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No Tax Deduction from Motor Accident Compensation : Bombay HC
Rupesh, now aged 48 , suffered an accident causing grave injuries on 18th of October, 1978, when he 8 years old. The incident occured, when he along with a household servant were trying to cross Nepenesa road in South Mumbai. He severe suffered brain damage and is till date bedridden. He has a stunted mental growth and is in need of constant supervision.
The claim petition filed by his father, initially quoted Rs 1 lakh as compensation. Subsequently it was revised to Rs 15 lakhs and finally to Rs 50 lakhs. The Court disposed off the suit 12 years from the date of filing of the petition i. e. on March 30th, 1990. The motor vehicle tribunal held the car driver to be negligent and hence liable. An award of Rs 412000 at an interest rate of 6% per anum as compensation passed in favour of the aggreived party (representing the victim).
An appeal before the High Court declared the total compensartion to be awarded as Rs. 39.92 Lakhs. The insurance company put forth an appeal before the Apex Court which was however dismissed. Subsequently, on filing of an execution petition by the petitioner, the insurer depostied an amount of Rs. 1.42 crore as interest (for a period of 36 years). However, a certain amount from the total was deducted as TDS.
On consideration of the above, the Bombay High Court Bench of Justice Akil Kureshi and SJ Kathawalla finally held:
"In order to ascertain the taxability of interest on compensation or enhanced compensation in Motor Accident claim cases, we, therefore would have to ascertain the true nature of interest. Even the assessing officer has proceeded on the basis that the compensation by itself is not taxable. As noted earlier, income of the deceased or the injured for earmarking compensation is ascertained after detecting income tax.
Interest is awarded keeping in mind the rate of inflation. Effort thus is to award just compensation. Awarding interest for delayed computation of compensation is therefore integral part of this exercise."
" We, therefore, hold that the interest awarded in the motor accident claim cases from the date of the claim petition in the passing of the award or in case of appeal, till the judgement of the high court in such appeal, would not be eligible to tax, not being an income."
