Use of reliief u/s 89(1) in mact case
This query is : Resolved
03 July 2012
Will u Pls tell me whether the interest received for late payment on accident Compensation of MACT claim is taxable or not?
I m aware that the compensation is exempt in the hands of legal heirs but pls tell me the taxation effect of Interest recd. on the same in the hands of legal heirs of deceased.
the client wants refund of TDS deducted on the said interst. and Interest has been received from 1.4.2000 to 1.12.2011...
can I claim with section 89(1) tax relief for interest income from mact claim..
Thank you
I m aware that the compensation is exempt in the hands of legal heirs but pls tell me the taxation effect of Interest recd. on the same in the hands of legal heirs of deceased.
the client wants refund of TDS deducted on the said interst. and Interest has been received from 1.4.2000 to 1.12.2011...
can I claim with section 89(1) tax relief for interest income from mact claim..
Thank you
04 July 2012
Please refer the below provisions -
Relief under section 89(1) can not be claimed for interest arrears.
Interest received on compensation is taxable in the year of receipt irrespective of accounting method followed by the assessee.
(5) Interest received on compensation /enhanced compensation deemed to be income in the year of receipt and taxable under the head “Income from Other
Sources” [Sections 56(2)(viii)]
(i) As per section 145(1), income chargeable under the head “Profits and gains of business or profession” or “Income from other sources”, shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(ii) Further, the Hon’ble Supreme Court has, in Rama Bai v. CIT (1990) 181 ITR 400,
held that arrears of interest computed on delayed or on enhanced compensation shall be taxable on accrual basis. The tax payers are facing genuine difficulty on
account of this ruling, since the interest would have accrued over a number of years,
and consequently the income of all the years would undergo a change.
(iii) Therefore, to remove this difficulty, clause (b) has been inserted in section 145A to provide that the interest received by an assessee on compensation or on enhanced compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting followed by the assessee.
(iv) Clause (viii) has been inserted in section 56(2) to provide that income by way of interest received on compensation or on enhanced compensation referred to in
clause (b) of section 145A shall be assessed as “Income from other sources” in the year in which it is received.
Relief under section 89(1) can not be claimed for interest arrears.
Interest received on compensation is taxable in the year of receipt irrespective of accounting method followed by the assessee.
(5) Interest received on compensation /enhanced compensation deemed to be income in the year of receipt and taxable under the head “Income from Other
Sources” [Sections 56(2)(viii)]
(i) As per section 145(1), income chargeable under the head “Profits and gains of business or profession” or “Income from other sources”, shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(ii) Further, the Hon’ble Supreme Court has, in Rama Bai v. CIT (1990) 181 ITR 400,
held that arrears of interest computed on delayed or on enhanced compensation shall be taxable on accrual basis. The tax payers are facing genuine difficulty on
account of this ruling, since the interest would have accrued over a number of years,
and consequently the income of all the years would undergo a change.
(iii) Therefore, to remove this difficulty, clause (b) has been inserted in section 145A to provide that the interest received by an assessee on compensation or on enhanced compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting followed by the assessee.
(iv) Clause (viii) has been inserted in section 56(2) to provide that income by way of interest received on compensation or on enhanced compensation referred to in
clause (b) of section 145A shall be assessed as “Income from other sources” in the year in which it is received.
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10 September 2012
pl.refer the case laws as steted below & pl.reply me.Can I apply its as supporting evidence in my case?
Income Tax Appellate Tribunal – Delhi
Oriental Insurance Company Ltd. vs Income Tax Officer on 27 September, 2004
Equivalent citations: (2005) 96 TTJ Delhi 589
Bench: P Parikh, B Saini
ORDER
Bhavnesh Saini, J.M.
1. The assessee was specifically required to explain why short charge on account of non-deduction of tax on payment of interest may not be charged, since the assessee has failed to comply with the provisions of Section 194A. It was also required from the assessee to explain as to why interest under Section 201(1A) may not be charged on the amount chargeable as TDS from the assessee.
The assessee filed reply dt. 27th Aug., 2001, wherein it was briefly submitted :"The assessee is insurance company and carrying on the business of general insurance and pays compensation as per awards given by Motor Accident Claim Tribunal (MACT). These awards are being paid on death or injury occurred due to motor accident. Such compensation is to be made to the legal heirs or dependent in case of the death or to the injured person as the case may be."
It was also explained that as such the assessee is not paying interest as envisaged under Section 194A of the IT Act. It was also submitted that the claim under MACT includes the amount of compensation, interest awarded under Section 171 of the Motor Vehicle Act. The interest as mentioned above is not income as it is to be paid in the form of enhanced compensation, and is outside the purview of the Section 194A of the IT Act. It was also explained that the interest paid in MACT claim was neither a money borrowed nor a debt and accordingly the insurance company was not liable to deduct tax at source as per provisions of Section 194A of the IT Act.
