Compensation of MACT shall not come under the ambit of ‘Income’, TDS cannot be deducted for Compensation; Madras HC [Read Judgment]

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In a landmark ruling, the Madras High Court held that TDS cannot be deducted from Compensations that has been awarded by Motor Accidents Claims Tribunal(MACT).

The Court was considering the question of Law Whether it would be appropriate to insist the victim who is awarded compensation to part with it or the interest that accrued on it towards the payment as Tax Deduction at Source (TDS) as under the Income Tax Act 1961?

The petitioner Tamil Nadu State Transport Corporation contended that as per Sections 194-A and 156 of the Income Tax Act, 1961, the interest portion awarded by the Motor Accident Claims Tribunal should be subject to TDS.

While dismissing the petition, the Court observed that this issue at hand is of larger public interest and has far-reaching implications. If the law has to be interpreted so technically and rigidly whereby which a family of an individual who could have possibly lost his life or limbs in an accident has to pay TDS on the interest that has accrued on the compensation amount, will the law be doing a service or disservice to the victims?

The Court rejected the contention said, “With all due respect, I find that the three decisions cited by the Petitioner do not deal with this issue at all”.

Justice M.V. Muralidharan observed that “Compensation cannot be categorized or even described as income as it has already been stated that the intention of the legislature in awarding compensation to the victims of Motor Accident cases is to restitute them and rehabilitate them.

“If there is a conflict between social welfare legislation and taxation legislation, then, this Court is of the view that social welfare legislation should prevail since it subserves larger public interest. The Motor Vehicle Act 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 put spokes in the effective and efficacious enforcement of the Motor Vehicles Act. In fact, if one might deeply analyze, it could be seen that there is no direct conflict between any provisions of the Income Tax Act and the Motor Vehicles Act and it is only by the interpretation of the provisions the concept of compulsory payment of TDS has crept into the realm of compensation payment in Motor Vehicle Accident cases”.

The Court also directed that the Petitioner Corporation cannot deduct any amount towards TDS and the same shall also be deposited in addition to the amount that has already been deposited.

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