Whether 'Cost Inflation Index' Or 'Consumer Price Index' Be Used To Assess Notional Income In Motor Accident Claims? Madras HC Refers To Larger Bench

The Madras High Court recently took note of certain "anomalies" in fixing the notional income and consequent grant of compensation in motor accident claims. Since there are conflicting orders from two division benches on this issue, the court noted that there is a need for judicial pronouncement by a Larger Bench.Justice PT Asha thus directed the registry to place the papers before the Chief Justice with a request to constitute a bench of appropriate strength to resolve the below issues:1. Whether the Consumer Price Index adopted by the Central and State Government to revise wages or the Cost Inflation Index used to calculate capital gains should be used to fix the notional income in order to calculate the loss of income in the case of motor accident claims?2. How should the notional income be fixed in the case of the unorganised sector which forms a chunk of the claims that are filed before the Motor Accident Claims Tribunal?The court observed that in the case of Royal Sundaram Alliance General Insurance Company Limited -vs- Vennila, a division bench had analyzed how the monthly income of the victim was to be determined. It had held that for computing loss of contribution to family income or in the case of injury where there is a loss of earning capacity on account of disability, income fixation should be on the basis of "Consumer Price Index" for both organised and unorganised sections.However, later a division bench, in the case of Shriram General Insurance Company Ltd v Kokila held that to determine notional income of the deceased "Cost Inflation Index" (CII) issued by the Central Board of Direct Taxes (CBDT) should to be taken into account.This decision was followed in the case of Chinnathamani and others v. Amman Granties and Another wherein the court observed that in order to determine the Consumer Price Index in accordance with the income fixed by the Government of India, reference has to made to the notifications issued by the CBDT, which has been revising the Cost Inflation Index every year.The court noted that in the later judgments, the division benches had failed to take note of the decision in the case of Royal Sundaram. Thus, since there was a conflict between the two judgments, a clarification was necessary. While issuing directions, the court also noted that the Cost Inflation Index is fixed in the case of capital gains, whereas the Cost Price Index is the one used by the Government to revise wages, which was a more pragmatic and realistic form of arriving at a notional income.Click here to read/download the order

Whether 'Cost Inflation Index' Or 'Consumer Price Index' Be Used To Assess Notional Income In Motor Accident Claims? Madras HC Refers To Larger Bench

Upasana Sajeev

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