2. Hon'ble Supreme Court in the case of Bikram Singh & Ors. (supra) is not applicable as it deals (with) different propositions under the Land Acquisition Act. The learned counsel for the assessee submitted that the provisions of Section 2(28A) and Section 194A of the IT Act are not applicable. The learned counsel for the assessee further submitted that the compensation is not income in the hands of the claimant/recipients.
Section 194A of the IT Act provides :
"194A. Any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee, or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force."
The remaining section is not reproduced as may not be relevant. Section 2(28A) of the IT Act provides the definition of interest which is as under :
2(28A) "interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised."
In the case of All India Reporter v. Ramchandra D. Datar , the Hon'ble Supreme Court held as follows ;
In this case, the Hon'ble Supreme Court also observed that the amount payable by. the appellant-company to the respondent was not salary but a judgment debt and before paying that debt, the appellant-company could not claim to deduct the tax at source payable by the respondent. Nor could the appellant-company seek to justify its plea on the ground that the judgment creditor was indebted to a third person.
These decisions are squarely applicable to the case of the assessee.
it is clear from the above discussion that what the assessee-company has paid to the claimants through the MACT may be known as compensation or interest but The assessee-company has in fact paid the decretal amount through the Court.We have already held that the provisions of Section 2(28A) of the IT Act are not applicable to the facts of the case.
Therefore, the assessee was not under any legal obligation to deduct TDS on the amounts of decree paid to the claimants, which is known as interest on the compensation. The point of taxabilities of compensation decreed by MACT is not agitated by both parties, therefore, we do not propose to decide the same issue as it is not relevant to deduction of tax at source. We accordingly set aside the orders of the authorities below and allow the appeals of the assessee.
18. As aresult, all the appeals of the assessee are allowed.
Income Tax Appellate Tribunal – Jaipur
Sharda Pareek, Jaipur vs Assessee on 2 February, 2012/1/ITA 325-11
IN THE INCOME TAX APPELLATE TRIBUNAL / JAIPUR BENCH 'A' JAIPUR
BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA / ITA NO. 325 / JP/2011
Asstt. Year : 2006-07.
Smt. Sharda Pareek, vs. The ACIT, Circle-6, 27, Indira Nagar, Tonk Road, Jaipur. Jaipur.
(Appellant) (Respondent) / Appellant by : Shri Rajeev Sogani / Respondent by :
Shri Vinod Johari / Date of hearing : 19.01.2012/Date of pronouncement : 02.02.2012
ORDER
Date of Order : 02/02/2012./PER R.K. GUPTA, J.M.
This is an appeal by assessee against the order of ld. CIT (A) relating to assessment year 2006-07.
1985 A.C.J. 645 (646) Chameli Wati & another versus Delhi Municipal Corporation & others
Interest awarded under the Motor Vehicles Act, 1988 is discretionary and is granted by way of compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. In this way it is part and parcel of the compensation.
The Delhi Tribunal in the case of Oriental Insurance Company Limited reported in 143 Taxman (ITAT) page 12 held that such payment of interest as ordered by Motor Accident Claims Tribunal (MACT) is not interest within the meaning of section2(28A) of the I.T. Act.
The counsel of the appellant has argued that Interest awarded under the Motor Vehicles Act, 1988 is granted by way of compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. Thus the interest being part & parcel of compensation is not taxable. I have duly considered this contention of the appellant.
4. Interest not income - disputed - not liable to tax
5.1. In similar circumstances, the Punjab & Haryana High Court has held that such discretionary interest is not in the nature of income. We refer to the following decisions: -
(i) CIT v/s. B. Rai (2003) 264 ITR 617 (P&H)
(ii) CIT v/s. Chiranjit Jawa (2004) 270 ITR 173 (P&H)
(iii) Oriental insurance company ltd. Vs. Income tax officer ITAT, Delhi 'D' bench(2005) 96 TTJ (Del) 589
“the claimants have received the decretal amount from the assessee-company through the Court of law (MACT). The claimants and the assessee-company as such have no connection whatsoever with regard to interest payable on moneys borrowed or debt incurred. The claimants filed claims for compensation in the Court of law for death and bodily injuries suffered by them out of use of motor vehicle. Therefore, what the claimants received was not the interest as defined in s. 2(28A) of the IT Act. The claimants have received the compensation and interest thereon being the decree passed by the Court. Therefore, as far as the assesses- company is concerned, it has paid decretal amount to the claimants through the Court though it may be given the name of compensation or interest thereon. Therefore, considering the above discussion, s.2 (28A) of the IT Act is not applicable in the present case.”
