‘Tax returns not sole basis’: Madhya Pradesh High Court hikes techie death payout by over 300% to Rs 1.42 crore

Justice Binod Kumar Dwivedi pronounced the order on May 7.

The tribunal had awarded Rs 34.20 lakh compensation after assessing the deceased’s income at Rs 3 lakh annually, despite documentary evidence showing substantially higher earnings.

“The object of the MV Act is to compensate for the loss of pecuniary benefits, which is different from the object of the Income-Tax Act. Income computed under the Income-Tax Act is different from what is actually received by an employee; therefore, Income Tax Returns cannot be the sole basis for determining the compensation under the MV Act,” the Madhya Pradesh High Court said on May 7.

Accident during Bengaluru-Hooghly journey

• Rupesh Kapoor died on September 8, 2006, when the Toyota taxi in which he was travelling from Bengaluru to Hooghly was hit by a truck alleged to be driven in a rash and negligent manner. Two others also lost their lives in the accident.
• Kapoor’s wife, daughter and parents later approached the MACT seeking compensation for the loss of the family’s sole earning member.
• The tribunal, on October 31, 2008, granted compensation of Rs 34.20 lakh with 6 per cent annual interest.
• Dissatisfied, the family moved the Madhya Pradesh High Court seeking enhancement.

Records showed Rs 8.3 lakh annual income

• The counsel for the claimants argued before the Madhya Pradesh High Court that the deceased was employed with GE India Private Limited as an engineer and was drawing a salary of Rs 73,312 per month before his death.
• It was contended that the tribunal wrongly discarded the salary certificate, salary slip and Form-16 and instead relied only on income tax (I-T) returns showing a taxable income of Rs 5.86 lakh annually.
• The claimants argued that several allowances and benefits received by salaried employees are exempt from tax and therefore may not appear in income tax returns despite forming part of actual earnings.
• The insurance company, however, opposed the plea and argued that the documents relating to salary were contradictory and had not been properly proved.
• It also contended that additional documents brought on record during appeal could not be relied upon in motor accident compensation proceedings.

Court rejects insurer’s objection

The Madhya Pradesh High Court rejected the insurer’s objection regarding the applicability of Order XLI Rule 27 (production of additional evidence in appellate courts) of the Civil Procedure Code (CPC) and held that appeals under Section 173 of the Motor Vehicles Act are akin to first appeals under the CPC, making such provisions applicable unless expressly excluded.

The court also noted that the application for taking additional documents on record had already been allowed in 2015 with the consent of both parties, and therefore the insurer could not subsequently challenge their consideration.

Tribunal misconstrued income tax documents

The Madhya Pradesh High Court analysed the evidence led by the claimants, including the testimony of Bhavana Kapoor and an administrative manager from GE India Private Limited, who confirmed the deceased’s salary progression over the years.

Documents placed before the court showed that Kapoor’s annual salary had increased from Rs 2.9 lakh in the late 1990s to Rs 8.30 lakh shortly before his death.

The court held that the tribunal had wrongly rejected the salary certificate and salary slip on the basis of income tax returns, without appreciating that exempt allowances and perquisites may not form part of taxable income.

Referring to an income tax department circular of 2006, the Madhya Pradesh High Court noted that salary includes wages, commissions, perquisites, provident fund contributions and several other benefits, though some of them may be exempt from taxation.

“It does not mean that he is not having that income which is shown in the salary certificate or salary slip,” the high court said explaining the distinction between taxable income and actual earnings.

Reliance on Supreme Court judgments

• The Madhya Pradesh High Court relied upon several Supreme Court rulings, including National Insurance Company Limited v Indira Srivastava, Sunil Sharma v Bachitar Singh and Meenakshi v Oriental Insurance Company Limited, to hold that allowances such as house rent (HRA), medical allowance and employer contributions must be considered while assessing compensation under the Motor Vehicles Act.
• It also referred to a Bombay High Court judgment which held that the object of the Income Tax Act and the Motor Vehicles Act are entirely different, and therefore taxable income cannot automatically determine compensation payable to dependants.

Permanent job not limited to govt service

• Rejecting the insurer’s argument that the deceased did not hold a permanent job, the Madhya Pradesh High Court held that periodic increments and regular salary revisions are sufficient indicators of stable employment for determining future prospects.
• The court observed that Kapoor’s salary had consistently increased over the years and therefore he would be treated as being in a “permanent job” for the purpose of calculating compensation.
• Accordingly, a 50 per cent addition towards future prospects was granted since the deceased was 32 years old at the time of the accident.

Dependant’s death can’t reduce payout

• The insurer had further argued that since one of the deceased’s parents died during pendency of proceedings, deduction towards personal expenses should be increased from one-fourth to one-third.
• Rejecting the submission, the Madhya Pradesh High Court relied on the Supreme Court’s ruling in Kirti vs Oriental Insurance Company Limited and held that compensation rights crystallise on the date of the accident itself and cannot be altered because of subsequent events during litigation.

Compensation recomputed at Rs 1.42 crore

After recalculating the deceased’s net monthly income at Rs 65,045 and applying future prospects, multiplier and other conventional heads, the high court determined total compensation at Rs 1,42,39,720.

Since the tribunal had already awarded Rs 34.20 lakh, the family became entitled to an enhanced compensation of Rs 1,08,19,720 with 6 per cent interest, subject to payment of additional court fees.

The appeal was accordingly allowed and the Madhya Pradesh High Court directed that a copy of the order be sent to the claims tribunal for compliance.