Supreme Court Sets Separate ITR Rules for Salaried and Self-Employed in Motor Accident Claims

A Division Bench led by Justice Sanjay Karol holds that salaried claimants require only the last ITR while self-employed decedents need up to three years’ average income, resolving a split across High Courts.

On 1 July 2026, a Division Bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh settled a question that had produced inconsistent results across motor accident tribunals and High Courts for years: which Income Tax Returns should a court rely upon when assessing the annual income of a deceased person for computing compensation under the Motor Vehicles Act, 1988? The lead judgment in Rashmirekha Tripathy and Anr. v. The Branch Manager (Legal Claims), Sriram General Insurance Company Limited and Ors. (2026 INSC 661) draws a clear line between salaried employees and the self-employed, prescribing different reference periods for each category. The Court then applied those principles immediately to two companion appeals, revising the compensation in all three cases upward.

How the Dispute Reached the Court

The lead case arose from a road accident on 29 May 2018. Manoranjan Pandey, aged 39, was travelling from Behrampur to Bhubaneswar in his own vehicle when a truck bearing registration number AP-05TD-2112, driven rashly, struck his vehicle near Kaliabali Chakka on the National Highway. He died during treatment. An FIR was registered at Chamakhandi Police Station (Case No. 55/2018) under Sections 279, 337, 338 and 304-A of the Indian Penal Code, 1860.

His legal representatives — the claimant-appellants — filed an application under Section 166 of the Motor Vehicles Act, 1988, before the Motor Accident Claims Tribunal, Behrampur, claiming Rs. 2,25,00,000. They stated that the deceased ran his own construction business and earned Rs. 15,00,000 per annum.

The Tribunal, by its order of 24 February 2023 in MAC Case No. 92/2019, accepted the income figure of Rs. 15,00,000 per annum on the basis of the ITR for Assessment Year 2018-19. It applied a deduction of one-third (three dependents), a multiplier of 16, and awarded Rs. 2,27,00,064 with 6% interest per annum from the date the claim petition was filed, i.e., 7 May 2019.

The insurance company appealed to the High Court of Orissa at Cuttack, arguing that the Tribunal used the wrong ITR and the wrong multiplier. The High Court, in MACA No. 452 of 2023, agreed in part. It took the average of the two ITRs on record — AY 2017-18 (Rs. 11,59,882) and AY 2018-19 (Rs. 15,06,571) — arriving at an annual income of Rs. 13,33,226. It also applied a multiplier of 15. The total compensation was reduced to Rs. 1,87,75,150.

The claimants challenged this reduction. The Supreme Court granted special leave (SLP(C) No. 27220 of 2024) and, recognising the broader importance of the ITR-selection question, appointed Mr. J.R. Midha as senior counsel amicus curiae and Mr. Salil Paul as counsel amicus curiae by order dated 7 February 2025.

The Core Question: Which ITR Years Count?

The amicus submissions exposed the lack of uniformity plainly. Mr. Midha told the Court that some tribunals and courts take only the last filed return, while others take a two-year or three-year average. He argued that ITRs, while statutory documents and prima facie evidence of income, do not always capture the true earning capacity of a person — particularly when business income fluctuates, when losses in early years distort the picture, or when returns are filed after the accident with potentially inflated figures. Mr. Salil Paul pointed to the Court's earlier decision in ICICI Lombard General Insurance Co. Ltd. v. Ajay Kumar Mohanty and Anr. (2018) 3 SCC 686, where a three-year average was used.

Before framing its own rule, the Court reaffirmed the governing standard. It cited a two-judge Bench in V. Pathmavathi and Ors. v. Bharthi Axa General Insurance Co. Ltd. and Anr. (2026 SCC OnLine SC 158), which in turn drew from Reshma Kumari v. Madan Mohan (2013) 9 SCC 65, to the effect that compensation under Section 166 read with Section 168 of the Act is meant to place the dependents in roughly the same financial position they would have occupied had the deceased lived a full life. The standard is “just and fair compensation” — neither arbitrary nor niggardly.

The Rule the Court Laid Down

The Court held that there can be no single, rigid formula applicable to all claimants. ITRs are an important starting point but are not conclusive. The critical distinction, the Court said, is between two categories of earners.

For salaried individuals, only the ITR for the immediately preceding year is the appropriate reference. The reasoning is that salary income is structured and largely predictable. Promotions, however, can produce a significant jump in income that is reflected only in a single year's return. A deceased employee may not have completed a full year in a promoted role before the accident, or may not yet have filed an ITR for that period. In such cases, the Court directed that the promotion letter and corroborating financial statements should be considered.

