Plea to scrap TDS on compensation to accident victims

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A petition was filed in the Delhi High Court on Monday seeking quashing of a provision which mandates deduction of tax on the interest accrued upon the award or compensation granted by Motor Accident Claim Tribunal (MACT) to the accident victims.

The plea was filed by advocate Amit Sahni, who has sought quashing of Section 194A(3)(ix) of the Income Tax Act, 1961 (as amended up-to-date), which mandates to deduct tax upon the interest accrued upon the award and compensation granted by the MACT.

He has sought to declare the provision as unconstitutional as, according to him, it is in the direct conflict with the object and spirit of the Social Welfare Legislation, Motor Vehicles Act, 1988.

"Hold that no authority can deduct TDS upon the interest accrued upon the award/ compensation awarded by Motor Accident Claim Tribunal (MACT) under Section 194A(3)(ix) of Income Tax Act, 1961 and pass necessary directions to the respondents in this regard," the plea said.

The Central Board of Direct Taxes (CBDT) is the body responsible for imposition of tax in the country, the petitioner said.

He has sought direction to the insurance companies as well as banks not to effect tax deduction at source (TDS) upon such interest on compensation amount.

The plea is likely to come up for hearing on Tuesday.

"Normally, interest received by a person is treated as income. However, in cases of motor accident compensation, the interest is awarded because the claims are awarded with some delay, which may be due to: late filing of the compensation claim, investigation adjudication of claim and various other factors, or because such claims are challenged before superior courts," the plea read.

"Therefore, the interest awarded in a motor accident claim is really an enhancement of the claim to compensate for delays in awarding and finalising the claim it is, thus, a part and parcel of the claim unlike in the case of a land acquisition compensation where there are specific provisions under the Land Acquisition Act for payment of interest on delayed payment of compensation. The character of the interest in motor accident cases is therefore the same as the compensation, that is, a personal receipt to alleviate the suffering of the victims."

--IANS

ak/nir