The Calcutta High Court comprising Justice Moushumi Bhattacharya held that judgment-debtors cannot deduct TDS from payments made to decree-holders.

ISSUE RAISED

Whether the award-debtor, being the Union of India represented by the Chief Engineer, Metro Railway, can deduct 10% of the amount awarded to the award-holder and pay the balance amount to the award-holder?

BACKGROUND

The award-debtor’s application for setting aside of the award under section 34 of The Arbitration and Conciliation Act, 1996, was dismissed and the award-debtor’s appeal therefrom was also dismissed. 

The grievance of the award-holder is that instead of Rs. 3.88 crores which was recorded in the order dated 4th May, 2023, the award-holder received an amount of only Rs. 3.5 crores. The difference of about Rs. 38 lacs was a result of the award-debtor deducting TDS on the amount. It  was the express stand taken on behalf of the award-debtor.

The award-debtor/Metro Railway produced a Sanction Memorandum dated 19th April, 2023 which records that an amount was released by the respondent in favour of the petitioner. A Memo dated 5th March, 2008 of the Railway Board, Ministry of Railways, on the applicability of TDS provisions in respect of certain transactions/ payments made by the Railways. Item 18 of the document relates to “Arbitration Award” which provides for a corresponding deduction of 10% under section 194A of the Income Tax Act, 1961.

OBSERVATION

The court observed that the action of the award-debtor Metro Railway in deducting 10% from the awarded amount of Rs. 3.88 crores as TDS and paying the balance amount of Rs. 3.50 crores to the petitioner/award-holder is hence contrary to the settled position of law. The award-debtor’s reliance on the Notification dated 5th March, 2008 is also contrary to law and the award-debtor cannot seek recourse to the same for depriving the petitioner of the balance amount of approximately Rs. 38 lacs.

The court directed directing the award-debtor Union of India/Metro Railway to make payment of the balance amount to the award-holder within three weeks from date. 

Case Title: Neo Built Corporation Vs. Union of India

Citation: EC 272 of 2022