All Emoluments Must Count In Motor Accident Compensation, Taxable Or Not: Supreme Court

The Supreme Court on October 15, 2025, held that emoluments and benefits accruing to a deceased under various heads for computing loss of income under the Motor Vehicles Act must be included, irrespective of whether they are taxable or not.

A Division bench of Justices P.S. Narasimha and Manoj Misra allowed an appeal filed by Manorma Sinha and another against the Patna High Court’s July 2022 judgment that had reduced the compensation awarded by the Motor Accident Claims Tribunal, Muzaffarpur, from Rs 88,20,454 to Rs 38,15,499 in a case involving the death of a 27 year old engineer employed with Power Grid Corporation of India.

The bench held that the High Court erred in excluding allowances from income computation and in reducing the rate of future prospects, while also making a flat deduction of 30% towards income tax without justification.

The Court observed that for determining just compensation, the approach should not be confined to the basic salary alone but should consider all allowances and benefits that accrue to the deceased, as they contribute to the family’s economic well-being. “The High Court erred in excluding the allowances from the computation to arrive at the multiplicand. Hence, the total monthly income was rightly computed by the Tribunal at Rs.53,367,” the bench said.

In reaching this conclusion, the bench relied on National Insurance Co. Ltd. v. Indira Srivastava (2008), where it was held that the term ‘income’ must be understood broadly to include not only the take-home pay but also other perks that benefit the family. The Court also cited Vijay Kumar Rastogi v. U.P. State Roadways Transport Corporation (2018), where a three-judge bench observed that income should include benefits, monetary or otherwise, considered for income or professional tax purposes, even if some components were tax-exempt. Reaffirming this principle, the bench referred to National Insurance Co. Ltd. v. Nalini (2024), which had clarified that emoluments and benefits must be included in the computation of loss of income irrespective of their taxability.

The Court further held that while deduction towards income tax is permissible, it must be based on the applicable tax rate for the relevant year and not on arbitrary flat percentages. Citing Ranjana Prakash v. Divisional Manager (2011), the bench observed that “deduction towards income tax should be at such rate which the annual income may be subjected to in the relevant year.” The Court noted that in 2011, income up to Rs 1.6 lakh was not taxable, income between Rs 1.6 lakh and Rs 5 lakh attracted 10% tax, between Rs 5 lakh and Rs 8 lakh attracted 20%, and above Rs 8 lakh attracted 30%. Based on these slabs, and after including allowances, the Court computed the annual income as approximately Rs 6,40,400, with tax payable at Rs 62,080, leaving a net annual income of Rs 5,78,324.

Rejecting the High Court’s decision to reduce the addition for future prospects from 50% to 40%, the bench observed that the deceased was a young engineer employed in a public sector undertaking, and there was no material to indicate that his employment was contractual or temporary. “In such circumstances, in our view, addition for future prospects would have to be at the rate of 50% considering that the deceased was aged below 40 years at the time of accident,” the bench said, relying on the principles laid down in National Insurance Co. Ltd. v. Pranay Sethi (2017).

Applying these findings, the Court calculated that after deducting 50% towards personal expenses, the annual income for dependency would be Rs 2,89,162. Adding 50% for future prospects, the net annual income post deductions stood at Rs 4,33,743. With the multiplier of 17 (appropriate for age 27), the loss of dependency was computed at Rs 73,73,631. Adding Rs 15,000 towards loss of estate, Rs 40,000 towards filial consortium, and Rs 15,000 towards funeral expenses as per Pranay Sethi, the total compensation payable was determined as Rs 74,43,631.

The Supreme Court modified the High Court’s judgment accordingly and directed that the enhanced compensation of Rs 74,43,631 shall carry interest at six percent per annum from the date of the claim petition until payment. The Court reaffirmed that the principle of “just compensation” under the Motor Vehicles Act requires a liberal and realistic approach to income computation, one that fully reflects the deceased’s earning potential and family contribution.

Case Title: Manorma Sinha & Anr v. The Divisional Manager, Oriental Insurance Company Ltd & Anr

Bench: Justices P.S. Narasimha and Manoj Misra

Date of Judgment: October 15, 2025