26 August 2023
One person met with a road accident and lay motionless for ten years and expired subsequently. On death he was awarded enhanced compensation on which interest an amount @20% as TDS.
Three high courts have opined that the interest on compensation is part and parcel of the compensation itself and is not chargeable to income tax since both compensation as well as interest thereon are capital receipt.
I have a similar case where the first award was received the return was filed by the assessee and refund obtained. Now On the enhanced compensation, received later, condonation was applied for and received. Can the assessee demand refund on the analogy that the interest is of capital nature and demand the entire tax deducted on interest?
26 August 2023
Basically the objective of compensation is to ameliorate the sufferings of victims and their dependents. Compensation is a solace to the victims dependents for the sufferings caused to his family. Since capital receipts are not exigible to tax, the interest thereon is also not liable to be taxed. This view has been confirmed by the High Courts of Allahabad, Himachal Pradesh and Madras in recent years. I request your comments and advices on the subject, Please.
CAclubindia
