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Synopsis

Justice Arvind Sangwan of Punjab and Haryana High Court has held that the insurance company will have to pay the amount of tax deducted at source (TDS) to claimants in motor accident cases, if the interest on compensation was paid prior to June 1, 2015  ie. when the Income Tax Act was amended.

It has further been held that the insurance company, upon paying the TDS, may seek refund from the income tax authorities by filing a revised income tax return.

The above was held in a bunch of petitions filed by insurance firms, wherein the question of law involved was whether directions can be issued to judgment debtor-insurance company to deduct TDS on the amount of interest paid on the compensation under the Income Tax Act, 1961, read with Motor Vehicles Act, 1988. The question arose out of the different orders passed by the Motor Accident Claims Tribunal.

Court has held that in case of interest on the compensation, which exceeds Rs.50,000 and is actually paid after June 1, 2015, as per claimant per financial year, the insurance firm will pay on securing ‘Form 15-G’ of Rule 29-C of the Income Tax Act/Rules. However, the insurance company is relieved of its obligation of TDS payment when the claimant has furnished a declaration in Form 15-G for each financial year.

Justice Sangwan has further held that  the insurance firm, while depositing interest exceeding Rs 50, 000 per claimant per year will have to file a “calculation” before the Motor Accident Claims Tribunal (MACT) as to how much TDS is deducted.

Court has said that initially, the insurance firm will have to apply to the MACT for obtaining “declaration ‘Form 15-G’” from the claimants at the time of making payment with interest. This is in order to get relief of responsibility or obligation towards the income tax department. Subsequently, the MACT will have to release the payment in favour of claimants after the requisite form is signed.

Case title: New India Assurance Vs Ravinder Kumar