TDS on MACT compensation interest held inapplicable because the amount retains the character of damages

Compensation awarded for death or bodily injury in a motor accident is treated as damages, not income, and interest awarded on that compensation retains the same character. The statutory TDS provision for interest income therefore does not apply to interest paid on Motor Accident Claims Tribunal compensation in execution proceedings. Tax could not be deducted at source from such interest, and the insurer's objection was rejected as without merit.

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Issues: Whether tax deduction at source could be made from the interest accrued on compensation awarded by the Motor Accident Claims Tribunal in a motor accident claim execution proceeding.

Analysis: The compensation awarded for death or bodily injury in a motor accident is in the nature of damages and not income. Interest awarded on such compensation partakes the same character and does not become taxable income merely because it accrues over time. In view of the earlier decisions of the Court and the supporting view taken by another High Court, the statutory provision governing TDS on interest income was held inapplicable to interest paid on MACT compensation.

Conclusion: Tax could not be deducted at source from the interest accrued on the compensation amount. The objection raised by the insurance company was without merit.

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