Should the Airport Authority of India deduct tax at source on money it pays as compensation for an accident on its premises? Ruling in Geeta Jethani v Airport Authority of India, the National Consumer Disputes Redressal Commission (NCDRC) in New Delhi held that the Airports Authority of India (AAI) should not have deducted tax at source from an amount it paid out as compensation as the payment was for damages. It held that “an information to the Income Tax Authority would suffice”.
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In August 2004, the NCDRC had directed the AAI to pay compensation for the accidental death of a child, Jyotsna Jethani, at an airport that it managed. However, while paying the compensation the AAI had deducted tax at source.
Directing the AAI to pay to the child’s mother the sum it had deducted, the NCDRC relied on a 1995 ruling by the Income Tax Appellate Tribunal in Delhi Development Authority v ITO that held compensation paid to a customer for deficiency in service was by way of damages. Payments made as damages could not be equated with income and so are not liable for deduction of tax at source under section 194A of the Income Tax Act, 1961.
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