For self-employed individuals and those running their own businesses, the average income from the ITRs of up to the previous three years is to be taken as the reference point. Where only one or two ITRs exist, the court must look at surrounding circumstances. The Court listed five such factors: the nature of the business, including its geographic location and category; the growth pattern of the business and the impact of death on it; the potential for future growth, especially for capital-intensive businesses that become profitable only at scale; negative income in early years, which may not reflect true financial standing; and any other relevant factor.

The Court also flagged the timing of ITR filings. Where returns are filed after the accident or after the death of the claimant, inflated income figures become a real risk. In those situations, the surrounding financial evidence of the business grows more important, though the Court left open the possibility that even post-death ITRs can be considered if sufficiently supported by financial statements.

Application to the Lead Facts

Turning to Manoranjan Pandey's case, the Court noted that the deceased ran a construction business. Two ITRs were on record: AY 2017-18 showing Rs. 11,59,882 and AY 2018-19 showing Rs. 15,06,571. The High Court had taken a simple average of these two years without considering any factor relating to the nature of the business.

The Supreme Court found this insufficient. Without remanding the matter, it fixed the annual income at Rs. 14,00,000 — above the High Court's average but below the figure claimed — reflecting what the Court viewed as appropriate given the business context. Applying 40% future prospects (the deceased being 39 years old), a deduction of one-third for three dependents, and a multiplier of 15, the total compensation was computed at Rs. 1,97,81,505. This is Rs. 10,06,355 more than the High Court had awarded, though still below the Tribunal's original figure of Rs. 2,27,00,064 (the Tribunal having used a higher income figure and multiplier of 16).

The Two Companion Appeals

The principles in Rashmirekha Tripathy were applied immediately to two further cases decided the same day, both non-reportable.

In Rajani and Ors. v. Mukesh and Ors. (arising out of SLP(C) No. 3088 of 2025), the deceased Sushil, aged 49, worked as an insurance agent and died on 8 January 2017 in a road accident in Madhya Pradesh. The High Court of Madhya Pradesh at Indore had enhanced compensation to Rs. 76,09,500 but had taken the average of the last four ITRs to arrive at a monthly income of Rs. 62,500. The Supreme Court found this wrong. Given that the deceased worked on commission as an insurance agent, a performance-linked spike in one year's income was a plausible explanation for a higher figure in a particular ITR — not a reason to pull in a fourth year's return. The Court assessed the annual income at Rs. 6,87,802, based on the average of the three preceding years (AY 2015-16: Rs. 4,03,180; AY 2016-17: Rs. 9,59,665; AY 2017-18: Rs. 7,00,559). With future prospects at 25%, a deduction of one-fourth, and a multiplier of 13, the total compensation was fixed at Rs. 87,09,282 — an increase over the High Court figure.

In Smt. Rekha and Ors. v. Dinesh Porwal and Ors. (arising out of SLP(C) No. 7735 of 2025), the deceased Krishnavallabh, aged 28, ran a wholesale grocery store and died on 15 June 2015 in a road accident in Madhya Pradesh. The High Court had excluded two ITRs filed after the deceased's death (for AY 2014-15 and AY 2015-16, showing Rs. 2,35,881 and Rs. 4,98,671 respectively) and used only the two pre-death ITRs for AY 2012-13 and AY 2013-14, settling on a monthly income of Rs. 16,750. The claimants argued the post-death ITRs should have been included.

The Supreme Court acknowledged that the post-death returns could, in principle, be considered if supported by financial statements — but those statements were not before the Court, and the Court declined to remand the matter. Instead, considering all ITRs on record and the nature of the wholesale grocery business, it fixed the annual income at Rs. 3,25,000. With 40% future prospects (deceased being 28), a deduction of one-fourth, and a multiplier of 17, the total was Rs. 60,79,550 — significantly more than the High Court's award of Rs. 38,40,850.

Outcome

All three civil appeals were allowed. In the lead matter, the compensation awarded by the High Court of Orissa is modified to Rs. 1,97,81,505 with 6% interest per annum as directed by the Tribunal. In Rajani, the High Court of Madhya Pradesh's award is modified to Rs. 87,09,282. In Rekha, the same High Court's award is modified to Rs. 60,79,550. In each case, interest on the enhanced amount is payable as originally awarded by the respective Tribunal. The enhanced amounts are to be remitted directly to the claimants' bank accounts within four weeks of the account particulars being furnished by the appellants' counsel to the respondents' counsel. Pending applications, if any, stand disposed of.