5.2. Grant of Interest is discretionary hence not liable to tax. Interest on compensation amount relating to motor accident is granted by way of compensation hence the same should not be taxed.
The Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (1997) 227 ITR 172 held as under:-
“It is also well - settled that interest income is always of a revenue nature unless it is received by way of damages or compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. In this way it is part and parcel of the compensation.”
It is, therefore most humbly and respectfully prayed that the impugned interest not being income and not having accrued and arisen but disputed is not liable to be taxed at this stage. Relief may please be granted by allowing the appeal.However, the Hon'ble Supreme Court in various cases has held that the interest is granted by way of compensation only. This was held in case of Tejinder Singh Gujral, 1 SCC 508 (2007). Similarly in case of Abati Bezbaruah vs. Dy.Director General, GSI, 3 SCC 148 has held that interest is compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money which ought to have been paid to him. In case of Dharampal & Others vs.U.P. State Road Transport Corporation, (2008) ACJ 2041 (SC) the Hon'ble Supreme Court has held that interest is compensation for forbearance or detention of money which ought to have been paid to the claimant.
Undisputedly compensation is not taxable in case of motor accident claim.
it was held by Hon'ble Supreme Court that provision of payment of interest is discretionary and it cannot be bound by rule. In para 10 it was held that interest is compensation for forbearance or detention of money, which ought to have been paid to the claimant.
11. In the result, appeal of the assessee is allowed.
12. The order is pronounced in the open court on 02.02.2012.
Sd/- Sd/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Jaipur,
Dear sir
As per my opinion after study of both case I think, "The Grant of Interest is discretionary hence not liable to tax. Interest on compensation amount relating to motor accident is granted by way of compensation hence the same should not be taxed."
Income Tax Appellate Tribunal – Delhi
Oriental Insurance Company Ltd. vs Income Tax Officer on 27 September, 2004
Equivalent citations: (2005) 96 TTJ Delhi 589
Bench: P Parikh, B Saini
ORDER
Bhavnesh Saini, J.M.
1. The assessee was specifically required to explain why short charge on account of non-deduction of tax on payment of interest may not be charged, since the assessee has failed to comply with the provisions of Section 194A. It was also required from the assessee to explain as to why interest under Section 201(1A) may not be charged on the amount chargeable as TDS from the assessee.
The assessee filed reply dt. 27th Aug., 2001, wherein it was briefly submitted :"The assessee is insurance company and carrying on the business of general insurance and pays compensation as per awards given by Motor Accident Claim Tribunal (MACT). These awards are being paid on death or injury occurred due to motor accident. Such compensation is to be made to the legal heirs or dependent in case of the death or to the injured person as the case may be."
It was also explained that as such the assessee is not paying interest as envisaged under Section 194A of the IT Act. It was also submitted that the claim under MACT includes the amount of compensation, interest awarded under Section 171 of the Motor Vehicle Act. The interest as mentioned above is not income as it is to be paid in the form of enhanced compensation, and is outside the purview of the Section 194A of the IT Act. It was also explained that the interest paid in MACT claim was neither a money borrowed nor a debt and accordingly the insurance company was not liable to deduct tax at source as per provisions of Section 194A of the IT Act.
2. Hon'ble Supreme Court in the case of Bikram Singh & Ors. (supra) is not applicable as it deals (with) different propositions under the Land Acquisition Act. The learned counsel for the assessee submitted that the provisions of Section 2(28A) and Section 194A of the IT Act are not applicable. The learned counsel for the assessee further submitted that the compensation is not income in the hands of the claimant/recipients.
Section 194A of the IT Act provides :
"194A. Any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee, or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force."
The remaining section is not reproduced as may not be relevant. Section 2(28A) of the IT Act provides the definition of interest which is as under :
2(28A) "interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised."
In the case of All India Reporter v. Ramchandra D. Datar , the Hon'ble Supreme Court held as follows ;
In this case, the Hon'ble Supreme Court also observed that the amount payable by. the appellant-company to the respondent was not salary but a judgment debt and before paying that debt, the appellant-company could not claim to deduct the tax at source payable by the respondent. Nor could the appellant-company seek to justify its plea on the ground that the judgment creditor was indebted to a third person.
These decisions are squarely applicable to the case of the assessee.
it is clear from the above discussion that what the assessee-company has paid to the claimants through the MACT may be known as compensation or interest but The assessee-company has in fact paid the decretal amount through the Court.We have already held that the provisions of Section 2(28A) of the IT Act are not applicable to the facts of the case.
Therefore, the assessee was not under any legal obligation to deduct TDS on the amounts of decree paid to the claimants, which is known as interest on the compensation. The point of taxabilities of compensation decreed by MACT is not agitated by both parties, therefore, we do not propose to decide the same issue as it is not relevant to deduction of tax at source. We accordingly set aside the orders of the authorities below and allow the appeals of the assessee.
