P&H High Court Recalculates Motor Accident Compensation Based on Average Income after Tax

Rekha Gupta and others Vs TATA AIG General Insurance Company and others (Punjab and Haryana High Court)

The Punjab and Haryana High Court disposed of two appeals arising from a common award passed by the Motor Accident Claims Tribunal, Patiala, concerning compensation for the death of Raj Kumar in a motor vehicle accident that occurred on 15.01.2021 near Jakhal Road, Patran. The deceased sustained fatal injuries when the offending vehicle, driven rashly and negligently by respondent No.2, struck his motorcycle. An FIR was registered against the driver. The widow and children of the deceased filed a claim petition under Section 166 of the Motor Vehicles Act seeking compensation of ₹70 lakh, asserting that the deceased was engaged in agriculture, brick kiln business, and cloth business, earning approximately ₹1 lakh per month. The Tribunal awarded compensation of ₹50,82,600/- with interest.

The claimants sought enhancement of compensation, while the insurance company challenged the award on the ground that the deceased’s income tax liability had not been deducted while calculating compensation. The findings regarding rash and negligent driving and the insurer’s liability were not disputed before the High Court, restricting the controversy to the quantum of compensation.

To establish income, the claimants relied upon Income Tax Returns for Assessment Years 2020-21 and 2021-22. The first return had been filed during the deceased’s lifetime, while the second was filed after his death. The High Court observed that the second return could not be discarded merely because it was filed posthumously since it had been accepted by the Income Tax Department and its genuineness was not disputed. However, the Court accepted the claimants’ contention that the income shown in the return for Assessment Year 2021-22 covered earnings only up to the date of the accident and therefore could not be treated as annual income.

The Court held that the appropriate method was to consider both income tax returns together and determine the average income. The cumulative income for the relevant period was found to be ₹13,55,634/-, while the total tax liability paid amounted to ₹1,39,949/-. After deducting tax liability, the net income was calculated at ₹12,15,685/-, resulting in an average monthly income of ₹56,550/- and annual income of ₹6,78,600/-. The High Court agreed with the insurance company that actual income tax liability had to be deducted while determining the multiplicand.

Considering that the deceased was aged between 56 and 57 years, the Court added 10% towards future prospects in terms of the judgment in National Insurance Company Limited v. Pranay Sethi. Since the deceased left behind four dependents, one-fourth deduction towards personal expenses was applied in accordance with Sarla Verma v. Delhi Transport Corporation. The annual loss of dependency was assessed at ₹5,59,845/- and, applying multiplier 9, the total loss of dependency was calculated at ₹50,38,605/-.

The High Court affirmed the Tribunal’s award of ₹16,500/- each towards funeral expenses and loss of estate, and ₹44,000/- each towards consortium to the widow and children. The Court also awarded ₹1,51,873/- towards medical expenses incurred before death and an additional ₹17,000/- towards transportation expenses because the deceased had been shifted between hospitals during treatment.

The total compensation was recalculated at ₹54,60,500/-. Since the Tribunal had already awarded ₹50,82,600/-, the claimants were held entitled to enhanced compensation of ₹3,78,000/- with interest at 7.5% per annum from the date of filing of the claim petition till realization. Both appeals were partly allowed. The insurance company’s appeal succeeded only to the extent of deduction of income tax liability while reassessing income, while the claimants’ appeal was allowed for enhancement of compensation.

FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT

Both the appeals arise out of the common award dated 24.03.2023 passed by the learned Motor Accident Claims Tribunal, Patiala, in a petition filed under Section 166 of the Motor Vehicles Act on account of death of Raj Kumar in a motor vehicular accident.

2. Briefly stated, Raj Kumar suffered fatal injuries in a motor vehicular accident, which occurred on 15.01.2021 near Raji Radio, Jakhal Road, Patran, when the offending vehicle bearing registration No.PB-72A-5940, being driven by respondent No.2 in a rash and negligent manner, struck the motorcycle being driven by the deceased. The injured was initially shifted to various hospitals and ultimately succumbed to the injuries during treatment. FIR regarding the occurrence was registered against respondent No.2 at Police Station Patran.

3. The claim petition was filed by the widow and children of the deceased claiming compensation to the tune of ₹70,00,000/- on the plea that the deceased was engaged in agriculture, brick kiln business and cloth business and was earning approximately ₹1,00,000/- per month.

4. The driver and owner of the offending vehicle failed to contest the proceedings and were proceeded against ex parte. The insurance company alone contested the claim petition.

5. Upon appreciation of the evidence led by the parties, the learned Tribunal held that the accident occurred due to rash and negligent driving of the offending vehicle and awarded compensation of ₹50,82,600/- along with interest to the claimants.

6. Aggrieved against the aforesaid award, both sides have preferred the present appeals. The claimants seek enhancement of compensation, whereas the insurance company seeks reduction thereof primarily on the ground that the income tax liability of the deceased has not been deducted while computing the compensation.

