The Manager, National Insurance Company Ltd. v Subhash N Chandrabose, M.K. Seena, A.S. Lakshmisree and The Manager, Popular Vehicles & Service Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.M.JOSEPH & THE HONOURABLE MR. JUSTICE A.HARIPRASAD** **MONDAY, THE 8TH DAY OF JULY 2013/17TH ASHADHA, 1935** **MFA.No. 93 of 2010 ( ) -----------------------** **AGAINST THE ORDER/JUDGMENT IN WCC 9/2006 of W.C.C.,ERNAKULAM DATED 20-01-2010.** ## **APPELLANT(S):** **------------** **THE MANAGER, NATIONAL INSURANCE COMPANY LTD., DIVISIONAL OFFICE, AJAY VIHAR, M.G.ROAD, ERNAKULAM, REPRESENTED BY ITS MANAGER, REGIONAL OFFICE M.G.ROAD, ERNAKULAM.** **BY ADV. SRI.LAL GEORGE.** **RESPONDENT(S):** - **--------------** **1. SUBHASH.N.CHANDRABOSE, S/O.T.K.NEELAKANTAN, ARACKAPARAMBIL HOUSE, MANAKAD P.O., THODUPUZHA.** **2. M.K.SEENA, W/O.SUBHASH, ARACKAPARAMBIL HOUSE, MANAKAD P.O., THODUPUZHA.** **3. A.S.LAKSHMISREE, D/O.SUBHASH, ARACKAPARAMBIL HOUSE, MANAKAD P.O., THODUPUZHA.** **4. THE MANAGER, POPULAR VEHICLES & SERVICE LTD., KUTTUKARAN CENTRE PALARIVATTOM, ERNAKULAM.** **R1 & R2 BY ADVS. SRI.P.GOPAKUMARAN NAIR** **SRI.C.S.DIAS** **SRI.K.JOSE KURIAKOSE SRI.N.K.SUBRAMANIAN R5 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX.** **THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 08-07-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **amk** ## **K.M.JOSEPH & A.HARIPRASAD, JJ.** ## **------------------------------------------------** ## **M.F.A (WCC) No.93 of 2010** **------------------------------------------------Dated this the 8[th] day of July, 2013.** ## **J U D G M E N T** ## **K.M.Joseph, J.** The appellant is the second opposite party in a proceedings under Section 22 of the Workmen's Compensation Act, 1923 renamed as Employee's Compensation Act, 1923 (hereinafter referred to as 'the Act'). 2. Two substantial questions of law are projected before us :- - “(A) Considering the facts and circumstances of the case, whether the Court below is justified in directing the appellant to pay interest at the rate of 12% per annum from the date of the accident. - (B) Considering the facts and circumstances of the case, the Court below ought to have found that the compensation becomes due only when the adjudication of the claim is made. The expression “falls due”, signifies that it is due only when the adjudication is made, i.e., the date of passing of order.” 3. As far as the substantial questions of law are concerned, there can be no dispute that the matter is to be answered against the appellant going by the judgment of the apex court reported in _**Oriental**_ _**Insurance Co. Ltd. v. Siby George (2012(3) K.L.T 544 (S.C)),**_ we do so and therefore the appeal is only to be dismissed. **M.F.A (WCC) No.93 OF 2010 2** 4. However a question apparently was raised relating to the liability of the appellant to deduct tax on the interest portion ordered by the Commissioner under the Income Tax Act. 5. We heard the learned counsel for the appellant and the Standing counsel for the Income Tax Department. 6. Section 194A (1) of the Income Tax Act, inter alia reads as follows :- **194A (1)** Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.” ## 7. Under 194A (3) shall not apply clause ix. “(ix) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees;” 8. Therefore, going by sub-section (1) of 194A when interest is paid by any person, who is not an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, he is ## **M.F.A (WCC) No.93 OF 2010 3** liable to deduct income tax at the rates in force. The word 'interest' is defined under Section 2(28A) as :- “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred including a deposit, claim or other similar right or obligation and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised; We need not be detained by Section 2(28B) as it relates to interest on securities which is not relevant for our purpose. 9. As far as the interest paid or credited by way of interest on compensation awarded by Motor Accidents Claims Tribunal where the amount of such income does not exceed fifty thousand rupees is concerned, by the provisions of Section 194A(3)(ix), with effect from 01-06-2003 tax need not be deducted. In fact, in Section 194A(3)(ix), there is reference to the word 'income' in the context of interest. Learned Standing counsel would submit that actually interest generally would fall under the category of income from other sources. 10. Learned counsel for the appellant brings to our notice further the decision of the apex court reported in _**Bikram Singh and**_ _**others v. Land Acquisition Collector and Others (1997 (Volume 224)**_ _**I.T.R 551)**_ . There in, question arose as to whether the interest is **M.F.A (WCC) No.93 OF 2010 4** received on delayed payment of compensation under the Land Acquisition Act is exigible to income tax. The court made reference to 2(28A) and the court inter alia held as follows :- “But the question is : whether the interest on delayed payment on the acquisition of the immovable property under the Acquisition Act would not be exigible to income tax ? It is seen that this court has consistently taken the view that it is a revenue receipt. The amended definition of “interest” was not intended to exclude the revenue receipt of interest on delayed payment of compensation from taxability. Once it is construed to be a revenue receipt, necessarily, unless there is an exemption under the appropriate provisions of the Act, the revenue receipt is exigible to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest.” Therefore interest is to be treated as revenue receipt and income for the purpose of Section 194A and tax is to be deducted if the other ingredients are satisfied. 