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.”