Delhi HC asks CBDT to consider if interest on compensation by Motor Accident Claim Tribunal can be non-taxable

The Delhi High Court today directed Central Board of Direct Taxation (CBDT) to consider if the interest accrued upon the compensation awarded by the Motor Accident Claim Tribunal (MACT) can be declared non-taxable.

. A Division Bench of Justices S Muralidhar and IS Mehta was hearing a petition seeking to quash Section 194 A (3) (ix) of Income Tax Act, 1961 . The Section mandates deduction of tax on the interest accrued upon the award/compensation granted by the MACT.

. The Court has directed CBDT to consider the plea as a representation and decide it before June 30.

. The petition filed by advocate Amit Sahni states that the Section is unconstitutional and in direct conflict with the object and spirit of Motor Vehicles Act, 1988, which is a social welfare legislation.

. It was stated that when a receipt substitutes a source of income, it is a capital receipt which is generally not taxable as income. Such receipts are taxable as income only when they are specifically brought under the definition of “income”.

. Since receipts of compensation are not taxable under the Income Tax Act, interest under motor accident claims should not be made taxable, the petition argues.

. Further stating that it takes years and sometimes decades for the compensation to finally reach the victim who is at no fault for the delay, the Union of India being a welfare state, cannot be allowed to enrich itself from the misfortune of its citizens.

. “..194 A (3) (ix) of Income Tax Act, 1961 requires to be struck down as the same in in conflict with the social welfare legislation and Article 21 of the Constitution of India as Life does not mean as mere animal existence and since the victim cannot be restored to his position before accident, the compensation and the interest, cannot be liable to tax, keeping in view the larger interest of society.”

. Apart from considering the present petition, the Court has asked CBDT to consider a previous representation dated December 14, 2018 as well.

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Delhi HC asks CBDT to consider if interest on compensation by Motor Accident Claim Tribunal can be non-taxable

Aditi Singh

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