Income Tax Returns And Audit Reports Are Reliable Evidence To Determine Income Of Deceased: Supreme Court

Income Tax Returns And Audit Reports Are Reliable Evidence To Determine Income Of Deceased: Supreme Court

The Supreme Court ruled that Income Tax Returns and audit reports are Reliable Evidence to determine the income of the deceased.

Background 

S. Kumareshan was a resident of Tiruchirappalli, Tamil Nadu. On the fateful day, at about 4 PM in the evening, he was travelling alone in a Lancer Car and met with an unfortunate accident with an Ambassador Car along the stretch of road between Sethathupatti and Soriampattti. The collision was so powerful that the drivers of both vehicles passed away before any medical assistance could reach them. The sole survivors of the collision were occupants of the Ambassador Car, who miraculously escaped death but were saddled with multiple injuries.

The Deceased’s dependents filed a claim petition in August 2004, alleging, inter alia, that he died as a result of the injuries suffered in the accident, which occurred due to the rash and negligent driving of the Ambassador Car which the Insurance Company had insured.

Arguments 

Senior Advocate K. Radhakrishnan, appearing for the Appellants, contended that the High Court via impugned decision has erred by computing the compensation on the basis of notional income despite the fact that the Appellants adduced specific evidence to ascertain the income earned by Deceased.

He strongly asserted that the Tribunal rightly relied on the income tax returns and the audit reports of the Deceased to compute the amount under the head of ‘loss of income’ and stated that relevant testimonies supported the same.

Counsel for the Insurance Company argued that High Court has rightly reduced the compensation in view of the fact that the income tax returns and the audit reports highlight that the Deceased’s income essentially constituted of returns from his capital assets which have been duly bequeathed to the Deceased’s dependents. 

He argued that loss of income must be equivalent to only that portion which corresponds to the skill of the deceased, as a consequence of which there has been no loss of income to the Appellants in the case.

Decision 

The division bench of Justice Surya Kant and Justice V. Ramasubramanian reiterated that compensation must be fair, reasonable and equitable. Further, the determination of quantum is a fact­ dependent exercise which must be liberal and not parsimonious. It must be emphasized that compensation is a more comprehensive form of pecuniary relief which involves a broad ­based approach unlike damages.

The court said that Motor Vehicles Act of 1988 is a beneficial and welfare legislation that seeks to provide compensation as per the contemporaneous position of an individual which is essentially forward ­looking.

“Unlike tortious liability, which is chiefly concerned with making up for the past and reinstating a claimant to his original position, the compensation under the Act is concerned with providing stability and continuity in peoples’ lives in the future” the bench added.

The court noted that almost all business ventures were the result of the initiatives taken by the Deceased, and he was actively involved in the day­ to ­day management of these entities. 

It was stated by the court that the mere fact that the Deceased’s share of ownership in the businesses ventures was transferred to the Deceased’s minor children just before his death or to the dependents after his death is not a sufficient justification to conclude that the benefits of these businesses continue to accrue to his dependents.

“Computation of any individual’s managerial skills should lie between 10 to 15 per cent of the total rental income but the acceptable range can be increased in light of specific circumstances. The appropriate approach, therefore, is to determine the value of managerial skills along with any other factual considerations” the court stated.   

The court deemed it appropriate to award Rs 2,50,000/­ as the amount for the Deceased’s managerial skills. It was clarified that the said amount would also include the amount for the managerial skills in respect of the Deceased’s agricultural lands. It was further clarified that the remaining amount which has been deducted by it includes the tax which has to be deducted in terms of the decision in Pranay Sethi.

Case title: K. Ramya & Ors. v/s National Insurance Co. Ltd. & Anr.

Citation: CIVIL APPEAL NO.7046 OF 2022

Click here to read the Order/Judgment 

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