SC Lays Down Guidelines on Using ITRs to Assess Income in Motor Accident Claims

Source: Supreme Court 

Why in News? 

A Bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh, in Rashmirekha Tripathy and Anr. v. The Branch Manager (Legal Claims), Sriram General Insurance Company Limited and Ors. (2026), laid down guidelines for bringing consistency in the mode of calculation of a deceased's annual income for determining motor accident compensation claims, drawing a distinction between the treatment of ITRs of salaried employees and self-employed persons. 

What was the Background of the Case? 

• The batch of appeals before the Supreme Court arose out of three separate motor accident compensation claims under the Motor Vehicles Act, 1988, where the principal dispute was the proper method of assessing the annual income of deceased persons for computing compensation. 
• In all three cases, the deceased were self-employed individuals whose income was reflected in Income Tax Returns (ITRs). 
• The Motor Accident Claims Tribunals (MACTs) and the respective High Courts had adopted differing methods for determining annual income — some relying on the latest ITR, others averaging two or more years' returns — resulting in inconsistent compensation awards across cases. 
• Recognising the recurring nature of the issue and the divergent approaches adopted by tribunals across the country, the Supreme Court framed the following question for determination: whether, for assessing the annual income of a deceased person or claimant under the Motor Vehicles Act, 1988, the ITR of the previous year is appropriate, or whether the average of the past two/three years' ITRs is to be taken into consideration. 
• Senior Advocate J.R. Midha and Advocate Salil Paul were appointed as Amicus Curiae in the matter. 

What were the Court's Observations? 

• On the need for bifurcation: The Court held that no uniform method could be applied to salaried and self-employed individuals alike, and agreed with the suggestion of the Amicus Curiae that different considerations must apply to the two categories. 
• On salaried employees: The Court observed that the latest ITR generally reflects promotions, increments, and the prevailing salary immediately before the accident, and that the ITR for the immediately preceding assessment year would ordinarily provide the most accurate picture of earning capacity. It clarified that where the deceased or claimant had not completed a year in a promoted position before the accident, or had not filed an ITR for such a period, the Tribunal must take reference to the promotion letter and other corroboratory financial statements. 
• On self-employed persons: The Court held that the "latest ITR" approach may not be appropriate for self-employed persons, since their income often fluctuates due to market conditions, business cycles, and investment patterns. It directed that the average of the income specified in the ITRs of up to the previous three years is to be taken as the reference point for assessing annual income from business. 
• On surrounding circumstances for self-employed persons: The Court noted that in scenarios where only one or two ITRs had been filed, or where income fluctuated significantly, the following surrounding circumstances must also be taken into account: 
  • the nature of the business, including its geographic location and category; 
  • the growth pattern of the business and the impact of the death on the business; 
  • the potential growth of the business, since certain businesses are capital-intensive at the outset and become profitable only at scale or in the future; 
  • negative income, since certain businesses may require losses in the initial years that do not reflect the true financial standing; and 
  • any other relevant factor relating to the business. 
• On disposal: Applying the method elaborated above, the Court modified the compensation awarded in all three appeals. 

What is the Relevant Statutory Framework? 

Motor Vehicles Act, 1988:  

• Replacing the Motor Vehicles Act, 1939, this Act came into force on 1st July 1989. 
• The Act provides in detail the legislative provisions regarding licensing of drivers/conductors, registration of motor vehicles, control of motor vehicles through permits, special provisions relating to state transport undertakings, traffic regulation, insurance, liability, offences and penalties, etc.

Motor Vehicle (Amendment) Act, 2019: 

• This Act came into effect on 1st September 2019. 
• This Act defines golden hour as the time period of up to one hour following a traumatic injury, during which the likelihood of preventing death through prompt medical care is the highest. 
• This Act increases the minimum compensation for hit and run cases as follows:  
  • In case of death, from Rs 25,000 to two lakh rupees. 
  • In case of grievous injury, from Rs 12,500 to Rs 50,000. 
• It requires the Central government to constitute a Motor Vehicle Accident Fund, to provide compulsory insurance cover to all road users in India. 
• It allows the Central government to order a recall of motor vehicles if a defect in the vehicle may cause damage to the environment, or the driver, or other road users. 
• It provides for a National Road Safety Board, to be created by the central government through a notification. 
• This Act defines aggregators as digital intermediaries or market places which can be used by passengers to connect with a driver for transportation purposes (taxi services). These aggregators will be issued licenses by state 
• It increases penalties for several offences under the Act. For example, the maximum penalty for driving under the influence of alcohol or drugs has been increased from Rs 2,000 to Rs 10,000. 

Central Motor Vehicles Rules, 2022:  

• These Rules have come into force on 1st April 2022. 
• The new Rules are based on the Scheme framed by the Delhi High Court in judgment dated 8th January 2021 titled Rajesh Tyagi vs. Jaibir Singh. 
• The aforesaid Rules lay down a new procedure for expeditious investigation and adjudication of the Motor Accident Claims. 
• These Rules mandate the timeline for investigation and adjudication of all Motor Accidents Claims within a period of six months to one year. 
• They have revolutionized the motor accidents compensation jurisprudence as the claimants shall get the compensation within one year to the accident.