The Delhi High Court on Friday sought response of the Central Board of Direct Taxes (CBDT) on a plea seeking quashing of the provision mandating tax deduction on the interest received on compensation by a road accident victim.
A Bench of Justice S. Muralidhar and Justice Talwant Singh asked the authorities to give their replies to the plea and listed the case for further hearing on November 6.
The plea filed by advocate and social activist Amit Sahni sought setting aside of the CBDT’s June 26 order by which it was held that the income tax levied upon the interest accrued upon compensation granted by the Motor Accident Claims Tribunal (MACT) is fair and reasonable.
Mr. Sahni said 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. “The insurance companies deduct TDS on the interest accrued upon the compensation awarded by MACT 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,” the plea said. Mr. Sahni said the issue raised by him in the present petition would benefit victims of accidents across the country, who may not be in a position to approach courts due to lack of awareness.
He argued that the compensation awarded by order of MACT 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 the 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.