Which ITRS are relevant for assessing income of deceased person under MV Act 1988

SC laid downs guidelines for use of ITRS for assessing annual income of deceased person under Motor Vehicles Act 1988

In a recent judgment, Hon’ble Supreme Court has laid down guidelines for use of ITRS for assessing the annual income of a deceased person under the Motor Vehicles Act 1988

ABCAUS Case Law Citation:
5178 (2026) (07) abacus.in SC

Important Case Laws relied upon by Parties:

In the instant case, the issue before the Hon’ble Supreme Court was as to whether for assessing the annual income of a deceased person or claimant under the Motor Vehicles Act 1988, the ITRs for the previous year is appropriate or average of the past two/three years is to be taken into consideration?

The High Court, vide, the impugned judgment had allowed the appeal related to Motor Accident claim and reduced the compensation awarded by the Tribunal. The High Court had reduced his annual income of the claimant by taking the average of the previous two ITRs which were on record, instead of only the previous ITR, which was taken into consideration by the Tribunal.

Their Lordships appointed two amicus curiae, being experts in field of , to assist the Court in this matter.

The amicus curiae submitted that there is no uniformity in the principles relating to the computation of annual income on the basis of ITRs. Some Courts take the average of the last three years, whereas some Courts take the last return filed to assess the income of the deceased. He further submitted that while the ITR is the prima facie evidence of the deceased’s income, it does not always reflect the true income of the deceased. Factors such as business income pattern, growth pattern and nature of business5 also warrant consideration. Moreover, in cases where the ITR has been filed after the death, it would be appropriate to call for the ITRs for the past three years along with balance sheets of the concerned person/entity.

The Hon’ble Supreme Court observed that  it is settled law that the objective behind the claim process in the Motor Vehicles Act 1988 is to grant ‘just and fair compensation’. Also, a division Bench of the Hon’ble Supreme Court has held that the purpose of compensation under the Motor Vehicles Act is to fully and adequately restore the aggrieved to the position prior to the accident.

The Hon’ble Supreme Court opined that there can be no hard and fast formula for computing the annual income of a deceased person/claimant. ITRs being a statutory document are an important reference point when it comes to assessing one’s income, for the purposes of compensation under the Motor Vehicle Act.

The Hon’ble Supreme Court concurred with submission that there must be a bifurcation made between salaried individuals and self-employed individuals when it comes to assessment of annual income.

ITR of salaried individuals

The Hon’ble Supreme Court held that for salaried individuals, only the ITR of the previous year will be sufficient for showcasing the annual income from salary. The reason for considering only the preceding year is that the financial impact of promotions is significant and may be reflected in the ITR for only that year.  A situation may also arise whereby the deceased/claimant might not have completed a year in the promoted position before the accident or might not have filed ITR for such period. In such cases the Court concerned shall take reference to the promotion letter and other corroboratory financial statements. 

ITR of self-employed / individuals carrying out their own business

The Hon’ble Supreme Court held that in case of self-employed / individuals carrying out their own business, in our view, the average of the income specified in the ITRs of up to the previous three years is to be taken as a reference point for assessment of annual income from their business. There may also be a scenario where only one or two ITRs have been filed. Given such scenarios and the fluctuation of income in these professions, surrounding circumstances are also to be taken into consideration which would include: a) The nature of the business (including geographic location, category etc.);  b) Growth pattern of the business and impact of death on the business; c) Potential growth of business (for instance certain businesses are capital intensive at the outset and are profitable at scale/in the future); d) Negative income (certain businesses may require losses in the initial years, which may not reflect the true financial standing); and e) Any other relevant factor relating to the business.

The Hon’ble Supreme Court further added that the date when the ITRs are filed would also become a relevant consideration, as there may be scenarios where inflated income is showcased after death/injury.  In these circumstances, the surrounding factors of the business would become more relevant. However, if sufficiently supported by financial statements, such ITRs may also be taken into consideration.

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