GENERAL INSURERS BOUND TO DEDUCT TAX ON INTEREST ON COMPENSATION: HC

Chennai: General insurance companies engaged in motor vehicle insurance business are bound to deduct income-tax at source (TDS) on interest paid on compensation awarded by Motor Accidents Claims Tribunal in respect of claims under Section 194-A of Income-tax Act, the Madras High Court has ruled.

The stand taken by these companies was that interest was paid because of delayed payment and ordered by the Tribunals, and if TDS was applied, it was the beneficiaries who would be put to great loss, and in view of that, companies were not deducting tax so far. However, the only question now remaining was whether for the past period, their non-deduction was wrong and whether they were liable to pay the said amount.

The petitioner, National Insurance Co Ltd, a Government of India undertaking, contended that since Section 194-A had since been amended with effect from June 1, 2003, they were deducting TDS on interest payable on the compensation.

Referring to non-deduction of income-tax on compensation for the earlier period, the petitioner submitted that the Central Board of Direct Taxes, through a circular dated September 5, 2003 had clarified, inter alia, that no deduction of tax at source need be made in cases where the interest awarded on compensation did not exceed Rs 50,000.

Mr Justice K. Chandru, who heard the petition, said there was no escape from liability for deducting tax on interest on compensation.

The Income-tax Department had said that if the petitioner sent any representation in this matter, it would always be received and will be given due attention. Except recording the same, no relief could be granted in this writ petition, and the same was dismissed.

Source: The Hindu Business Line