7. I have heard learned counsel for the parties and have gone through the record carefully.

8. At the outset, it deserves notice that the findings recorded by the learned Tribunal regarding rash and negligent driving of the offending vehicle have attained finality, as the same have not been assailed before this Court. Similarly, the liability of the insurer to indemnify the insured also remains undisputed. Consequently, the controversy in the present appeals is confined only to the quantum of compensation payable to the claimants.

9. In order to establish the income of the deceased, the claimants relied upon Income Tax Returns Ex.C10 and Ex.C11 pertaining to Assessment Years 2020-21 and 2021-22 respectively. Ex.C10 had admittedly been filed by the deceased during his lifetime, whereas Ex.C11 came to be filed after his death.

10. A perusal of the aforesaid returns reveals that for the Assessment Year 2020-21, the total income of the deceased was ₹7,23,984/- and the tax liability discharged thereupon was ₹95,722/-. Likewise, for Assessment Year 2021-22, the income reflected was ₹6,31,650/- and the corresponding tax liability was ₹44,227/-. Though Ex.C11 was filed after the death of Raj Kumar, the same cannot be discarded merely for that reason once it stood accepted by the Income Tax Department and its genuineness was never disputed before the Tribunal.

11. However, this Court finds merit in the contention raised on behalf of the claimants that the return for Assessment Year 2021-22 represented the earnings of the deceased only upto the date of accident i.e. 15.01.2021 and thus covered a period of approximately 934 Therefore, the Tribunal was not justified in treating the said income as the annual income of the deceased.

12. In the considered opinion of this Court, the proper course would be to take into account both the income tax returns and assess the average income of the deceased. The cumulative income reflected in the two returns for a period of 2134 months comes to ₹13,55,634/-. The total tax liability paid thereupon amounts to ₹1,39,949/-. Thus, after deduction of tax liability, the net income of the deceased for the said period comes to ₹12,15,685/-, thereby making the average monthly income of the deceased ₹56,543/-, which can safely be rounded off to ₹56,550/- per month. Consequently, the annual income of the deceased is assessed at (56550 x 12) = ₹6,78,600/-.

13. This Court also finds merit in the submission advanced on behalf of the insurance company that the actual income tax liability of the deceased was liable to be deducted while determining the multiplicand. The said principle is now well settled and accordingly the net income has been assessed after deduction of the tax component.

14. Since the deceased was aged between 56 to 57 years, addition of 10% towards future prospects is liable to be made in view of the Constitution Bench judgment of the Hon’ble Supreme Court in National Insurance Company Limited v. Pranay Sethi 2017(4) RCR (Civil) 1009.

15. Thus, the annual income after adding future prospects comes to 678600 + 10% × 6,78,600 = 7,46,460

16. Since the deceased left behind four dependents, deduction of 1/4th towards personal and living expenses is liable to be made in terms of the judgment of the Hon’ble Supreme Court in Sarla Verma and others v. Delhi Transport Corporation, (2009) 6 Supreme Court Cases 121.

17. Accordingly, after making ¹/₄deduction, the annual loss of dependency comes to ₹5,59,845/-.

18. Keeping in view the age of the deceased, multiplier of 9 has rightly been applied. Consequently, the total loss of dependency works out to ₹50,38,605/-.

19. The learned Tribunal has rightly awarded ₹16,500/- each towards funeral expenses and loss of estate. Similarly, compensation of ₹44,000/- each awarded towards consortium to the widow and children deserves affirmation in light of the law laid down by the Hon’ble Supreme Court in Magma General Insurance Co. Ltd. v. Nanu Ram, AIRONLINE 2018 SC 1249.

20. The evidence on record further establishes that an amount of ₹1,51,873/- was spent on the medical treatment of the deceased prior to his death and the same deserves to be awarded in full. Moreover, since the deceased had been shifted from one hospital to another during the course of treatment, this Court deems it appropriate to award an additional amount of ₹17,000/- towards transportation expenses.

21. Consequently, the compensation payable to the claimants is recalculated as under:

The total compensation is rounded off to ₹54,60,500/-.

22. Since the learned Tribunal had already awarded compensation of ₹50,82,600/-, the claimants shall consequently be entitled to enhanced compensation to the tune of ₹3,77,900/- [5460500 – 5082600], which is rounded off to ₹3,78,000

23. Consequently, both the appeals are partly allowed. The appeal preferred by the claimants stands allowed to the extent of enhancement indicated above, whereas the appeal filed by the insurance company also stands partly allowed to the limited extent that the income tax liability of the deceased has been deducted while reassessing the income.

24. Resultantly, the claimants shall be entitled to an enhanced compensation of ₹3,78,000/- along with interest @7.5% per annum from the date of filing of the claim petition till its actual realization. The liability of respondents No.1 to 3 shall remain joint and several. The apportionment and manner of disbursement shall remain the same as directed by the learned Tribunal.

25. Both the appeals stand disposed of in the aforesaid terms. Pending miscellaneous application(s), if any, shall also stand disposed of.

26. A photocopy of this judgment be placed on the file of the connected case.