Case BriefsHigh Courts

Madras High Court: In the instant case where the issue revolved around the applicability of TDS on interest in Motor Accident Claims; the Single Judge Bench of N. Anand Venkatesh, J., while observing that the issue has become complicated owing to the fact that there are conflicting decisions on the same, decided that the matter must be referred to a larger Bench for resolution and clarity, as all the stakeholders have serious interests requiring immediate attention.

As per the facts, the present appeal was filed against an award for Rs 10, 46,200 with interest at 9% p.a. from date of claim, in favour of the victim/ claimant who suffered grievous injury. The appellants drew the attention of the Court to their dilemma regarding the applicability of TDS under Section 194 A of the Income Tax Act, 1961. It was contended by the appellants that while satisfying the award, the interest liability would be subject to Tax Deducted at Source (TDS) under the aforementioned statutory provision. It was brought before the Court that the legal position in Tamil Nadu suggests that in cases where the insurer satisfies the award and deducts TDS, they face the prospect of attachment by way of execution petitions. On the other hand, if the insurer does not apply TDS, they run the risk of facing penalty under Section 201 of Income Tax Act, 1961. Therefore the appellants sought the guidance of the Court in getting them out of this “between the devil and the deep sea” situation and to make it clear as to which of the two courses they should embrace in this case.

The Court sought the assistance from R. Sankaranarayanan, V. Lakshminarayanan, M.B. Raghavan and N.P. Vijayakumar, all acting in the capacity of amicus curiae. The Court referred to it’s previous decision in New India Assurance v. Mani 270 (2004) ITR 394 Mad, where the order of attachment and direction to pay the TDS amount were set aside. Then in TNSTC v. Chinnadurai, 2016 SCC OnLine Mad 3494, ruled that TDS in Motor accident claims was inapplicable; however the Income Tax Department which had a vital interest in the issue was not heard in the case. The Court also took into consideration the decisions of other High Courts and pointed out that there was a lack of consistent application of the law. The Court noted the submissions made by the Income Tax Department counsel J.Narayanaswamy that there was no judgment of a larger bench on this tax issue and clarity is required with regard to the interpretation and applicability of Section 194 A, as it would help not only the claimants but also the respective insurance companies, other entities and also the Income Tax department for a consistent and uniform approach.

Observing the stakes involved and lack of uniformity in the application of Section 194 A, the Court was convinced that the matter needs to be resolved by a Larger Bench of this Court. The Court also put forth a suggestion for the Larger Bench to consider the changes introduced by the Parliament, in Chapter XI of the Motor Vehicles Act, 1988 for the benefit of the accident victims. Keeping in mind the peculiar circumstances of the case, the Court directed the insurance company to deposit the entire award sum without applying any TDS; and that all pending Execution Petitions in Tamil Nadu relating to issue of TDS under Section 194 A, irrespective of their stage, shall stand stayed to await orders from the larger bench on the issue.[Cholamandalam General Insurance Co. Ltd. v. M. Ashok Kumar, 2020 SCC OnLine Mad 1011, decided on 14-05-2020

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise & Service Tax Appellate Tribunal: This appeal was preferred before P. Dinesha, J., against the interest liability and penalty under Section 78 of the Finance Act, 1994.

Appellant was a registered service provider, providing ‘Manpower Recruitment/Supply Agency Services’. It was found while verification of Third Party Data that appellant’s total income did not tally with that declared in its balance sheet thus a show cause notice (SCN) was issued demanding service tax, interest under Section 75 of the Finance Act, 1994, along with penalty under Section 78 of the Act.  

After this, an order was passed confirming service tax demand, interest and penalty. Aggrieved by the demand an appeal was filed before the Commissioner of GST & CE who vide impugned order partly allowed and partly rejected the appellant’s claim. The assessee submitted that the Commissioner had deleted the tax liability on the reimbursements but the final tax liability was not decided after the exclusion of such reimbursement. Tribunal was of the view that authorities below had demanded an amount beyond the SCN without any explanation and according to the settled position of law such action was not sustainable thus the re-quantified interest liability over and above the interest demanded in the SCN was set aside.

Tribunal noted that appellant had proved its bonafides when it claimed that it had made payments right from investigation stage itself and thus, appellant had made out a case for exercising discretion under Section 80 of the Finance Act, 1994 and hence, Tribunal directed the deletion of penalty under Section 78 of the Finance Act, 1994. Therefore, the appeal was partly allowed and partly remanded. [Sasi Enterprises v. Commissioner (GST), Appeal No. ST/42721/2018, dated 28-02-2019]