About TDS issue

This query is : Resolved

Balakrishnan (Querist)
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26 May 2009 My friend is going to receive a motor accident compensation from the court,but his claim amount Rs.2,00,000 and interest for the past 4 previous years around Rs.50,000 , is there any way to receive the payment without TDS.Kindly clarify sir.

Manikanta Raju CA,CWA,(CS)

Manikanta Raju CA,CWA,(CS) (Expert)
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26 May 2009 Dear Balakrishnan,

The payer has no other option not to deduct TDS, he is suppose to deduct the same evev though the 2,00,000 interest is pertaining to Past 4 years.
the wording used in sec194A is any interest paid in the previous year exceeds Rs.50,000 in respect of motor car accident, is liable to deduct TDS.
The same has been held in the case of
New india assurance company vs.
Mani & ORS

I have some working to one of my client just go through it-

FACTS OF THE CASE
A suit was filed in the court in the year 2003 relating to motor car accident. The Judgment was given in the year 2008 stating that the New India Assurance Company Ltd. is liable to pay compensation along with interest @7.5% for the period from date of petition to the date of disbursement. Accordingly the New India Assurance Company calculated the interest for the period 2003 to 2008 and pays the amount in the year 2008. At the time of payment the company deducted the T.D.S on the total amount of interest with out considering spreading over of interest from the year 2003 to 2008.
Queries
i) What should be the actual course of action of the New India Assurance Company in the above case?
ii) Applicability of FORM-15G?
iii) If the accident victim who is not liable to tax in any of the previous year, If the total income of such person including the interest received in the current financial year exceeds Rs.1,50,000/-. In such a situation what is the remedy available to him?
Our opinion
i) The threshold limit of Rs.50,000/- is applicable to entire interest payable during the financial year 2008-2009. Spreading over of interest should not be considered.
Explanation-
Finance Act, 2003 has amended section 194A by way of insertion of a new clause (ix) in sub-section (3) to provide that – the insurance company is bound to deduct tax on interest, if the amount paid during the financial year exceeds Rs. 50,000/- , no deduction of tax at source need be made in cases where the interest awarded on compensation does not exceed Rs.50, 000/-
By strict interpretation of section 194A (3) it can be said that if the interest payment exceeds Rs.50, 000/-, provisions of Sec 194A attracts and TDS need to be made, spreading of interest over the period should not be considered.
The above view is supported by a madras high court verdict in the case of New India Assurance Company Limited v. Mani & ORS.
A copy of above case law has been provided for your reference.

ii) Form 15G (a declaration not to deduct tax at source) can be given by the accident victim to the New India Assurance Company, if the total taxable income including the interest received is within the basic exemption limit not liable to tax. That is Rs.1,50,000/- in case of individual who is not a senior citizen (Tax slabs are subject to change).
Provisions relating to the declaration in Form -15G have been discussed in brief in our earlier discussion.
iii) If the accident victim is a person who is not liable to tax in any of the previous year, but during the financial year including the interest received on compensation exceeds basic exemption limit Rs.1,50,000/-(in case of individual), then the remedy available to him is that he can approach the tax department for refund of the amount, requesting that the period of interest should be spread over by filing revised returns, since he had filed the claim petition elsewhere in 2003, from which date, the interest was calculated and deposited in the financial year(2008).
This option is available only to the accident victim. New India Assurance Company can not make use of it and cannot deny the obligation to deduct TDS.