HC allows property of insurance firm to be attached

The insurance company income tax payable on the amount of compensation when it paid the victim

The Bombay high court has upheld a warrant for the attachment of the property of New India Assurance Company Limited, which deducted TDS (tax deducted at source) from compensation awarded to an accident victim.

The court mandates that insurance companies or motor vehicle owners must deposit the income tax payable on the interest component of accident claims with the Motor Accident Claims Tribunal. (HT File Photo)

In October 2005, Worli resident Hussain Shaikh sustained severe injuries in an accident. He approached the Motor Accident Claims Tribunal (MACT), Mumbai seeking compensation. Acting on his plea, the tribunal paid him Rs3.43 lakh in July 2012. The insurance company, however, deducted Rs40,034 as income tax payable on the amount of compensation, and deposited a cheque of the balance amount with the tribunal.

Aggrieved, Shaikh filed a plea before the MACT seeking an attachment warrant against the company for failing to deposit the entire amount and for wrongly deducting TDS. On November 21, 2014, the tribunal issued an attachment warrant to the insurance company, stating that it did not adhere to guidelines laid down by the high court in 2011 regarding the deduction of TDS from compensation claims awarded to accident victims.

The company approached the high court challenging the attachment warrant. It contended that the 2011 guidelines were not applicable here, as the court issued those without considering the effect of three provisions of the Income Tax Act, 1961. It stated that it already deposited the TDS with the Income Tax department, which Shaikh could approach for a refund.

The high court, however, found no substance in the company’s contention and rejected its plea.

“The company’s act of deducting tax at source on the interest awarded by the MACT, without following the court’s 2011 mandate was wholly unjustified and illegal,” Justice GS Kulkarni said.

The 2011 judgment holds that TDS is deductible only if the interest amount attributable to a particular year exceeds Rs50,000. It also requires insurance companies or motor vehicle owners to deposit the income tax payable on the interest component of accident claims with the MACT.