New Delhi: The Supreme Court has laid down a uniform framework for the assessment of a deceased person’s annual income under the Motor Vehicles Act, 1988.
The ruling, delivered Wednesday, will directly impact how compensation is calculated in motor accident cases across the country and end a varied approach to computation of claims under the welfare legislation.
The bench of Justices Sanjay Karol and N.K. Singh emphasised on following a bifurcated approach for the assessment: for salaried individuals, the most recent Income Tax Return (ITR) should be relied upon, while for self‑employed claimants, courts should average up to three years’ ITRs to account for fluctuations in business earnings.
Importantly, the apex court warned against inflated posthumous ITRs, directing tribunals to scrutinise balance sheets and corroborative financial statements.
The court was hearing appeals arising from disputes over how tribunals and high courts had assessed the annual income of deceased claimants, leading to significant variations in compensation awards confronted with divergent practices: some tribunals relied solely on the most recent ITR, others averaged multiple years.
On just compensation & role of ITRs
The court, in its ruling, reaffirmed that the purpose of compensation is to provide just and fair recompense to dependents of accident victims. It emphasised that “the purpose of compensation under the Motor Vehicles Act is to fully and adequately restore the aggrieved to the position prior to the accident”.
A major part of the discussion revolved around whether tribunals should rely on the last ITR alone or average of multiple years.
The court acknowledged that “there can be no hard and fast formula for computing the annual income of a deceased 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 Act,” it stated.
For salaried individuals, the court clarified that reliance on the most recent ITR is generally sufficient to establish annual income. This is because increments, promotions or other financial changes are usually reflected in that year’s filing, making it the most accurate indicator of current earnings.
At the same time, it acknowledged that situations may arise where the deceased or claimant had recently been promoted but had not yet completed a full year in the new role or had not filed an ITR for that period. In such cases, tribunals are directed to consider supporting evidence such as promotion letters, salary slips or other corroborative financial records to ensure that the assessment of income remains fair and consistent.
When dealing with self‑employed individuals or those running their own businesses, the court held that the proper method of assessing annual income is to take the average of the ITRs filed for up to the previous three years. This approach accounts for the inherent fluctuations in business or professional earnings.
Where only one or two ITRs are available, tribunals must look beyond the returns and consider surrounding circumstances. These include the nature of the business, its growth trajectory, the potential for future expansion (especially in capital‑intensive industries) and even situations of negative income in early years that may not reflect true financial standing.
The top court further emphasised that the timing of ITR filings is a relevant factor. Posthumous returns may sometimes show inflated figures and tribunals must exercise caution. However, such returns need not be excluded outright; if they are supported by balance sheets or corroborative financial statements, they may be considered.
The judgement strengthens the jurisprudence on income assessment, just compensation, and the role of ITRs in motor accident claims and will guide tribunals nationwide, ensuring that dependents of accident victims receive fair compensation.
(Edited by Nida Fatima Siddiqui)
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