The provision of deducting tax at source cannot govern the taxability of the amount which is being paid : Bombay High Court
The Bombay High Court in its recent ruling on the 8th of February, 2023 gave its judgment on the case of Balkrishna S/o Babanrao Mhaske Versus The National Insurance Company Ltd ( Writ Petition no .496 OF 2021). The law that was being challenged was Section 194A(1) of the Income Tax Act, 1961. The Court stated that it is not a charging provision when tax is deducted at source. It only deducts tax at source from payments of the same, which the payee considers to be income. This issue was considered by Honourable Justice Arun R. Pedneker.
FACTS OF THE CASE :
The Petitioner was contesting the TDS on the interest component of the compensation granted under the Motor Vehicles Act. According to the legal counsel of the respondent, the Insurance Company, Section 194A of the Income Tax Act of 1961 permits the deduction of TDS on the interest component, and as there is no provision for an exemption from TDS, and hence has to be done.
JUDGMENT :
The Court contended that the tax at source deduction provision is not a charging provision. It only makes source tax deductions on payments of the same, which are considered income in the payee’s eyes. The payer’s obligation to withhold tax at source cannot be fixed if the payee has no obligation to pay such revenue. In other words, the option of withholding tax at source cannot determine whether the money being paid is taxable.
The Insurance Company was ordered to pay 9% interest in addition to the TDS amount that was withheld from the claim amount’s interest component from the time it was deducted until the date of the High Court’s judgment.
The Insurance Company would be allowed to claim TDS on that portion of interest that accrues after the High Court Judgment since any interest on the claim amount after the date of the High Court Judgment must be taxed as income from other sources.
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JUDGEMENT REVIEWED BY SREYA MARY