TDS- Interest- Section 194A of I. T. Act, 1961- Motor Vehicles Act- Compensation to victims of motor accident- Tax not deductible from compensation or interest thereon-

Dealing with the scope of the provisions of TDS on compensation and interest thereon payable to victims of motor accidents, the Madras High Court held as under:

“i) If there is a conflict between a social welfare legislation and a taxation legislation legislation, then, the social welfare legislation should prevail since it subserves larger public interest. The Motor Vehicles Act, 1988 is one such legislation which has been passed with a benevolent intention for compensating the accident victims who have suffered bodily disablement or loss of life and the Income-tax Act which is primarily intended for tax collection by the state cannot spoke in the effective and efficacious enforcement of the Motor Vehicles Act.

ii) The Income-tax Department had issued a circular dated October 4, 2011 whereby deduction of incometax has been ordered on the award amount and the interest accrued on the deposits made under the order of the court in motor accident cases. Taking a serious view of this circular, the Division Bench of the Himachal Pradesh High Court took suomoto cognizance of the matter and considered it as public interest litigation in the Judgment reported in Court on its Motion vs. H. P. Co-operative Bank Ltd. 2014 SCC Online HP 4273 and quashed the circular.

iii) The compensation awarded by the Motor Accident Claims Tribunal or other interest accruing thereon cannot be subjected to deduction of tax at source and since the compensation and the interest awarded therein do not fall under the term “income” as defined under the Income-tax Act.”