Rashmirekha Tripathy & Anr. Vs The Branch Manager (Legal Claims), Sriram General Insurance Company Limited & Ors. (Supreme Court of India)
Supreme Court Lays Down Uniform Principles for Computing Income from ITRs in Motor Accident Compensation Cases
In a significant judgment, the Supreme Court has settled the law on how Income Tax Returns (ITRs) should be considered while determining the income of a deceased or injured person for awarding compensation under the Motor Vehicles Act. The Court held that no rigid formula can be applied, and the approach must differ depending upon whether the person was salaried or self-employed.
For salaried individuals, the Court held that the ITR of the immediately preceding year would ordinarily be the correct basis for determining annual income, since promotions and salary revisions are best reflected in the latest return. Where the latest ITR is unavailable due to a recent promotion, the Tribunal may also rely on the promotion letter and other corroborative financial records.
For self-employed persons and business owners, the Court held that the average income disclosed in the ITRs of up to the preceding three years should normally be taken as the reference point. However, the Tribunal should not mechanically average the returns. It must also examine factors such as the nature of the business, growth trajectory, geographical location, future earning potential, initial losses in capital-intensive businesses, and other surrounding circumstances to arrive at just and fair compensation.
The Court further observed that ITRs filed after the death or injury deserve careful scrutiny, as there may be cases of inflated income declarations. Nevertheless, such returns cannot be discarded outright if they are supported by credible financial statements and other evidence.
Applying these principles, the Supreme Court modified the compensation awarded in three separate motor accident appeals by adopting a pragmatic assessment of the deceased’s business income instead of blindly relying on either the latest ITR or a mechanical average. The judgment reinforces that the objective under the Motor Vehicles Act is to award “just and fair compensation”, not to follow an inflexible mathematical.
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