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In a significant ruling on compensation under the Motor Vehicles Act, the Supreme Court has held that there cannot be a rigid formula for determining the annual income of accident victims based solely on Income Tax Returns (ITRs). The Court observed that while ITRs are an important piece of evidence, tribunals must also consider the nature of a deceased person's profession or business before arriving at a fair figure for compensation.
Delivering the judgment, a Bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh partly allowed an appeal filed by the family of a deceased businessman and enhanced the compensation payable from ₹1.87 crore, as awarded by the Orissa High Court, to ₹1.97 crore.
Background of the Case
The case arose from a fatal road accident that occurred on 29 May 2018. Manoranjan Pandey, aged 39, was travelling from Berhampur to Bhubaneswar when a truck allegedly being driven rashly collided with his vehicle near Kaliabali Chakka on the National Highway. He later succumbed to his injuries during treatment. An FIR was registered against the truck driver under relevant provisions of the Indian Penal Code.
Pandey's wife and another legal heir approached the Motor Accident Claims Tribunal (MACT), Berhampur, seeking compensation of ₹2.25 crore. They stated that the deceased ran his own construction business, earned about ₹15 lakh annually, and was the sole earning member of the family.
The MACT accepted the income shown in the ITR for Assessment Year 2018-19, assessed his annual income at ₹15 lakh, and awarded compensation of ₹2,27,00,064 with 6% interest from the date of filing of the claim petition.
The insurance company challenged the award before the Orissa High Court, arguing that the Tribunal had incorrectly assessed the deceased's income and had applied the wrong multiplier. Accepting the contention in part, the High Court averaged the income shown in two ITRs, reduced the annual income to ₹13,33,226, applied a multiplier of 15, and consequently reduced the compensation to ₹1,87,75,150.
Court's Observations
The Supreme Court framed the central issue as whether compensation should be calculated using the previous year's ITR alone or by averaging ITRs of the preceding years.
Recognising the wider importance of the issue, the Court appointed Senior Advocate J.R. Midha and Advocate Salil Paul as amicus curiae to assist it. They highlighted that different courts have adopted varying methods while assessing income through ITRs, leading to inconsistency.
The Bench reiterated that the purpose of compensation under the Motor Vehicles Act is to award "just and fair compensation."
"There can be no hard and fast formula for computing the annual income of a deceased person/claimant," the Bench observed.
The Court drew a distinction between salaried employees and self-employed persons.
For salaried individuals, it held that ordinarily the previous year's ITR would be sufficient because salary growth often depends on promotions, which may only be reflected in the latest return.
However, for self-employed persons or business owners, the Court ruled that the average income reflected in up to the previous three years' ITRs should serve as a reference point. Even then, tribunals should not mechanically rely on averages but must examine surrounding circumstances such as the nature of the business, its growth pattern, potential future growth, losses in the initial years, and any other relevant business-related factors. The Bench also cautioned that ITRs filed after death require careful scrutiny and should be supported by financial records wherever necessary.
Applying these principles, the Court noted that the deceased had filed two ITRs showing annual incomes of ₹11,59,882 and ₹15,06,571 for Assessment Years 2017-18 and 2018-19 respectively.
Since the deceased was running a construction business, the Court found that merely averaging the two ITRs, as done by the High Court, failed to account for the nature and growth of his business.
The Bench therefore fixed his annual income at ₹14 lakh as a fair assessment and recalculated the compensation. After adding future prospects, deducting personal expenses and applying the applicable multiplier, along with compensation under conventional heads, the Court determined the total compensation payable at ₹1,97,81,505.
Decision
Allowing the appeal in part, the Supreme Court modified the Orissa High Court's judgment and enhanced the compensation payable to the claimants from ₹1,87,75,150 to ₹1,97,81,505. The Court directed that interest on the enhanced amount would remain as awarded by the Tribunal and ordered the respondents to remit the amount directly into the claimants' bank account within four weeks after receiving the necessary bank details.
Case Details:
Case Title: Rashmirekha Tripathy and Anr. v. The Branch Manager (Legal Claims), Sriram General Insurance Company Limited and Ors.
Case Number: Civil Appeal arising out of SLP (C) No. 27220 of 2024
Judge: Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh
Decision Date: 1 July 2026
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