Can Motor Accident Tribunal Deduct Income Tax From Awarded Compensation? Allahabad HC

In this case, the Claimant filed an Appeal before the Allahabad High Court challenging the Order of Motor Accident Claim Tribunal, so far as it, assumes and deducts the Income Tax from the compensation awarded to the legal heirs of the Deceased Victim

Issue before the Allahabad High Court:

Whether the Tribunal itself could have assumed and deducted income tax from the compensation awarded to the heirs of the deceased?

The Counsel for the Appellant relied on following Judgments and submitted that the practice of the deduction of TDS by Insurance Company has been deprecated and here the tribunal has itself deducted the amount, which is impermissible under law.

  1. Hansaguri Parafulchandra Ladhani and others Vs. The Oriental Insurance Company Ltd. and others, 2007 ACJ 1897, 
  2. New India Assurance Company Ltd Vs. Hussain Babulal Shaikh reported in 2017 (1) TAC 400 (Bom.)
  3. Smt. Balesh Kumari and others Vs. Sahbat Khan and another, First Appeal From Order No.2935 of 2005, dated 25.11.2020,(ALL)

It was further submitted that Education Cess also could not have been deducted. The appeal was opposed by the counsel for the Insurance company submitting that since the amount has accrued in the year 2019, i.e. immediately after filing of claim petition , therefore deduction by tribunal is justified.

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Can Motor Accident Tribunal Deduct Income Tax From Awarded Compensation?

Hon’ble Justice K.J. Thaker of Allahabad High Court observed that the Tribunal has not given any reason or provision of law which allows Tribunal to deduct tax from the compensation amount. Calculation of the income tax is not possible as income tax accrues every year.

It was further observed that Section 194A read with Sub-Section 3 (ix) of the Income Tax Act deals with guidelines for deduction of tax at source in payment of amount awarded, therefore such amount cannot be deducted as Income Tax. As in view of Section 194A)3) even the Insurance Company cannot deduct the tax.

Further the court observed that when in view of the Judgments cited at Bar the insurance company is not allowed to deduct tax then the Tribunal cannot have such power. Also the amount has to be distributed between the legal heirs and therefore a flat rate of tax cannot be imposed.

In view of the above the Court modified the Order of Tribunal so far as it provided for deduction of tax and directed the tribunal to prepare decree without deducting tax amount, also the Insurance company has been directed to not to deduct TDS amount.

Case Details:

Title: Smt.Rekha Mishra and Others vs Ram Kumar and Others

Case No.:FIRST APPEAL FROM ORDER No. – 598 of 2020

Coram: Hon’ble Justice K.J. Thaker 

Date of Judgment: 08.12.2020

Counsel for Appellant: Hanuman Prasad Dube,Vipul Dube

Counsel for Respondent: Radheyshyam,Pradeep Kumar Sinha

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