The Madras High Court on Thursday referred to a larger bench the question of applicability of TDS under section 194A, Income Tax Act on interest on the compensation amount awarded by the Motor Accidents Claims Tribunal, atleast in so far as Tamil Nadu is concerned.
The Bench also acknowledged the 2019 replacement of Chapter XI of Motor Vehicles Act, 1988. The Court observed that under the new dispensation, Parliament has introduced changes for the benefit of accident victims to protect them during the “Golden Hour”, immediately after the accident and also to protect the interest of the victims in respect of “Hit and Run Accidents” or those involving uninsured vehicles. “If a meaningful corpus is available with the Income Tax Department, as unrefunded TDS, it could come for proper use under this new dispensation. This is a suggestion made for consideration by the Larger Bench of this Court”, it iterated.
Considering that the interest liability would be subject to Tax Deducted at Source (TDS) under Sec. 194 A, it was submitted on behalf of an insurer that they were facing a situation akin to facing between the devil and the deep sea. “The present factual and legal position in Tamil Nadu postulates that in cases where the Insurer satisfies the award and deducts TDS, they face the prospect of attachment by way of execution petitions. Per contra, if the Insurer does not apply TDS, they run the risk of facing penal consequences under Sec. 201 of Income Tax Act, 1961 as per which the Principal Officer of the insurance company could be subjected to a fine of Rupees One thousand per day for non-compliance, when last heard”, noted the Single Judge.
“This Court is duty bound to address the issue and not shy away from it, since this issue is not immune to the Pandemic. This Court may have to consider discovering a vaccine to solve the viral impact of this TDS issue”, stated the Bench, requiring the matter to be placed before the Chief Justice for reference to a division bench or a larger bench.
Scanning the entire nation, the Court found that there are different viewpoints expressed by different High Courts and no one uniform or consistent application of the law. It was also brought to the court’s notice that when the matter was escalated to the Supreme Court in 2014, the issue was not decided but kept alive upon dismissal of the challenge, on the ground that the stakes involved were too low.
“Where the Claimants produce the proof of PAN Card, TDS is applied at 10%. In the absence of such PAN Card, it shall be 20%. Not so insignificant amounts and when refunds are not made to the poor victims, the issue is exacerbated. Following these difficulties for the innocent motor accident victims, a few High Courts have ruled that Sec 194 A was not applicable in these claims. They appear to have done so after due notice and hearing the Income tax Department”, said the Single Bench.
Besides, the bench was informed that there is an apparent disagreement between two Single Judges of the Madras High Court on the issue in the 2005 decision in Mani and the 2016 decision in Chinnadurai.
“While so, this Court in MD, TNSTC Vs. Chinnadurai, dated 02-06-2016, reported in 2017 ACJ 505 ruled that TDS in Motor accident claims was inapplicable. It followed the example set by a few other High Courts such as Himachal Pradesh, and gave primacy to Motor Vehicles Act, 1988 as a social welfare legislation to Income Tax Act, 1961 as a Revenue legislation. By this verdict, it was held that the interest liability was also not exigible to TDS despite the amended Sec 194 A. It is pertinent to note that in Chinnadurai case this Court did not have the benefit of hearing the Income Tax Department, which has vital interest in the issue. More importantly, the earlier decision of this Court in New India Assurance Vs. Mani in CRP No. 2628/2003 dated 07-07-2004 appears to have been brought to the notice of this Court and the same is evident from Para 18 of the judgement. In spite of the same, the learned single judge chose not to follow the same and took an independent path by placing reliance upon the judgements of certain other high courts”, narrated the High Court on Thursday.
“The Income Tax Department was not heard in the later case. Sec 194 A was not struck down. It continues to be on the statute book. If so, the judgment debtors are facing either Execution Petitions or Penal consequences under Sec 201 of Income Tax Act, 1961. It is not a happy situation to confront”, it said, in making the reference.
Moreover, taking stock of the “unnecessary pendency of EPs and CRPs and difficulties faced by all the stakeholders”, the Single Bench was satisfied that it is a fit case to order a blanket stay of all Execution Petitions pending before all Motor Accident Claims Tribunals in Tamil Nadu in relation to and confined to the issue of Tax Deduction at Source vide section 194 A.
Besides, the Single Judge took note that TDS is in application in millions of motor accident cases since 01.06.2003 (Insertion by Finance Act, 2003 W.E.F. 01.06.2003 to Sec. 194 A of Income Tax Act, 1961). “Huge sums may have accumulated in the coffers of Income Tax Department. Not all victims may have sought and/ or obtained refunds. Many victims may belong to such strata of society that they may not be in a position to pursue the refund”, the Court reflected, deeming it fit to leave it to the larger bench to allude to this issue also, and examine the possibility of proper utilisation of the unrefunded amounts for the benefit of motor accident victims.
The bench added that in any case, the issue of unrefunded TDS lying to the credit of Income Tax Department rightly belonging to the innocent motor accident victims, may have to be addressed as a live issue.