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Income tax law

Is compensation received for deficiency of service and mental agony is taxable? if so what % of TDS

 1 Replies

aditi srivastava   27 March 2021

respected sir

The Supreme Court of India scored out mental agony as a ground for claiming compensation in certain cases. 

The court was dealing with an appeal against the rulings of the National Consumer Commission, the Monopolies & Restrictive Trade Practices Commission and the Allahabad high court. Several persons had applied for plots or built-up apartments from the government housing authority. But having lost their patience after waiting for long, they moved these legal forums which found the authority negligent and passed various orders against it.

Some asked for their payments to be returned with 18 % interest. The MRTP awarded Rs 50,000 to one of the applicants for suffering mental agony. Burdened with these adverse judgments, the authority appealed to the Supreme Court (Ghaziabad Development Authority vs Union of India).

The authority has succeeded on two points. Firstly, mental agony is not a count on which compensation can be demanded. Secondly, the interest should not be too high or low; 12 % should be the norm in such cases.

The Supreme Court has not long ago awarded compensation for "mental harassment" in a similar case (Lucknow Development Authority vs M K Gupta, 1994). The National Consumer Commission had awarded Rs 10,000 for mental harassment arising from a public authority not delivering a house it had promised. On appeal, the apex court upheld the award because it found that there was "malafide" on the part of the officials of the authority. Therefore, the order was against the individual officers who were responsible for the harassment.


After the Ghaziabad Authority judgment, the onus on the person who claims damages for harassment is steep. He has to prove mala fide ( like demand for underhand payments to the officials) before the consumer forum, MRTP or the high court. The housing development authorities can now get away with refund of the amount paid with 12% interest after years of inaction or arbitrary behaviour. Even the penal interest is paid from the public fund.

hope you find this helpful


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