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Compensation from non employer

jain j (none) (99 Points)

18 November 2017

Hello, so my query is related to Compensation received by a person from non- employer.

Facts -

Mr X was ill and he took a pill(medicine)

Few days later he died and death was diagnosed as death due to that medicine.

Now the pharma company is willing to help and pay a sum of 25 lakhs to the family members of deceased Mr X.

Is this ammount Taxable?

Yes/no -Which section?

Also what would be the taxability in hands of pharma company? Do they need to deduct TDS? If yes, which section?

Things to note-

Mr X was not employee of pharma company.

Pharma company was a non govt entity.

Thanks in advance.

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2 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (161816 Points)
Replied 19 November 2017

Section 10 (10BC ) of the IT Act 1962 which provides that any compensation received or receivable from the Central Government or a State Government or a local authority by an individual or his legal heir by way of compensation on account of any disaster, except the amount received or receivable to the extent such individual or his legal heir has been allowed a deduction under this Act on account of any loss or damage caused by such disaster.

Explanation.--For the purposes of this clause, the expression "disaster" shall have the meaning assigned to it under clause (d) of section 2 of the Disaster Management Act, 2005(53 of 2005);]

The disaster management Act defines a disaster as– “catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man made causes or by accident or negligence which results in substantial loss of life of human sufferings or damage to , and destruction of property, or degradation of, environment and is of such nature or magnitude as to beyond the coping capacity of the community of the affected area”.

Many High Courts have held that the compensation awarded by the Motor Accident Claims Tribunal (MACT) to accident victims cannot be subjected Income Tax since the compensation and the interest awarded therein does not fall under the term ‘income’...

Even though section 10 (10BC) not applicable in this particular case, but the explaination to it and the cases related to compensations awarded to MACT accidents imply that the loss to such victim is not taxable , as the receipt is of capital nature and not income.