TDS : Ss. 194A, 201(1) and 201(1A) of I. T. Act 1961 : A. Y. 2000 – 01 : Assessee in default : Interest u/s. 201(1A) : Assessee, insurance co. failed to deduct tax at source on interest on compensation to the victims of motor vehicle accidents : Assessee

41. TDS : Ss. 194A, 201(1) and 201(1A) of I. T. Act 1961 : A.
Y. 2000 – 01 : Assessee in default : Interest u/s. 201(1A) : Assessee, insurance
co. failed to deduct tax at source on interest on compensation to the victims of
motor vehicle accidents : Assessee liable to TDS and interest : Revenue directed
to collect tax from recipient of interest and refund the amount of TDS to the
assessee.

[CIT vs. Oriental Insurance Co. Ltd., 223 CTR 102 (Kar.)]

Pursuant to the order made under the Motor Vehicles Act,
the respondent insurance company paid compensation to the victims of motor
vehicle accidents. The award amount consisted of the compensation and interest
liability. The Assessing Officer held that the respondent assessee has failed
to deduct tax at source u/s. 194A of the Income-tax Act, 1961 and directed the
assessee company to deposit the TDS amount and interest on the TDS amount. The
Tribunal permitted the assessee to split the interest liability for the
respective assessment years and set aside the order for payment of interest
u/s. 201(1A) of the Act.

On appeal by the Revenue, the Karnataka High Court held as
under :

“i) Levy of interest u/s. 201(1A) cannot at any rate be
construed as penalty. In that view, the contrary finding of the Tribunal is
set aside.

ii) The Tribunal has rightly directed that the interest
paid above Rs. 50,000 is to be split and spread over the period from the
date interest is directed to be paid till its payment. If the spread over is
given, in majority of cases, the respondent may not incur liability to pay
any TDS.

iii) In the event, the respondent remits TDS amount as
directed by the Tribunal, the Revenue is directed to hold suo moto
enquiry by issuing notices to the persons who have received compensation to
find out their tax liability on the interest received. If it is found that
there is a tax liability on the person concerned, the Revenue should collect
the tax from the person concerned and refund the amount to the respondent. So
also, if there is no tax liability on the person concerned, the TDS collected
should be refunded to the respondent, of course, with interest in either
case.”