I-T dept committed error in levying tax on interest on compensation, says Bombay HC

“We hold that the interest awarded in the motor accident claim cases, from the date of the Claim Petition till the passing of the award, or in the case of Appeal, till the judgement of the High Court in such Appeal, would not be exigable to tax, not being an income,” said a division bench of Justice Akil Kureshi and S J Kathawalla.

In October 1978, Shah, then eight years old, was knocked down by a speeding vehicle while he was trying to cross the road, accompanied by his house help, at Nepeansea Road in South Mumbai. Shah’s suffered severe brain damage and remained in a coma for six months.

In March 1990, Shah was granted a compensation of Rs 4.12 lakh with interest at 6 per cent per annum, from the date of the Claim Petition till realisation by Motor Accident Claims Tribunal, in a petition filed through his father. Shah moved an appeal before the HC against the award of the Claim Tribunal and sought enhancement of the compensation. In November 2014, the Tribunal passed an award of Rs 39.92 lakh to be paid with interest at the rate of 9 per cent per annum.

In an Execution Petition filed by the petitioner, the insurance company deposited an amount of Rs 1.42 crore on the HC’s order, after deducting tax at source. According to the petitioner, no TDS should have been deducted. The insurance company, before depositing the amount, deducted a sum of Rs 11.80 lakh as tax at source at ten per cent on the interest component.