11. Learned counsel for the claimant however brings to our notice of the judgment of a Division Bench of this court reported in _**New India Assurance Co. Ltd. v. Biju (2011(2) K.L.T 142)**_ . There the questions which apparently arose was whether the employer or insurer is bound to deposit interest portion of amount payable under impugned order, as a condition pre-requisite to maintain an appeal under Section 30 of the Act. Whether the amount payable under the ## **M.F.A (WCC) No.93 OF 2010 5** order appealed against will include not only the principal amount of compensation but interest as well. Therein, the court inter alia held as ## follows :- - “29. As has been noticed already, Clause (aa) of sub-s. (1) of S.30 deals with appeals against orders awarding interest or penalty under S.4A of the Act. In other words the legislature has put the order relating to interest or penalty under S.4-A in a separate category of its own. S.30 does not provide for pre-deposit in the case of an appeal under Clause (aa), whereas in an appeal under Clause (a), the statute provides that the appellant will have to deposit “ the amount payable under the order appealed against” as a condition precedent. In short, appeals contemplated under Clause (a) and Clause (aa) are treated differently under S.30 of the Act. The amount payable under the order appealed against, in our view, will include interest also. 30. Interest is an integral and inseparable part of compensation. Therefore, the express language used in the third proviso leaves no room for any doubt that “the amount payable under the order” will include interest also. _**Mr.L.R.Ferro Alloys Ltd. v. Mahavir Mahto & Anr. ((2002)9 SCC 450)**_ , the Apex Court has reiterated the earlier view taken in _**Ved Prakash Garg v.Premi Devi & Ors. ((1997) 8 SCC 1)**_ the interest and penalty are two distinct liabilities arising under the Act. Liability to pay interest is part and parcel of legal liability to pay compensation upon default of payment within one month.” Learned counsel for the claimant would emphasize the findings of the Division Bench that interest is an integral and inseparable part of compensation. 12. No doubt it is the judgment pronounced by a Division ## **M.F.A (WCC) No.93 OF 2010 6** Bench of this court. We also told that the matter was referred to Full court. We may incidentally notice that Section 4A of the Act reads as ## follows :- ## - **4A. Compensation to be paid when due and penalty for default.** - (1) Compensation under section 4 shall be paid as soon as it falls due. - (2) xxxxxx - (3) Where any employer is in default in paying the compensation due under this Act within one month from the date it fell due, the Commissioner shall - - (a) direct that the employer shall, in addition to the amount of the arrears, pay simple interest thereon at the rate of twelve per cent. per annum or at such higher rate not exceeding the maximum of the lending rates of any scheduled bank as may be specified by the Central Government, by notification in the Official Gazette, on the amount due; and - (b) if, in his opinion, there is no justification for the delay, direct that the employer shall, in addition to the amount of the arrears and interest thereon, pay a further sum not exceeding fifty per cen. of such amount by way of penalty : Provided that an order for the payment of penalty shall not be passed under clause (b) without giving a reasonable opportunity to the employer to show cause why it should not be passed. _Explanation_ .- For the purposes of this subsection, “scheduled bank” means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) [(3A) The interest and the penalty payable under sub-section (3) shall be paid to the employee or his dependant, as the case may be.] **M.F.A (WCC) No.93 OF 2010 7** 13. Interest becomes payable, only if there is default on the part of the employer in paying the compensation due under the Act within one month from the date when it fell due. The case of penalty is even more different as it becomes payable only if the Commissioner finds that there was no justification for the delay in paying compensation. But for the purpose of this case as we are concerned with question as to whether interest ordered by the Commissioner under Section 4A is income, we cannot ignore the judgment of the Apex court. We are of the view that the interest would be revenue receipt and therefore income. There is no exception provided in respect of interest on compensation payable under the Act. The only exception of the nature is seen provided under clause (ix) of subsection (3) which we have already alluded to. Therefore, whatever may have been held by this court in the context of the question as to the pre-requisite to maintain an appeal under Section 30, we would think that as far as the liability to deduct tax in so far as the interest is concerned it to be treated as revenue receipt and the appellant was liable to deduct tax on the interest. ## **M.F.A (WCC) No.93 OF 2010 8** In such circumstances, the upshot of the above discussion is as ## follows :- The appeal is meritless and it is dismissed. The appellant was justified in deducting tax on the interest portion under Section 194A of the Income Tax Act. The appellant will not be liable to pay that amount from out of the amount ordered by the Commissioner to the claimant under the award. Sd/- **K.M.JOSEPH, JUDGE.** **Sd/-** **A.HARIPRASAD, JUDGE.** amk //True Copy// P.A to Judge