FOLLOWING IS MY SUGGESTION TO THE GOVERNMENT TO SCRAP TDS ON INTEREST AWARDED BY MOTOR ACCIDENT CLAIM TRIBUNAL WITH REASON AND POSSIBLE SOLUTION
SUGGESTION TOPIC
Direct taxes - Income Tax Act, 1961
Suggestion relates to
Reduce/minimize
litigation
Section/Rule
194A
Issue (Brief description of issue with
provision of Act)
In various judgments, it has been well
established that compensation received on Motor Accident Claim is capital
receipts and hence does not even fall within the definition of “Income” under
Income Tax Act, and hence not taxable. Other reasons are, MACT compensation is
a compensation for agony, loss of mobility, physical damage and loss of
earnings suffered by the victim, granted by courts and not compensation granted
under statutory provision. In the case of interest, Interest on compensation is
also not taxable on the theory that when principal transaction (Compensation)
is outside the ambit of taxation, then similar fate must follow for the
subsidiary transaction (i.e. Interest on compensation).
The matter of MACT compensation coming to litigation is because of the following sections -
(1) Main reason - Section 194A(3)(ixa) requiring TDS to be deducted on interest on compensation awarded by MACT, where the aggregate amount of Income paid during the financial year exceeds Rs 50,000/-,
(2) Section 145A(b) requires that Interest received on compensation or enhanced compensation shall be accounted on receipt basis,
(3) Section 56(2) has listed in clause (viii), Income received on compensation or on enhanced compensation referred to in Section 145A(b) to be taxed under Income from other source,
(4) Section 57(iv) allows deduction of 50% of income referred to section 56(2)(viii).
Even though section 145A(b), 56(2)(viii) and
57(iv) says only about compensation generally, it is section 194A(3)(ixa) which
created biggest problem and confusion because, it specifically says about TDS
on Interest on Motor Accident Claim Tribunal. Even though provision of TDS and
taxable Income works separately under present system of Income Tax, simply by
Insertion of TDS on interest on MACT has given an impression that interest on
MACT itself is a taxable income which created confusion and consequent
litigations.
Suggestion
It is suggested to
(1) scrap TDS on interest awarded by Motor accident claim Tribunal and
(2) Insert a specific exemption under section 10 for amount received on Compensation, enhanced compensation and interest on compensation awarded by Motor Accident Claim Tribunal.
194A(3)(ixa) can be
deleted and in section 194A(3)(ix) , word “or paid” can be inserted between
“credited” and “by way of interest”.
There are separate exemptions available
under 10(10B) for compensation received by a workman under Industrial Dispute
Act, under 10(10BB) any payments received under the Bhopal Gas Leak Disaster
(Processing of Claims) Act, 10(10BC) compensation received from Government on
account of any disaster. Likewise, it is suggested to insert a new section
10(10BD) for MACT compensation, which can be drafted as follows
“any amount received or receivable by way of
compensation or enhanced compensation or interest on compensation awarded by
the Motor Accident Claim Tribunal”
It is also a humble suggestion that the word
to be used in 10(10BD), should be “any amount”, i.e. not just for compensation
for permanent disability. It should also be for temporary disablement.
Sufferings of temporary disabled claimants should also be considered.
Rationale (Justification for the suggestion)
1. There are various legal decisions which ruled that MACT compensation is ab-initio not an income. Actually when something is not at all an income and does not fall under the purview of Income Tax Act, 1961 for taxation, there is no need to give an exemption under section 10. Only those income which are otherwise taxable and as a relief measure, Government wants to not to tax it, exemption under 10 is to be provided. Even disaster compensation mentioned under section 10(10BC) is not an income ab-initio for giving an exemption. However insertion of such exemption is clarificatory in nature and stops any possible litigation, which is an unwanted wastage of time and which aggravate the sufferings of those who have already suffered the impact of catastrophe. Hence for MACT compensation, on similar line, an exemption should be provided.
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