New Delhi, July 1 (IANS) The Supreme Court on Wednesday laid down broad guidelines for determining the income of deceased victims in motor accident compensation cases, holding that while the latest Income Tax Return (ITR) should ordinarily be relied upon for salaried persons, the average of up to the previous three years’ ITRs should generally be considered for self-employed individuals, subject to the nature and circumstances of their business.
A bench of Justices Sanjay Karol and N.K. Singh said there can be no rigid formula for assessing annual income under the Motor Vehicles Act, observing that the overarching objective is to ensure “just and fair compensation” for victims and their families.
Delivering its judgment in a motor accident compensation case arising from Odisha, the apex court said ITRs remain an important statutory indicator of income, but courts must also take into account the realities of different professions and businesses while computing compensation.
The ruling came in an appeal filed by the family of Manoranjan Pandey, who died in a road accident in May 2018 while travelling from Berhampur to Bhubaneswar.
The Motor Accident Claims Tribunal (MACT) had assessed his annual income at Rs 15 lakh based on his latest ITR and awarded compensation of over Rs 2.27 crore.
The Orissa High Court later reduced the compensation after averaging the income reflected in two ITRs and applying a lower multiplier.
Examining the broader legal issue, the Supreme Court said there was no uniform judicial approach across the country regarding reliance on ITRs in motor accident claims and proceeded to lay down guiding principles.
“There can be no hard and fast formula for computing the annual income of a deceased person/claimant. ITRs being a statutory document are an important reference point when it comes to assessing one’s income, for the purposes of compensation under the Motor Vehicles Act,” the Justice Karol-led Bench said.
Drawing a distinction between salaried and self-employed individuals, the apex court held that, in the case of salaried employees, the ITR of the immediately preceding year would ordinarily be sufficient as promotions and salary revisions are more accurately reflected in the latest return.
“The reason for considering only the preceding year is that the financial impact of promotions is significant and may be reflected in the ITR for only that year,” the judgment said, adding that where a promoted employee had not yet filed the relevant ITR, courts may rely on promotion letters and other corroborative financial records.
However, for self-employed persons and business owners, the top court said fluctuations in income require a different approach.
“When it comes to self-employed individuals carrying out their own business, the average of the income specified in the ITRs of up to the previous three years is to be taken as a reference point for assessment of annual income from their business,” the bench ruled. It added that courts should also consider factors such as the nature of the business, its geographical location, growth trajectory, potential future expansion, initial losses in capital-intensive ventures and other relevant circumstances before arriving at a fair assessment.
The bench also cautioned against mechanically relying on ITRs filed after the death or injury of a claimant, observing that such returns may sometimes show inflated income.
“The date when the ITRs are filed would also become a relevant consideration, as there may be scenarios where inflated income is showcased after death/injury. In these circumstances, the surrounding factors of the business would become more relevant. However, if sufficiently supported by financial statements, such ITRs may also be taken into consideration,” it said.
Applying these principles to the facts of the case, the Supreme Court found that the Orissa High Court had erred in simply averaging two ITRs without considering the deceased’s construction business and its growth prospects. It fixed the deceased’s annual income at Rs 14 lakh and enhanced the compensation payable to the family to Rs 1,97,81,505, compared to Rs 1,87,75,150 awarded by the High Court.
In two separate non-reportable judgments delivered the same day, the apex court applied the newly laid down principles to enhance compensation in other motor accident cases, reiterating that income assessment must account for the nature of employment and business rather than following a mechanical formula. The Justice Karol-led Bench reiterated that compensation under the Motor Vehicles Act is intended to restore, as far as possible, the financial position of the dependants of a deceased victim.
Quoting from an earlier judgment, the top court observed that while “no amount of money can truly compensate for the loss” of a loved one, the law requires courts to ensure that compensation remains “fair and reasonable, without being either arbitrary or niggardly”.
–IANS
pds/vd