TDS on motor accident interest depends on compensatory character, payment date, claimant-wise threshold, and Form 15-G relief.

Interest on motor accident compensation is treated as compensatory in nature, and Section 194A operates as a tax-deduction machinery provision rather than a charging provision. Accordingly, tax deduction at source is not automatic in every case; liability depends on the statutory conditions governing taxability and deduction. For payments made before 1 June 2015, the amount deducted at source is to be paid to claimants, with refund to be sought through a revised return. For payments made after that date, TDS applies only where interest exceeds the per-claimant annual threshold, with claimant-wise computation and Form 15-G relevant to the relief framework.

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Issues: (i) Whether interest paid on compensation awarded under the Motor Vehicles Act is liable to tax deduction at source under Section 194A of the Income-tax Act, 1961; (ii) whether the liability to deduct tax at source depends on the date of payment of interest, the monetary threshold of Rs. 50,000 per claimant per financial year, and the filing of Form 15-G.

Issue (i): Whether interest paid on compensation awarded under the Motor Vehicles Act is liable to tax deduction at source under Section 194A of the Income-tax Act, 1961.

Analysis: The statutory scheme of Section 194A treats tax deduction at source as a mode of collection and not as a charging provision. The Court accepted the consistent view that interest awarded on compensation is compensatory in nature and, for the period from the claim petition till the award or appellate judgment, does not by itself become taxable merely because it is described as interest. The Court also noted the exclusionary effect of the relevant clauses in Section 194A(3) and the need to read the provision harmoniously with the character of such interest in motor accident claims.

Conclusion: Interest on compensation is not mechanically liable to TDS in every case, and the payer cannot be fastened with deduction liability unless the statutory conditions for taxability and deduction are satisfied.

Issue (ii): Whether the liability to deduct tax at source depends on the date of payment of interest, the monetary threshold of Rs. 50,000 per claimant per financial year, and the filing of Form 15-G.

Analysis: The Court resolved the apparent conflict by following the consistent line of authority that, for interest paid prior to 1.6.2015, the insurance company must pay the amount deducted at source to the claimants, and may seek refund from the Income Tax Department by filing a revised return. For interest actually paid after 1.6.2015, TDS is attracted where the interest exceeds Rs. 50,000 per claimant per financial year, and the insurer may seek protection by obtaining Form 15-G in the manner directed. The Court also directed that the computation be made claimant-wise and not by clubbing all claimants together.

Conclusion: The deduction obligation depends on the relevant payment period and the per claimant annual threshold, with claimant-wise computation and Form 15-G being material to the relief framework.

Final Conclusion: The Court adopted a mixed approach: some revision petitions were dismissed and the remaining matters were remanded to the Motor Accident Claims Tribunals for fresh orders in accordance with the clarified TDS regime on interest awarded in motor accident compensation cases.

Ratio Decidendi: Section 194A is only a machinery provision for TDS and cannot enlarge tax liability; in motor accident compensation cases, interest must be examined claimant-wise and financial year-wise, with the pre-1.6.2015 and post-1.6.2015 regimes applied according to the date of actual payment and the statutory threshold.

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