Income tax deduction from motor accident compensation is impermissible where the claimant’s income falls below the taxable threshold.

The claimant, a 32-year-old electrical contractor, suffered an above-elbow amputation of his right upper limb following a collision with an offending truck (bearing registration no. HR-46-9482) on April 6, 2007.

The Motor Accidents Claims Tribunal (‘MACT’) held the truck driver liable and awarded compensation of Rs. 22,78,100 with 9% interest, assessing functional disability at 70% against a medical certificate of 85%.

Both the Insurance Company and the claimant filed cross-appeals: the former seeking reduction based on contributory negligence and excessive disability assessment, and the latter seeking enhancement of non-pecuniary damages and correction of income tax deductions.

1. Whether the functional disability assessment of 70% was appropriate given the claimant’s vocation as an electrical contractor.

2. Whether contributory negligence should be attributed to the claimant due to the "head-on collision" nature of the accident.

3. Whether the interest rate of 9% and the award for non-pecuniary damages were proportionate.

4. Whether the 10% deduction of income tax from the assessed income was legally sustainable.

The court applied the principles from Raj Kumar v. Ajay Kumar (2011) 1 SCC 343, which mandates that functional disability be assessed based on the actual impact of the permanent injury on the claimant’s specific vocation and earning capacity, rather than relying solely on medical percentages.

Regarding financial computations, the court relied on Sarla Verma v. DTC (2009) 6 SCC 121 and National Insurance Co. Ltd. v. Pranay Sethi (2017) 16 SCC 680, which establish that income tax deductions from compensation are only permissible if the assessed income falls within the taxable range.

The Court rejected the Insurance Company's challenge to the 70% functional disability, reasoning that while the claimant was a contractor/proprietor, an above-elbow amputation of the right arm severely impedes the physical engagement required with workers and clients in electrical wiring contracts.

On contributory negligence, the Court found that the Insurance Company failed to lead evidence beyond a site map; the mere fact of a head-on collision does not prove negligence by the claimant without specific proof of lack of care.

Regarding non-pecuniary heads, the Court found the MACT’s awards for "pain and suffering" and "loss of amenities" (Rs. 1,00,000 each) to be "abysmally inadequate" for an amputation and enhanced both to Rs. 3,00,000 each, noting that these heads subsume disfigurement and mental stress.

Finally, the Court ruled the 10% income tax deduction erroneous because the claimant’s reflected annual income (Rs. 99,862) was below the taxable limit for the relevant assessment year.

The Court enhanced the total compensation by Rs. 4,49,933, bringing the final amount to Rs. 27,28,033.

The interest rate of 9% per annum was upheld.

The Court directed the Insurance Company to deposit the enhanced amount within four weeks, maintaining the right of recovery against the vehicle owner due to permit violations.

Specific directions for disbursement through Fixed Deposit Receipts (FDRs) in successional installments were issued to protect the claimant's financial interests.