New Delhi: The Supreme Court has issued important nationwide guidelines on how courts should calculate compensation for families of people who die in road accidents and ruled that there cannot be a single formula for determining a deceased person’s income in every case.
Salaried employees and self-employed or business owners earn income differently, so their income should be assessed using different methods. The judgment aims to bring consistency to motor accident compensation cases across India and ensure that victims’ families receive fair and just compensation.
For salaried employees, the Supreme Court said that the income shown in the Income Tax Return (ITR) filed for the financial year immediately before the accident should normally be treated as the best evidence of income. If the person had recently been promoted but the updated ITR had not yet been filed, courts may also consider documents such as the promotion letter and salary records.
However, it emphasized that business income cannot be calculated based only on tax returns because business earnings often fluctuate. Courts must also consider the nature of the business, its growth prospects, financial records, and other surrounding circumstances before determining the person’s actual earning capacity.
The judgment arose from the case of Manoranjan Pandey, a 39-year-old construction contractor from Odisha who died in a road accident in 2018 after a speeding truck hit his car. His family claimed that he earned around ₹15 lakh annually and sought compensation of about ₹2.25 crore before the Motor Accident Claims Tribunal (MACT).
The MACT awarded the family around ₹2.27 crore as compensation. However, the insurance company challenged the award before the Odisha High Court, which reassessed his income and reduced the compensation to about ₹1.87 crore. The family then appealed to the Supreme Court.
While hearing the case, the Supreme Court noted that different High Courts across the country were following different methods to calculate income. Some relied only on the latest ITR, while others averaged income over several years. To eliminate this inconsistency, the Court laid down uniform guidelines.
The court stressed that although ITRs are an important piece of evidence, they should not be treated as the only basis for calculating compensation. Particularly in the case of business owners, courts must examine whether the business was expanding, whether it had future growth potential, and whether temporary losses in earlier years were normal for that type of business.
The court also observed that post-accident ITRs may be considered if they are supported by other reliable financial records.
Applying these principles to the present case, the Supreme Court found that the High Court had simply averaged the available ITRs without considering the nature and future prospects of the deceased’s construction business. The Court held that this approach did not result in “just and fair compensation.”
It reassessed the deceased’s annual income at ₹14 lakh and recalculated the compensation. The Supreme Court directed that the family be paid ₹1,97,81,505 (approximately ₹1.98 crore), along with the same rate of interest awarded by the MACT, and ordered that the amount be deposited within four weeks.
The judgment is significant because it establishes a clear framework for determining income in motor accident compensation cases across India. It recognizes that compensation should not be based on rigid mathematical formulas but should reflect the deceased person’s actual earning capacity and the realities of their profession.
The guidelines are expected to bring greater uniformity to decisions by MACTs and High Courts, reduce disputes between insurance companies and claimants, and ensure that bereaved families receive fair compensation.