|Question And Answer|
|Subject:||Accident compensation whether taxable?|
|Answered by:||Advocate Rahul Hakani|
|Tags:||Interest, Motor Accident Compensation, taxability of compensation|
|Date:||May 17, 2021|
My client met with an accident in R.T. Nagar, Bangalore about 2 years back whose leg has been amputated in Columbia Hospital, Hebbal, Bangalore. The Court has awarded compensation of about Rs.12 lakhs which is still in the Court and the Court has not released the amount till date (17-5-2021).
2. I request you to please let me know:-
a) Whether the compensation receivable from the Court has to be offered to tax for the Assessment Year 2021-22,
b) Whether the compensation amount is taxable or exempt from tax. T.D.S. has been made by the BMTC Department.
email ID: email@example.com
Both compensation and interest awarded thereon is a capital receipt not exigible to tax under the Income Tax act, 1961.
In Rupesh Rashmikant Shah. v. UOI (2019) 417 ITR 169/ 182 DTR 203 / 310 CTR 826 / 266 Taxman 474 (Bom.)(HC), the Court held that interest on compensation awarded up to date of order of Tribunal or Court is held to be not taxable. Provision of deduction at source is not charging section. Similar view is also held in National Insurance Company Ltd. v. Indra Devi (2018) 259 Taxman 579 (HP)(HC), National Insurance Co. Ltd. v. Lakhwinder Kaur (2016) 236 Taxman 558 (P& H)(HC), In Court on its own motion v. H.P. State Co-operative Bank Ltd. (2015) 228 Taxman 151 / 117 DTR 231 / 276 CTR 264 (HP)(HC) the Court held that Compensation awarded under Motor Vehicles Act is in lieu of death of a person or bodily injury suffered in a vehicular accident and it could not be taxed as income-Circular of Board to deduct tax at source was quashed. However in Sharda Pareek (Smt.) v. ACIT (2019) 416 ITR 441/104 taxmmann.com 76 / 262 Taxman 253 (Raj.)(HC) the court held that interest on compensation awarded by Motor Accident Claims Tribunal is taxable on year wise accrual basis. SLP is granted to the assessee, ( 2019 ) 412 ITR 31 (st) /262 Taxman 252 (SC)
Dr. K.Shivaram , Senior Advocate