IT - TDS on interest on deposits ordered by courts in accident claims - High Court quashes CBDT Circular
SECTION 194A of Income Tax Act, 1961 stipulates deduction of tax at source (TDS) on interest other than interest on securities. Board had received references expressing difficulties in implementation of provisions of Section 194A of the Act in a situation where in the course of the proceedings before Supreme Court/ High Court/ any other court or tribunal, one or more than one litigant is directed by the court that a specified amount be deposited in the bank either directly or through the court in order to protect the interest of litigants.
CBDT in Circular No. 8/2011, dated 14.10.2011 clarified that Banks should deduct tax at source on the interest accruing on the above deposit(s).
In a suomotu PIL case, the Himachal Pradesh High Court day before yesterday quashed the CBDT Circular.
The High Court held that the Circular was not in tune with the mandate of Sections 2(42) and 2(31), read with Section 6 of the Income Tax Act, 1961. The said circular also is not in accordance with the mandate of Section 194A of the Act.
The Court held that accident claim cases and the compensation awarded under the Motor Vehicles Act cannot be said to be taxable income. The compensation is awarded in lieu of death of a person or bodily injury suffered in a vehicular accident, which is damage and not income.
We bring you this judgement today.