The Supreme Court of India on Wednesday, 1 July laid down comprehensive guidelines for computing the income of deceased victims in motor accident compensation cases, ruling that the most recent Income Tax Return (ITR) should ordinarily govern assessments for salaried individuals, while an average of up to three preceding years' ITRs must be used for self-employed persons and business owners. The bench underscored that the overarching goal remains 'just and fair compensation' for victims and their dependants.

The Case That Triggered the Ruling

The judgment arose from an appeal filed by the family of Manoranjan Pandey, who died in a road accident in May 2018 while travelling from Berhampur to Bhubaneswar in Odisha. The Motor Accident Claims Tribunal (MACT) had pegged his annual income at ₹15 lakh based on his latest ITR and awarded compensation exceeding ₹2.27 crore. The Orissa High Court subsequently reduced the payout by averaging two ITRs and applying a lower multiplier — a method the Supreme Court found inadequate given the nature of the deceased's construction business and its growth trajectory.

Key Guidelines Laid Down

A bench of Justice Sanjay Karol and Justice N.K. Singh held that no rigid or uniform formula can govern income assessment under the Motor Vehicles Act. For salaried employees, the ITR of the immediately preceding year is ordinarily sufficient, since promotions and salary revisions are most accurately captured in the latest return. Where a promoted employee had not yet filed the relevant ITR, courts may rely on promotion letters and other corroborative financial records, the bench noted.

For self-employed individuals and business owners, the court ruled that income fluctuations necessitate a broader view. 'When it comes to self-employed individuals carrying out their own business, the average of the income specified in the ITRs of up to the previous three years is to be taken as a reference point for assessment of annual income from their business,' the bench stated. Courts must additionally weigh the nature of the business, its geographical location, growth trajectory, potential expansion, and initial losses in capital-intensive ventures.

Warning Against Post-Death ITRs

The bench also cautioned courts against mechanically accepting ITRs filed after the death or injury of a claimant. 'There may be scenarios where inflated income is showcased after death/injury. In these circumstances, the surrounding factors of the business would become more relevant,' the court observed, while adding that such ITRs may still be considered if sufficiently supported by financial statements.

Compensation Enhanced in Pandey Case

Applying its own principles to the facts before it, the Supreme Court fixed the deceased's annual income at ₹14 lakh and enhanced the family's compensation to ₹1,97,81,505 — up from ₹1,87,75,150 awarded by the Orissa High Court. The apex court found the High Court had erred by mechanically averaging two ITRs without accounting for the construction business's growth prospects.

Wider Application and Broader Principle

In two separate non-reportable judgments delivered the same day, the bench applied the newly framed principles to enhance compensation in other motor accident cases, reinforcing that income assessment must reflect the realities of different professions rather than follow a mechanical formula. Quoting from an earlier ruling, the court reiterated that while 'no amount of money can truly compensate for the loss' of a loved one, the law demands compensation that is 'fair and reasonable, without being either arbitrary or niggardly.' The ruling is expected to bring greater uniformity to motor accident claims adjudication across India, where courts had previously adopted divergent approaches on ITR reliance.