Section 4 – Income – Chargeable as (Compensation) – Compensation awarded under Motor Vehicles Act or Employees’ Compensation Act in lieu of death of a person or bodily injury suffered in a vehicular accident, is a damage and not an income and cannot be treated as taxable income

37. 
National Insurance Company Ltd. vs. Indra Devi; [2018] 100 taxmann.com
60 (HP): Date of order: 25^th October, 2018

Section 4 – Income – Chargeable as
(Compensation) – Compensation awarded under Motor Vehicles Act or Employees’
Compensation Act in lieu of death of a person or bodily injury suffered in a
vehicular accident, is a damage and not an income and cannot be treated as
taxable income

The respondent Nos.
1 and 2 had filed a claim petition being u/s. 3 of the Workmen Compensation Act
for compensation on account of death of ‘R’, who, while working as a
cleaner/conductor, died in an accident. The Commissioner allowed the petition
by awarding a sum of Rs. 3,94,135 along with 12 per cent interest. In pursuance
to the award, the petitioner-insurance company deposited a sum of Rs. 5,32,007,
in the Court of the Commissioner after deducting TDS on interest component
payable on the compensation amount, which was deducted by the
petitioner-insurance company in compliance of section 194A. The tax was
deposited with the respondent No. 3- ITO (TDS). In execution petition preferred
by the claimants/respondents for payment of balance amount of compensation, the
Commissioner, directed to attach movable property of petitioner-insurance
company herein for realisation of balance amount. The petitioner insurance
company filed a writ petition and challenged the said order. The Himachal
Pradesh High Court held as under:

“i)    Section 194A clearly provides
that any person, not being an individual or a Hindu Undivided Family,
responsible for paying to a ‘resident’ any income by way of interest, other
than income by way of interest on securities, shall deduct tax on such income
at the time of payment thereof in cash or by issue of cheque or by any other
mode. Compensation awarded under Motor Vehicles Act or Employees’ Compensation
Act in lieu of death of a person or bodily injury suffered in a vehicular
accident, is a damage and not an income and cannot be treated as taxable
income.

ii)    It is well settled that
interest awarded by the Motor Accident Claims Tribunal on a compensation is
also a part of compensation upon which tax is not chargeable.

iii)    Therefore, in view of abovesaid
decision, deduction of tax by petitioner/Insurance Company on the awarded
compensation and interest accrued thereon is illegal and is contrary to the law
of land.

iv)   In view of above discussion,
this petition is disposed of directing respondent No. 3 to refund the TDS to
the petitioner/Insurance Company.

v)    The amount deposited with the
department after deduction at source is Rs. 34,468, whereas the impugned order
of realization passed by the Commissioner is Rs. 66,900. Therefore, it is made
clear that for payment of balance amount claimed in the execution petition
filed by the respondents No. 1 and 2, the petitioner/Insurance Company has to
satisfy the Court of Commissioner and in case any amount beyond Rs. 34,468 is
found payable to the D.H./Claimants/respondents, the Commissioner/Executing
Court shall be entitled to pass any order in accordance with law for failure of
the petitioner company to satisfy the award.”