Motor Vehicle Act Compensation: Supreme Court Says Preceding Year's ITR Is Sufficient for Salaried Persons

The Supreme Court has held that determination of compensation under the Motor Vehicles Act in fatal accident cases is not an exact science, but only a rough estimate aimed at awarding just, fair and reasonable compensation. Court also clarified how Income Tax Returns (ITRs) should be considered while assessing the income of deceased persons or injured claimants.

Court held that while ITRs are important statutory documents, there cannot be a rigid formula for determining income. Courts must distinguish between salaried and self-employed individuals, taking into account factors such as business growth and the nature of the business in the case of self-employed persons.

A Bench of Justices Sanjay Karol and N Kotiswar Singh ruled that for salaried individuals, the ITR of the immediately preceding year would ordinarily be sufficient. However, for self-employed persons, courts should consider the average income reflected in the ITRs of up to the previous three years.

The ruling came while deciding an appeal filed by Rashmirekha Tripathy, which raised the question of whether compensation under the Motor Vehicles Act, 1988 should be calculated on the basis of the ITR of the previous year alone or by averaging the income shown in the past two or three years' ITRs.

The case arose out of the 2018 death of Manoranjan Pandey, aged 39, who ran a construction business and was earning around Rs 15 lakh annually.

The Motor Accident Claims Tribunal (MACT) in 2023 awarded compensation of Rs 2.27 crore along with 6% annual interest after assessing the deceased's annual income at Rs 15 lakh based on his ITR for Assessment Year 2018-19.

However, on an appeal filed by the insurance company, the High Court reduced the compensation by about Rs 39.25 lakh to Rs 1.87 crore, after lowering the deceased's annual income to Rs 13.33 lakh.

How should courts assess income under the Motor Vehicles Act?

While examining the issue, the Supreme Court appointed senior advocate J R Midha and advocate Salil Paul as amici curiae to assist the court.

After hearing the parties, the Bench observed that there can be no hard and fast formula for computing the annual income of a deceased person or claimant. Although ITRs are important statutory documents and serve as a valuable reference point for assessing income, the approach must vary depending on the nature of employment.

Court accepted the submission made by Midha that a distinction should be drawn between salaried individuals and self-employed persons while assessing annual income.

For salaried individuals, Court said that the ITR of the previous year would ordinarily be sufficient because promotions and salary revisions may be reflected only in the latest return. It added that if the deceased or claimant had recently been promoted and had not yet completed a full year or filed an ITR reflecting the higher salary, courts could rely on the promotion letter and other corroborative financial records.

For self-employed individuals or those running their own businesses, Court held that the average income reflected in the ITRs of up to the previous three years should be treated as the reference point.

The Bench noted that income from business often fluctuates and, therefore, surrounding circumstances must also be considered. These include the nature of the business, its geographical location, growth pattern, the impact of the death on the business, its future earning potential, losses in the initial years of operation, and any other relevant factor affecting the business.

Court also observed that the timing of filing ITRs could become relevant. It cautioned that there may be cases where income is artificially inflated after a person's death or injury. In such situations, courts should closely examine the surrounding circumstances and supporting financial records before relying on those returns.

How did the Supreme Court decide the present case?

Applying these principles, the Supreme Court fixed the deceased's annual income at Rs 14 lakh. It noted that the claimants had produced two ITRs for Assessment Years 2017-18 and 2018-19 showing annual incomes of Rs 11,59,882 and Rs 15,06,571 respectively.

Accordingly, Court modified the high court's judgment and enhanced the compensation to Rs 1,97,81,505, while retaining the 6% annual interest awarded by the MACT. It directed the insurance company to pay the amount within four weeks.

Court also applied the principles laid down in the judgment to two connected appeals. In one case involving the death of an insurance agent in a road accident, compensation was enhanced from Rs 76,09,500 to Rs 87,09,282. In another case involving the death of a man running a grocery business, compensation was increased from Rs 38,40,850 to Rs 60,79,550.

Case Title: Rashmirekha Tripathy Vs The Branch Manager (Legal Claims) Sriram General Insurance Company Limited And Ors

Bench: Justices Sanjay Karol and N Kotiswar Singh

Date of Judgment: July 1, 2026