Tribunal Must Consider Tax and Deductions While Assessing Income | Delhi HC Says No Tax Payable as Net Income Below Threshold and Upholds Compensation
Sanchayita Lahkar
The High Court of Delhi Single Bench of Justice Amit Mahajan dismissed an appeal filed under Section 173 of the Motor Vehicles Act, 1988, seeking reduction in compensation awarded by the Motor Accident Claims Tribunal (MACT). The Court held that the appellant had not made out a case for interference with the award, as the net income of the deceased, after all applicable deductions, fell below the taxable threshold. The Court directed that there shall be no interference with the impugned award and dismissed the appeal accordingly.
On the evening of 6 July 2019, at approximately 9:30 p.m., Mr. Sanjeev Kumar Singh, referred to as the deceased, and his father were returning home when a truck, bearing registration number HR-38S-6678 and allegedly driven in a rash and negligent manner by Respondent No. 2, collided with them near Surajkund Pali Road. The impact of the collision resulted in both individuals sustaining injuries. Mr. Sanjeev Kumar Singh suffered grievous head injuries and was declared brought dead at a nearby hospital.
Following the incident, a First Information Report (FIR No. 419/2019) was registered at Police Station Surajkund under Sections 279 and 304A of the Indian Penal Code, 1860. Post-investigation, the police filed a chargesheet against Respondent No. 2 for the stated offences.
Subsequently, the learned Motor Accident Claims Tribunal adjudicated upon the claims filed by the legal heirs of the deceased. Upon examining the pleadings, evidence, and documents on record, the Tribunal assessed compensation payable to the legal heirs at a total of Rs. 49,82,740/-, with interest calculated at the rate of 7.5% per annum.
The Insurance Company, aggrieved by the quantum of compensation awarded, filed an appeal challenging the Tribunal’s assessment. The appellant contended primarily that the learned Tribunal had erred in computing the deceased's income at Rs. 34,300/- per month without deducting applicable income tax. It was further submitted that the interest rate of 7.5% per annum was on the higher side and should have been limited to 6% per annum.
The appellant stated that under the tax regime effective during the relevant period, an income of Rs. 34,300/- per month, amounting to Rs. 4,11,600/- annually, would attract a 5% tax slab, and the Tribunal should have deducted income tax while assessing net income. Reliance was placed on the judgment in Sarla Verma and Ors. v. Delhi Transport Corporation and Anr.: (2009) 6 SCC 121, which held that the income of the deceased, after deducting income tax, should be considered for calculating compensation.
In response, the Tribunal examined salary slips presented by PW-2 and held that the income assessed was based on reliable documentation. The Court further evaluated whether the applicable deductions, including standard deductions and allowances such as House Rent Allowance (HRA), would reduce the taxable income below the threshold for income tax liability. It was noted that the standard deduction of Rs. 50,000/- and other permissible deductions would result in the net income falling under the exempted income bracket.
Justice Amit Mahajan recorded that the core question for consideration was whether the compensation awarded was excessive and liable to be reduced. The Court observed "The learned Tribunal after a perusal of the salary slips and testimony of PW-2 who proved the said salary slips assessed the income of the deceased at ₹34,300/- per month. Thereby his gross annual income would be ₹4,11,600/-."
Further, the Court stated, "The said income undoubtedly would be subject to tax as applicable at the relevant time. Thus, the learned Tribunal in the opinion of this Court ought to have considered the applicable tax and its deduction for the purpose of assessing the income of the deceased."
After referring to the Finance Bill, 2019, applicable for the financial year 2019-20, the Court noted, "Gross monthly salary of the deceased also included the component of House Rent Allowance... considering the facts of the present case it can safely be presumed that the deceased would have at least been paying an amount of ₹75,000/- to ₹1,00,000/- annually towards rent and therefore relevant deductions will be applicable."
Summarizing the impact of the standard and HRA deductions, the Court observed, "Considering that the deceased at the time of the accident was earning gross annual income of ₹4,11,600/- and if the aforesaid deductions are made from the said amount, the net income of the deceased would be around ₹2,50,000/- and hence not liable for payment of any income tax."
Referring to the purpose of the Motor Vehicles Act, 1988, the Court stated, "It is well-settled that the amount of compensation awarded under the MV Act should be just and, to the extent possible, should fully and adequately restore the claimant to a position as existed prior to the accident."
Quoting the Hon’ble Apex Court in State of Arunachal Pradesh v. Ramchandra Rabidas alias Ratan Rabidas and another: (2019) 10 SCC 75, the judgment recorded, "The M.V. Act is a beneficial legislation, the primary objective being to provide a statutory scheme for compensation of victims of motor vehicle accidents; or, their family members who are rendered helpless and disadvantaged by the untimely death or injuries caused to a member of the family, if the claim is found to be genuine."
In light of the facts and deductions applicable, the Court held, "This Court finds no reason to interfere with the impugned award passed by the learned Tribunal."
The High Court issued the following directives:
"In light of the aforesaid judgment noting the beneficial nature of the MV Act and the fact that the net income of the deceased after the requisite deductions fell within the range for which no tax was liable to be deducted, this Court finds no reason to interfere with the impugned award passed by the learned Tribunal."
"The present appeal is therefore dismissed. Pending application(s) if any also stand disposed of."
Advocates Representing the Parties:
For the Appellant : Mr. Rajat Khattry, Adv
Case Title: Universal Sompo General Insurance Company Ltd v. Dinesh Kumar Singh & Ors.
Neutral Citation: 2025: DHC:4930
Case Number: MAC.APP. 106/2025
Bench: Justice Amit Mahajan
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