Law:

Section:

Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities - Whether insurance company is bound to deduct income-tax amount on interest, treating it as revenue, if amount paid during a financial year exceeds Rs. 50,000 - Held, yes FACTS The respondent No. 1 suffered permanent disability in a road accident. On claim petition, the Tribunal awarded compensation which was enhanced by the High Court on appeal. Since the petitioner-insurance company did not pay the ordered amount, the respondent filed execution petition. The petitioner, after de ducting the income-tax as per section 194A on the income derived by way of interest, being in excess of Rs. 50,000, deposited the balance accordingly. The trial court holding that the petitioner was not entitled to deduct income-tax at source, directed it to deposit the balance amount so deducted. On revision petition : HELD A plain reading of section 194A would indicate that the insurance company is bound to deduct the income-tax amount on interest, treating it as revenue, if the amount paid during the financial year exceeds Rs. 50,000. In the instant case, admittedly, when the compensation amount had been deposited during the financial year, including interest, the interest amount alone, exceeded Rs. 50,000 and, therefore, the insurance company had no other option, except to deduct the income-tax at source for the interest amount, exceeding Rs. 50,000, failing which, they might have to face the consequences, such as prosecution. In that view alone, when the execution petition was filed for the realisation of the award amount, deducting the income-tax at source for the interest since it exceeded Rs. 50,000, on the basis of the abovesaid provision, the balance alone had been deposited, for which, the Court could not find fault with. [Para 5] The trial court without considering the actual effect of the amendment to section 194A which came into effect from 01-06-2003 had erroneously directed the insurance company to deposit the entire amount including the deduction made statutorily. It was not the case of anybody that the amount was deducted by the insurance company and…

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