Versus M.A.C.T., Kathua and Others

The court allowed the petition, setting aside the Tribunal's order to deposit the TDS amount again for compensation interest. It held that the Insurance ... TDS u/s 194A - TDS on the interest component of the compensation paid by insurance company to the claimants-respondents by way of an award passed by the Tribunal - HELD THAT:- The person making payment is bound to deduct tax at source (TDS) on the interest component of the compensation awarded by the Tribunal where the amount of such interest paid in a financial year exceeds ₹ 50,000/-. Indisputably, the interest component in the instant case was exceeding ₹ 50,000/- and, therefore, in the absence of any pan card provided by the claimants, the Insurance Company deducted income tax at the rate of 20% as TDS and deposited the same in the government treasury. That being the position, the petitioner-Insurance Company has carried out the mandate of Clause (ix) of Section 194-A of the Income Tax Act and has not committed any illegality. Tribunal has taken note of the fact that the TDS deducted by the petitioner has been deposited and Form-16-A too has been produced, yet the Tribunal has called upon the Insurance Company to deposit the amount again with it so that same is disbursed to the claimants. The approach adopted by the Tribunal is not countenanced by law. The amount deducted at source as a tax on the interest component is deposited with the government treasury is the money deposited for and on behalf of the income tax payee i.e. claimants and, therefore, there cannot be unjust enrichment by making payment twice. Issues:1. Challenge to order of Motor Accident Claims Tribunal regarding deduction of TDS on compensation interest component.Analysis:The judgment pertains to a challenge against an order passed by the Motor Accident Claims Tribunal regarding the deduction of Tax Deducted at Source (TDS) on the interest component of compensation. The Insurance Company, the petitioner, contested the order, arguing that it had already deducted TDS in compliance with Section 194-A of the Income Tax Act, 1961. The Tribunal directed the Insurance Company to deposit the amount again for payment to the claimants, despite the TDS already being deposited with the government treasury.The key legal provision in question was Section 194-A of the Income Tax Act, which mandates the deduction of TDS on interest payments exceeding Rs. 50,000 in a financial year. The Insurance Company had deducted TDS at a rate of 20% on the interest component exceeding the threshold and deposited it with the government treasury. The court noted that the Insurance Company had fulfilled its obligation under the law by deducting and depositing the TDS.The court emphasized that the TDS amount deposited with the government treasury was on behalf of the claimants and should not lead to unjust enrichment by requiring the Insurance Company to make a duplicate payment. The Tribunal's directive for the Insurance Company to deposit the amount again was deemed legally incorrect. Therefore, the court allowed the petition, setting aside the Tribunal's order and directing the release of the deposited amount along with any accrued interest in favor of the Insurance Company.In conclusion, the judgment clarified the legal obligations of deducting TDS on compensation interest components exceeding Rs. 50,000 as per the Income Tax Act. It underscored that the TDS deposited with the government treasury represents the claimants' tax liability and should not result in double payment by the Insurance Company.