The Delhi High Court on Tuesday asked the Centre and the Central Board of Direct Taxes (CBDT) to take a call on a petition questioning deduction of tax on the interest received on compensation by a road accident victim.
A Bench of Justice S. Muralidhar and Justice I.S. Mehta asked the authorities to take as representation the petition that has sought quashing of a provision under the Income Tax law which mandates deduction of tax on the interest received on the compensation by a road accident victim.
The Bench asked the Ministry of Finance and the CBDT to pass a detailed order by June 30 on the representation.
The petition, filed by advocate Amit Sahni, stated that the receipts of compensation are non taxable under the Income Tax Act and, therefore, the interest under the motor accident claims should not be made taxable.
“But the insurance companies deduct TDS on the interest accrued upon the compensation awarded by the Motor Accident Claims Tribunal and apart from the same, when the compensation amount is directed by the superior courts to be deposited in banks, the banks also deduct TDS upon the interest,” advocate Sahni said.
Mr Sahni said the issue raised by him in the current petition would benefit victims of accidents across the country, who may not be in a position to approach courts due to lack or awareness.
He argued that the compensation awarded by order of Motor Accident Claims Tribunal cannot be subjected to TDS and the same cannot be insisted to be paid to the tax authorities since the compensation and the interest awarded does not fall under the term “income” as defined under Income Tax Act, 1961.
The compensation received under the Motor Vehicles Act, is either on account of loss of earning capacity on account of death or injury or on account of pain and suffering and such receipt is not by way of earning or profit, he said.