SC Issues Key Rules On Income Calculation In Motor Accident Compensation Cases

In a significant verdict aimed at ensuring uniformity in motor accident compensation cases , the Supreme Court on Wednesday laid down detailed guidelines for determining the annual income of deceased victims and injured claimants based on Income Tax Returns (ITRs) .

A bench of Justices Sanjay Karol and N Kotiswar Singh held that while there can be no rigid formula under the Motor Vehicles Act for computing income, ITRs remain a crucial statutory document for assessing compensation claims.

The Court drew a clear distinction between salaried employees and self-employed persons , noting that inconsistent approaches by different courts had led to varying compensation awards across the country.

For salaried individuals , the apex court ruled that only the previous year’s ITR should ordinarily be used to determine annual income. It observed that salary revisions and promotions are typically reflected in the latest return, making it the most reliable reference point. However, the Court added that where a recent promotion or salary revision is not fully captured in the ITR , courts may also consider promotion letters and other corroborative financial documents .

For self-employed persons and business owners , the Court held that the average income reflected in ITRs of up to the last three years should generally be taken as the benchmark, given the fluctuating nature of business income . It further clarified that where only one or two returns are available, courts must assess surrounding circumstances , including the nature of business, growth pattern, and the impact of death or injury on the business.

The bench also warned against reliance on inflated income claims filed after accidents , stating that the timing of ITR filings and supporting financial statements must be carefully examined. At the same time, it noted that if adequately supported, such returns may still be considered.

The judgment was delivered while deciding an appeal filed by the family of a construction businessman , Rashmirekha Tripathy, against Sriram General Insurance Company Ltd. The Court found that the deceased had disclosed incomes of about ₹11.6 lakh and ₹15.06 lakh in the preceding assessment years.

While the Orissa High Court had fixed the annual income at ₹13.33 lakh , the Supreme Court revised it to ₹14 lakh , also taking into account the nature of the construction business. Consequently, the Court enhanced the total compensation to ₹1.97 crore , up from ₹1.87 crore , while maintaining 6% annual interest .