18. As aresult, all the appeals of the assessee are allowed.
Income Tax Appellate Tribunal – Jaipur
Sharda Pareek, Jaipur vs Assessee on 2 February, 2012/1/ITA 325-11
IN THE INCOME TAX APPELLATE TRIBUNAL / JAIPUR BENCH 'A' JAIPUR
BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA / ITA NO. 325 / JP/2011
Asstt. Year : 2006-07.
Smt. Sharda Pareek, vs. The ACIT, Circle-6, 27, Indira Nagar, Tonk Road, Jaipur. Jaipur.
(Appellant) (Respondent) / Appellant by : Shri Rajeev Sogani / Respondent by :
Shri Vinod Johari / Date of hearing : 19.01.2012/Date of pronouncement : 02.02.2012
ORDER
Date of Order : 02/02/2012./PER R.K. GUPTA, J.M.
This is an appeal by assessee against the order of ld. CIT (A) relating to assessment year 2006-07.
1985 A.C.J. 645 (646) Chameli Wati & another versus Delhi Municipal Corporation & others
Interest awarded under the Motor Vehicles Act, 1988 is discretionary and is granted by way of compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. In this way it is part and parcel of the compensation.
The Delhi Tribunal in the case of Oriental Insurance Company Limited reported in 143 Taxman (ITAT) page 12 held that such payment of interest as ordered by Motor Accident Claims Tribunal (MACT) is not interest within the meaning of section2(28A) of the I.T. Act.
The counsel of the appellant has argued that Interest awarded under the Motor Vehicles Act, 1988 is granted by way of compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. Thus the interest being part & parcel of compensation is not taxable. I have duly considered this contention of the appellant.
4. Interest not income - disputed - not liable to tax
5.1. In similar circumstances, the Punjab & Haryana High Court has held that such discretionary interest is not in the nature of income. We refer to the following decisions: -
(i) CIT v/s. B. Rai (2003) 264 ITR 617 (P&H)
(ii) CIT v/s. Chiranjit Jawa (2004) 270 ITR 173 (P&H)
(iii) Oriental insurance company ltd. Vs. Income tax officer ITAT, Delhi 'D' bench(2005) 96 TTJ (Del) 589
“the claimants have received the decretal amount from the assessee-company through the Court of law (MACT). The claimants and the assessee-company as such have no connection whatsoever with regard to interest payable on moneys borrowed or debt incurred. The claimants filed claims for compensation in the Court of law for death and bodily injuries suffered by them out of use of motor vehicle. Therefore, what the claimants received was not the interest as defined in s. 2(28A) of the IT Act. The claimants have received the compensation and interest thereon being the decree passed by the Court. Therefore, as far as the assesses- company is concerned, it has paid decretal amount to the claimants through the Court though it may be given the name of compensation or interest thereon. Therefore, considering the above discussion, s.2 (28A) of the IT Act is not applicable in the present case.”
5.2. Grant of Interest is discretionary hence not liable to tax. Interest on compensation amount relating to motor accident is granted by way of compensation hence the same should not be taxed.
The Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (1997) 227 ITR 172 held as under:-
“It is also well - settled that interest income is always of a revenue nature unless it is received by way of damages or compensation. It is a compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money, which ought to have been paid to him. In this way it is part and parcel of the compensation.”
It is, therefore most humbly and respectfully prayed that the impugned interest not being income and not having accrued and arisen but disputed is not liable to be taxed at this stage. Relief may please be granted by allowing the appeal.However, the Hon'ble Supreme Court in various cases has held that the interest is granted by way of compensation only. This was held in case of Tejinder Singh Gujral, 1 SCC 508 (2007). Similarly in case of Abati Bezbaruah vs. Dy.Director General, GSI, 3 SCC 148 has held that interest is compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money which ought to have been paid to him. In case of Dharampal & Others vs.U.P. State Road Transport Corporation, (2008) ACJ 2041 (SC) the Hon'ble Supreme Court has held that interest is compensation for forbearance or detention of money which ought to have been paid to the claimant.
Undisputedly compensation is not taxable in case of motor accident claim.
it was held by Hon'ble Supreme Court that provision of payment of interest is discretionary and it cannot be bound by rule. In para 10 it was held that interest is compensation for forbearance or detention of money, which ought to have been paid to the claimant.
11. In the result, appeal of the assessee is allowed.
12. The order is pronounced in the open court on 02.02.2012.
Sd/- Sd/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Jaipur,
Dear sir
As per my opinion after study of both case I think, "The Grant of Interest is discretionary hence not liable to tax. Interest on compensation amount relating to motor accident is granted by way of compensation hence the same should not be taxed."
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