New Delhi: The Supreme Court of India has established nationwide guidelines for courts and tribunals to determine the annual income of deceased victims or injured claimants in motor accident cases using their Income Tax Returns (ITRs). A Bench comprising Justice Sanjay Karol and Justice N Kotiswar Singh ruled that while there cannot be a rigid or mechanical formula for computing annual income under the Motor Vehicles Act, a clear distinction must be drawn between salaried employees and self-employed individuals for assessing fair compensation.
Writing the judgement for the Bench, Justice Karol noted that ITRs, being statutory documents, serve as an important reference point for income assessment. The top court accepted submissions that a clear bifurcation is necessary to ensure consistency, as different courts across the country have previously adopted conflicting approaches. Some judicial bodies relied strictly on the latest filed returns, while others averaged the income over multiple preceding years, leading to highly inconsistent compensation awards for grieving families.
According to the newly established rules, the latest ITR from the previous financial year will ordinarily be sufficient to showcase the annual income of a salaried individual, as recent salary increments, revised pay structures, and promotions are best reflected in the most recent filing. Conversely, for self-employed individuals and business owners whose earnings inherently fluctuate due to market cycles, the average income disclosed in ITRs for up to the previous three years should serve as the standard reference point.
The landmark ruling came during an appeal filed by the family of Manoranjan Pandey, a 39-year-old construction businessman from Odisha who died in a road accident in May 2018. The appeal, filed under the name of Rashmirekha Tripathy against Sriram General Insurance Company Ltd, sought an enhancement of the compensation awarded by the lower courts. The deceased had disclosed annual incomes of approximately Rs 11.6 lakh and Rs 15.06 lakh in his two preceding assessment years.
While the Orissa High Court had averaged those two returns to fix his annual income at Rs 13.33 lakh, the Supreme Court took the fluctuating nature of the construction sector into consideration and reassessed his annual income at Rs 14 lakh. Consequently, the apex court enhanced the total compensation payable to the family from Rs 1.87 crore to Rs 1.97 crore, while maintaining the interest rate at six per cent per annum. The decision comes at a critical time as road accident fatalities in India have risen steadily over the years, growing from 1.57 lakh deaths in 2018 to an alarming 1.77 lakh in 2024, highlighting the urgent need for a streamlined and predictable legal process for victims’ families.
