Income tax must be deducted from the deceased’s annual income when computing motor accident compensation.

The deceased, Anup Jacob, a 58-year-old Government Headmaster, died in a motor-vehicle accident on 17 July 2020.

His dependants filed Claim Case No. 45/2021 before the Motor Accident Claims Tribunal. The Tribunal assessed his gross monthly income at ₹73,083, applied a 15% addition towards future prospects, deducted one-third towards personal expenses, applied a multiplier of 9, and awarded ₹62,16,276 in compensation.

It also rejected the Insurance Company’s plea that the deceased had contributed to the accident and directed the Insurance Company to satisfy the award first.

The Insurance Company preferred an appeal under Section 173 of the Motor Vehicles Act, 1988, contending that contributory negligence ought to have been attributed to the deceased and that income tax should have been deducted while computing the loss of dependency.

Whether the Claims Tribunal erred in declining to attribute contributory negligence to the deceased on the ground that he was allegedly driving on the wrong side of the road?

Whether income tax was required to be deducted from the deceased’s annual income, including the amount attributable to future prospects, while calculating compensation?

Whether the compensation awarded by the Claims Tribunal required modification on account of such income-tax deduction?

The Court applied Section 173 of the Motor Vehicles Act, 1988, governing appeals against awards of the Claims Tribunal.

On contributory negligence, the Court required cogent and reliable evidence showing that the deceased had contributed to the accident; a mere plea by the insurer, unsupported by rebuttal evidence, was insufficient.

For computation of compensation, the Court relied on National Insurance Co. Ltd. v. Pranay Sethi for the addition of future prospects, Sarla Verma v. Delhi Transport Corporation for deduction towards personal expenses and application of the multiplier, and Magma General Insurance Co. Ltd. v. Nanu Ram for consortium.

The Court further held that statutory income tax payable on the deceased’s annual income, after adding future prospects, had to be deducted before determining the loss of dependency.

The Court upheld the finding that the accident resulted from the rash and negligent driving of the offending vehicle’s driver.

The claimants’ eyewitness, Sheikh Niyajuddin, attributed negligence to the driver, Sudaru Ram Kadati, and his testimony was corroborated by the police investigation and charge-sheet.

Since neither the driver nor the owner, nor any other witness on behalf of the Insurance Company, was examined to establish that the deceased was driving on the wrong side or had contributed to the accident, the plea of contributory negligence failed.

For compensation, the Court accepted the monthly income of ₹73,083 and applied a 15% addition for future prospects, producing an annual income of ₹10,08,545.

Applying the income-tax slabs for Financial Year 2020–21, it calculated tax of ₹1,15,063.50 and determined the post-tax annual income at ₹8,93,481.50, rounded to ₹8,93,482.

After deducting one-third for personal expenses and applying the multiplier of 9, the loss of dependency was calculated at ₹53,60,895.

Adding ₹1,65,000 under conventional heads—consortium, loss of estate and funeral expenses—the total compensation was recalculated at ₹55,25,895.

However, it held that income tax was required to be deducted from the annual income after adding future prospects.

Consequently, the compensation of ₹62,16,276 awarded by the Tribunal was reduced to ₹55,25,895.

The appeal was partly allowed, the award was modified accordingly, and all other conditions of the Tribunal’s award—including the direction concerning satisfaction of the award by the Insurance Company—were maintained.

The Registry was directed to communicate the modified amount to the claimants in Hindi, with assistance from paralegal workers where required.