Rashmirekha Tripathy: Supreme Court sets ITR approach for motor-accident income

Ratio / rule laid down

For salaried persons, the previous year's ITR ordinarily sufficiently reflects annual salary, subject to corroboration where promotion or a recent change is material. For self-employed persons, income shown in ITRs for up to the previous three years is a reference point, but the court must also examine business nature, growth, profitability, filing timing and other surrounding circumstances; there is no rigid formula.

Why this matters for lawyers

• In claims involving a business owner or professional, place on record up to three preceding ITRs, together with financial statements and material explaining fluctuations.
• Do not treat averaging as automatic. Address the business's nature, geographic and commercial setting, growth trajectory, likely effect of the death on operations, and any start-up losses or negative income.
• Scrutinise the date of filing: an ITR filed after death or injury may invite closer examination, particularly if unsupported by contemporaneous financial records.
• For salaried claimants, lead the immediately preceding ITR, but add the promotion letter and corroboratory financial statements where the claimant had recently been promoted or had not completed a full year in the new position.
• The judgment supports a contextual assessment aimed at just and fair compensation, rather than mechanically selecting either the latest return or a multi-year average.

Facts

Manoranjan Pandey, aged 39, died from injuries sustained when a truck struck his vehicle on 29.05.2018. His legal representatives claimed under Section 166 of the Motor Vehicles Act, 1988, pleading that he was the sole breadwinner and earned Rs.15,00,000 annually from his construction business.

The Tribunal used the AY 2018-19 ITR and awarded Rs.2,27,00,064. The High Court averaged the two ITRs on record—Rs.11,59,882 for AY 2017-18 and Rs.15,06,571 for AY 2018-19—fixed income at Rs.13,33,226, applied multiplier 15, and reduced compensation to Rs.1,87,75,150.

Issues

The principal issue was whether an annual-income assessment should ordinarily use the ITR for the immediately preceding year or average the ITRs for the preceding two or three years.

The Court also had to determine how that approach changes between salaried employment and self-employment, and whether the record justified replacing the High Court's two-year average in this construction-business case.

Court's Reasoning

The Court began with the statutory objective of just and fair compensation. ITRs are statutory documents and an important reference point, but the Court rejected a hard-and-fast rule. Income assessment is not an exercise in selecting the latest return mechanically; the evidentiary value of the return depends on the claimant's mode of earning.

For salaried individuals, the previous year's ITR will ordinarily show annual salary. The Court reasoned that promotions can materially change income and may be reflected only in that year's return. If the promoted position was recent, or no return had yet been filed for it, the promotion letter and other corroboratory financial statements should be considered.

For self-employed persons and business owners, the Court held that income in ITRs for up to the previous three years should serve as the reference point because business income fluctuates. Where only one or two returns exist, the court must examine the nature and location of the business, its growth pattern, the impact of death on the business, future growth potential, negative income in initial years, and other relevant factors. The filing date is also material where a return may have been inflated after death or injury; financial statements may nevertheless support reliance on such a return.

Applying that framework, the High Court had averaged the two returns without considering the surrounding circumstances of the deceased's construction business. To achieve just and fair compensation, the Supreme Court fixed annual income at Rs.14,00,000. With 40% future prospects, one-third deduction, multiplier 13, and conventional heads, it arrived at Rs.1,97,81,505, directing payment of interest on the enhanced amount as awarded by the Tribunal.

Key Takeaways

• ITRs are an important evidentiary reference for income, not an inflexible determinant.
• The immediate preceding ITR ordinarily suffices for salary income, subject to proof of a recent promotion or altered pay.
• For business income, average returns for up to three preceding years may be used, but only after testing the business context and income fluctuations.
• Post-accident filing of an ITR is not automatically fatal; contemporaneous financial statements may substantiate it.
• The ultimate control remains the statutory standard of just and fair compensation.

Important Observations

The judgment is best read as a structured discretion, not a direction that every self-employed claim must use a three-year average. The phrase up to the previous three years preserves room to rely on fewer returns where the record and business circumstances justify it. Conversely, even a recent ITR may require caution if its timing or supporting material raises a concern about post-accident inflation.

What Remains Unresolved

The Court identifies the relevant factors but does not prescribe a mathematical weighting for them, or a uniform method for resolving competing indications from ITRs, financial statements and business performance. Future cases will therefore continue to require fact-specific evaluation, particularly where income is volatile or returns were filed after the accident.

Precedents discussed

• ICICI Lombard General Insurance Co. Ltd. v. Ajay Kumar Mohanty and Anr.[2018] 3 SCR 42 : (2018) 3 SCC 686Referred to

  referred to for reliance on average ITR income

• V. Pathmavathi and Ors. v. Bharthi Axa General Insurance Co. Ltd. and Anr.2026 INSC 131 : 2026 SCC OnLine SC 158Referred to

  reiterated the just-and-fair-compensation principle

• Anant v. Pratap and Anr.[2018] 10 SCR 11 : (2018) 9 SCC 450Referred to

  stated that compensation should restore the aggrieved as fully as possible

• National Insurance Co. Ltd. v. Pranay Sethi(2017) 16 SCC 680Referred to

  applied for future prospects and conventional heads

Source judgment: Rashmirekha Tripathy & Anr. v. The Branch Manager (Legal Claims), Sriram General · Bench: Sanjay Karol, Nongmeikapam Kotiswar Singh