2026 (1) TMI 367

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....m. The Ld. AR pointed out that the interest income has not been received, at all, by the assessee during this year and the claim continue to be in the court custody as per the directions of the court. The Ld. Sr. DR also advanced argument in support of assessment order. Having heard rival submissions upon perusal of case records, our adjudication would be as under 3. The assessee declared income of Rs. 1,76,800/-. Pursuant to receipt of information that the assessee received impugned interest income of Rs. 15,13,626/- which was not offered in the return of income, the case was reopened and a notice u/s 148 was issued on 26-03-2024. It transpired that the interest income represents accrued interest on delayed motor accident insurance claim in compliance of judgement from the lower court. However, the assessee did not have access to the funds since the insurance company had appealed the lower court's order before the Hon'ble High Court. As per court's directions, the insurance company had deposited principal amount and accrued interest in Fixed Deposits. The same was confirmed by the Oriental Insurance Company Ltd. The Ld. AO opined that though the principal amount on motor insura....

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....The MACT passed an award granting compensation of Rs. 69,34,400/- along with interest @ 7.5% per annum from the date of filing the petition. 2018 High Court Appeal: Aggrieved by the award, the Oriental Insurance Company Ltd. filed an appeal before the Hon'ble Punjab & Haryana High court, registered as FAO-6969-2018 (O&M) 20.02.2019 Interim Stay Order: The Hon'ble High Court stayed the release of funds to the claimants but directed the Insurance company to deposit the award amount. 19.03.2019 Modified Stay Order: The Hon'ble High Court modified the earlier order, directing the Insurance Company to deposit the entire compensation amount with the Executing Court within two weeks. The Executing Court was directed to place this amount in a fixed Deposit for one year under strict lien. 30.04.2019 TDS Transaction Date: The Oriental Insurance Company deducted TDS of Rs. 1,51,363/- on the interest component of Rs. 15,13,626. FY 2019-20 Deposit of Amount: In compliance with the High Court order, the compensation and interest were deposited with the Court / Bank under lien. The Appellant did not receive this money. 09.01.2021 Return of Income: T....

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....receipt (aimed at mitigating the loss of life / limb), and not a revenue receipt, the interest awarded would also retain the character of capital receipt. In this decision, Hon'ble Court, referring to various case laws holding the field, held as under: - 8. In view of ratio of law as laid down in the above cited authorities, there is no hesitation to hold that the compensation awarded under MV Act by MACT or the interest on the said compensation amount cannot be termed as income. However, at this juncture, the contention as raised by the respondents that the interest received on compensation amount is liable to TDS under Section 194-A (3) (ix-a) of the Act, 1961 in view of provisions of Section 145-B (1) of the Act, 1961 is to be considered. A bare reading of Section 145-B (1) reveals that it says that the interest received by an assessee on any compensation or enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. However, in our opinion, this provision does not make the interest chargeable to tax without considering that whether such interest is income of the recipient or not? This section deals with the ....

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....oner along with the amount of compensation granted by MACT and by this Court in FAO filed by the petitioner, by treating the same as income of the petitioner. Since the upshot of the discussion as made above is that no tax was exigible and could be deducted from the amount of interest awarded to the petitioner by MACT from the date of filing of claim petition till the date of passing of the award and interest awarded on enhanced amount of compensation by High Court in the appeal filed by the petitioner, till the judgment of the High Court, the same not being income, therefore, the tax on these amounts so deducted by the respondents is liable to be refunded to the petitioner. It is ordered accordingly. The writ petition stands allowed in these terms and the Respondents are directed to refund the amount so deducted as tax to the petitioner within one month from the date of receipt of certified copy of this order. There is no order as to costs. It has explicitly been held by Hon'ble Court that the compensation awarded under Motor Vehicles Act by MACT or the interest on the said compensation amount cannot be termed as income. The Ld. CIT(A), in our opinion, erred in distinguishing t....