Madras HC: Can’t levy tax on accident claim amount
Accident compensation sum and the interest awarded to a victim cannot be treated as income as defined under the Income Tax Act, the Madras high court has said, adding, “social welfare legislation should prevail over taxation legislation.“
Justice M V Muralidaran, passing orders on a petition filed by Tamil Nadu State Transport Corporation (Salem), said: “The question is whether the provisions of Income Tax Act, 1961, and more specifically, whether the compensation awarded by Motor Accident Claims Tribunal (MACT) to the victim can be classified as taxable income under the income tax law? The answer to this question in the opinion of this court is in the negative.“
The matter relates to a revision petition filed by the STC against a tribunal order asking it to return the TDS amount deducted from the compensation package given to a road accident victim.
Chinnadurai was awarded `4.2 lakh as compensation but the transport corporation deducted more than `24,000 as tax. After the claimant raised objections, the lower court directed the transport corporation to deposit `30,774 in Chinnadurai’s account. Challenging it, the corporation filed the present petition. Justice Muralidaran dismissed the petition, and said, “Motor Vehicles Act is a legislation which has been passed with a benevolent intention for compensating accident victims who have suffered bodily disablement or loss of life. Income Tax Act which is primarily intended for tax collection by the state cannot put spokes in the effective and efficacious enforcement of the Act.“
Blaming the interpretation of authorities for the problem, the judge said, “This court arrives at the conclusion that the compensation awarded or the interest accruing therein from the compensation that has been awarded by MCAT cannot be subjected to TDS and the same cannot be insisted to be paid to the tax authorities since the compensation and the interest awarded therein do not fall under the term `income’ as defined under the Income Tax Act, 1961.“