HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 442/2011 Sr. Divisional Manager,, National Insurance Co. Ltd. 61, Aerodrum Road, Alwar. Appellant Versus 1. Commissioner of Income Tax,, Alwar. 2. Additional CIT, Range-I,, Alwar. Respondents For Appellant(s) : Mr. P.K. Kasliwal For Respondent(s) : Mr. R.B. Mathur HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment Per Hon ble Jhaveri, J. 21/04/2017 1. By way of this appeal, appellant has challenged judgment and order of Tribunal whereby Tribunal has dismissed appeal of assessee confirming order of Assessing Officer. 2. This Court while admitting appeal on 21.02.2012 has framed following substantial question of law: Whether, on facts and in circumstances of case Tribunal was justified in holding penalty of Rs.140117/- u/s 217C of IT Act, 1961 against appellant and treated appellant as defaulter u/s. 194A/201(1) of Act, such conclusion is legally sustainable? (2 of 5) [ITA-442/2011] 3. Counsel for appellant has contended that issue is squared covered by decision of this Court in case of Sr. Divisional Manager, National Insurance Co. Ltd., 61, Aerodrum Road, Alwar vs. Commissioner of Income Tax, Alwar & Anr. in DB Income Tax Appeal No.517/2009, decided on 01.02.2017 and more particularly para 2 & 3 which reads as under: 2. Counsel for appellant has contended that issue is squarely covered by decision of this Court in DB Income Tax Appeal No.137/2003 in case of Divisional Manger, New India Assurance Company Ltd. vs. Dy. Commissioner of Income Tax (TDS), Income Tax Office, decided on 22.11.2016 and more particularly in para 3 to 6, this court has observed as under: 3. broad facts of case are that appellant is Divisional Manager of Assurance Company which is engaged in business of General Insurance (Non Life Insurance). During course of regular business of insurance company has to pay compensation claims to claimants as awarded by Motor Accidents Claims Tribunal which includes amount of claim and interest thereon from date of claim petition to date of award of such claim in terms of Section 171 of Motor Vehicles Act, 1988. CIT (A) in his order u/s 201(1) read with Section 194A observed that company has made payment of Rs. 35,79,826/- towards interest on compensation claims awarded by MACT to various claimants during year under consideration. He stated that company was liable to deduct tax at source u/s 194A on interest payment so made. 3.1 Counsel for appellant Mr.Jhanwar has relied upon decision of Allahabad High Court in Commissioner of Income Tax Vs. Oriental Insurance Co. Ltd., (2012) 211 Taxman 369 (Allahabad), more particularly para 43, 44 which reads as under: (3 of 5) [ITA-442/2011] 43. award under Motor Vehicle Act is like decree of court. It do not come within definition of income as mentioned in Section 194A(1) read with Section 2(28A) of Income Tax Act. Proceedings regarding claim under Motor Vehicle Act are in nature of garnishee proceedings under which MACT has right to attach judgment debt payable by insurance company. Even in MAC award, there is no direction of any court that before paying award, insurance company is required to deduct tax at source. In view of All India Reporter Ltd. Vs. Ramchandra D. Datar (supra), if no provision has been made in decree for deduction of tax, before paying that debt, insurance company cannot deduct tax at source from amount payable to legal heirs of deceased. 44. In Commissioner of Income Tax Vs. Chiranji Lal Multani Mal Rai Bahadur (P.) Ltd. (supra), Ghaziabad Development Authority Vs. Dr. N.K. Gupta (supra), Commissioner of Income-tax Vs. H.P. Housing Board (supra), Commissioner of Income-tax Vs. Sahib Chits (Delhi) (Pvt.) Ltd. (supra), it has been clearly held that if interest is awarded by court for loss suffered on account of deprivation of property or paid for breach of contract by means of damages or were not paid in respect of any debt incurred or money borrowed, shall not attract provisions of Section 2(28A) read with Section 194A(1) of Income Tax Act. 4. Another decision of Gujarat High Court in New India Assurance Co. Ltd. Vs. Bhoyabhai Haribhai Bharvad (2016) 72 Taxmann.com 335 (Gujarat) wherein it been held as under: 12. It would, therefore, be wholly incorrect to read current provision of sub section (3) of Section 194A to argue that cases of income credited by way of interest on compensation awarded by Claims Tribunal is no longer part of sub section (3) for exclusion from purview of sub section (1) of Section 194A. In other words, worded slightly differently. case of credit of interest on compensation awarded by Claims Tribunal continues to find place in exclusion clause contained in (4 of 5) [ITA-442/2011] sub section (3) of Section 194A. In fact, it would prima facie appear that ceiling of Rs. 50,000/- per annum for such exclusion is now done away with in case of crediting of interest on compensation awarded by Claims Tribunal while retaining such limit in cases of payment of interest on such compensation. However, we need not thresh out this last part of issue since admittedly, in present case, for none of years under consideration, interest income exceeded Rs. 50,000/-. In fact, this Court in case of Smt. Hansagauri Prafulchandra Ladhani and ors vs. Oriental Insurance Company Ltd (supra) provided for further splitting up of this ceiling of Rs. 50,000/- per claimant basis. Looked from any angle, insurance company was not justified in deducting tax at source while depositing compensation in favour of claimants. It therefore, cannot avoid liability of depositing such amount with Claims Tribunal. Claims Tribunal had committed no error in insisting on insurance company in making good shortfall. 5. Taking into consideration aforesaid, he contended that in view of fact that issue relates prior to amendment, issue is squarely covered by these two judgments. 6. However, Mr. Mathur appearing for Department contended that in view of Division Bench judgment of this Court reported in Kailash Narain Gupta Vs. Commissioner of Income Tax, (1997) 225 ITR 921 wherein it has been held that compensation is not income and he has also relied on decision of Single Bench of Karnataka High Court in Divisional Manager, New India Assurance Co. Ltd. Vs. Income- Tax Officer & Anr., (2005) 275 ITR 227. 3. In that view of matter, issue is answered in favour of assessee and against department. (5 of 5) [ITA-442/2011] 4. In that view of matter, issue is answered in favour of assessee and against department. 5. appeal stands allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/57 Sr. Divisional Manager, National Insurance Co. Ltd. v. Commissioner of Income-tax, Alwar / Additional CIT, Range-I, Alwar