2025 (9) TMI 245 - HC - Income Tax

Deduction of 20% TDS on interest component of motor-accident compensation upheld as claimant's interest share exceeded ?50,000

HC held that deduction of 20% TDS from the interest component of motor-accident compensation was lawful because each claimant's share of interest exceeded ... Interest payable on compensation awarded by the Motor Accident - Claims TDS on the interest component - executing Court, by the impugned order directed the petitioner to deposit the deducted amount holding that deduction of TDS was not proper from the compensation payable to the claimants. HELD THAT:- Where the interest exceeds Rs. 50,000/- in a financial year, deduction of TDS is mandatory. In the present case, the total interest component was Rs. 3,90,700, and even after division among the claimants, the share of each claimant exceeded Rs. 50,000/-. Therefore, the deduction of 20% TDS by the petitioner was justified and in accordance with law. The executing Court, therefore, fell in error in directing the petitioner to refund the TDS amount of Rs. 78,150/-. The claimants are, however, at liberty to seek refund of the deducted amount from the Income Tax Department in accordance with law. This Court has no hesitation to hold that the impugned order passed by First Additional District Judge, Durg in Execution Case is unsustainable in law and is hereby set aside. Consequently, the present petition is allowed. 1. ISSUES PRESENTED AND CONSIDERED Whether deduction of tax at source (TDS) under Section 194A on the interest component of compensation awarded by a Tribunal (motor accident claim) is permissible when the aggregate interest payable in the financial year exceeds Rs. 50,000. Whether the executing Court erred in directing the payor to refund the TDS deducted from the compensation awarded to claimants who are dependents of the deceased. Whether the claimants are deprived of any remedy by direction to the payor to retain deducted TDS and, relatedly, whether they must seek refund from the Income Tax Department under the statutory regime. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of TDS deduction under Section 194A on interest component of Tribunal-awarded compensation when interest exceeds Rs. 50,000 in a financial year. Legal framework: Section 194A(1) requires deduction of tax at source on interest other than interest on securities. Section 194A(3)(ixa) provides an exemption where 'interest on the compensation amount awarded by the Motor Accidents Claims Tribunal' does not exceed Rs. 50,000 in a financial year; the proviso is expressed as a non-application of the TDS obligation only when the aggregate interest payable in the year is