The state high court on Wednesday stated that the banks and other institutions "cannot deduct income tax from the amount of motor accident claims tribunals, deposited in the banks".
Division bench, comprising chief justice Mansoor Ahemad Mir and justice Tarlok Singh Chauhan, observed that the compensation "is awarded in lieu of death of a person or bodily injury suffered in a vehicular accident is damage and not income".
The high court took sou moto action, a note of registrar (judicial),that the bank authorities were making tax deductions on interest accrued on the term deposits-fixed deposits made by the registry in terms of the orders passed by the court in motor accident claims cases.
The matter was referred to the finance/purchase committee for examination. The committee convened its meeting on May 20, 2014 and was of a view that since the dispute involved was intricate and public interest was involved, therefore, it was recommended that the matter required consideration on judicial side. The recommendation of the committee was treated as Public Interest Litigation and suo motu proceedings were drawn.
The court issued notices to banks, who pleaded that initially they were not deducting the tax on the said deposits, but the objections were raised by the authorities concerned and therefore tax was deducted. The banks pleaded that tax was being deducted in compliance of circular of income tax department, dated October 14, 2011.
The court observed that this circular was not in tune with the mandate of Sections 2 (42) and 2 (31), read with Section 6 of the Income Tax Act, 1961. The court added that while going through the said provisions of the law, one comes to inescapable conclusion that the mandate of the said provisions does not apply to the accident claim cases and the compensation awarded under the Motor Vehicles Act cannot be said to be taxable income.
The compensation is awarded in lieu of death of a person or bodily injury suffered in a vehicular accident, which is damage and not income.The Motor Vehicles Act has undergone a sea change and the purpose of granting compensation under the Motor Vehicles Act is to ameliorate the sufferings of the victims so that they may be saved from social evils and starvation, and that the victims get some sort of help as early as possible.
The said circular is against the concept and provision, referred above and runs contrary to the mandate of granting compensation and is not applicable to the amount deposited motor accident claim cases.