Delhi HC asks CBDT to consider if interest on compensation by Motor Accident Claim Tribunal can be declared non-taxable

The Delhi High Court on Tuesday directed Central Board of Direct Taxation (CBDT) to consider if the interest accrued upon the compensation awarded by Motor Accident Claim Tribunal can be declared non-taxable.

A division bench of Justices S Muralidhar and IS Mehta was hearing a petition seeking to quash section 194 A (3) (ix) of Income Tax Act, 1961. The Section mandates deduction of tax upon the interest accrued upon the award/Compensation granted by Motor Accident Claim Tribunal (MACT).

The judicature has directed CBDT to consider the plea as a representation and decide it before June 30.

The petition filed by advocate Amit Sahni submitted that the Section is unconstitutional and in the direct conflict with the object and spirit of Motor Vehicle Act, 1988 which is a Social Welfare Legislation.

It was stated that when a receipt substitutes a source of income, it is a capital receipt which is generally not taxable as income. Such receipts are taxable as income only when they are specifically roped in into the definition of income.

Since receipts of compensation are not taxable under the Income Tax Act, interest under motor accident claims should not be made taxable, the petitioner argued.

Further stating that it takes years and sometimes decades for the compensation to finally reach the victim who is at no fault for the delay, the Respondent being a Welfare State, could not be allowed to enrich itself from the misfortune of its citizen or its Legal Representatives.

"..194 A (3) (ix) of Income Tax Act, 1961 requires to be struck down as the same in conflict with the social welfare legislation and Article 21 of the Constitution of India as Life does not mean as mere animal existence and since the victim cannot be restored to his position before the accident, the compensation and the interest, cannot be liable to tax, keeping in view the larger interest of society."

Apart from considering the present petition, the Court has asked CBDT to consider a previous representation dated December 14, 2018, as well.

The petition was filed through advocate Amit Sahni.