4 Oct 2022 5:01 AM GMT
The Supreme Court has held that motor accident compensation need not be reduced for the sole reason that that the business ventures and properties of the deceased were bequeathed to the claimants.In this case, the Deceased was a businessman in diverse areas and also drew income from his agricultural lands and leased out real estate. At the time of his demise, he left behind a widow, two...
The Supreme Court has held that motor accident compensation need not be reduced for the sole reason that that the business ventures and properties of the deceased were bequeathed to the claimants.
In this case, the Deceased was a businessman in diverse areas and also drew income from his agricultural lands and leased out real estate. At the time of his demise, he left behind a widow, two minor children and parents who were stated to be dependent on him.
The High Court had 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. The High Court set aside the Tribunal's award on the ground that the income earned was out of capital assets and cannot be said to have been earned out of personal skills of the deceased. It consequently went on to determine the income of the Deceased on a notional basis as per his educational qualification
Disapproving the High Court's approach, a bench comprising Justices Surya Kant and V Ramasubramanian held :
"Unfortunately, such an approach, in our opinion, is erroneous in view of the decisions of this court in Amrit Bhanu Shali v National Insurance Co. Ltd. and Kalpanaraj v Tamil Nadu State Transport Corpn wherein this court has held that documents such as income tax returns and audit reports are reliable evidence to determine the income of the deceased. Hence, we are obliged to modify the compensation, especially when neither any additional evidence has been produced to showcase that the income of the Deceased was contrary to the amount mentioned in the audit reports nor it is the stand taken by the Insurance Company that the said reports inflated the income".
The Court reiterated that compensation awarded under Section 168 of the Motor Vehicles Act must be "just and fair" and that it is a beneficial and welfare legislation7 that seeks to provide compensation as per the contemporaneous position of an individual which is essentially forwardlooking.
Income from business ventures
The Court noted that as per the audit report and other documents, the income was attributable to the amounts earned from the deceased's multiple business ventures, which included the partnership firms and other investments such as shares and bank interests. These ventures were the result of the initiatives taken by the Deceased, and he was actively involved in the daytoday management of these entities.
"The mere fact that the Deceased's share of ownership in these 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. On the contrary, it has come on record that the Deceased was actively involved in the daytoday administration of these businesses from their stage of infancy, had undergone specialized training to administer his business and that the audit reports neatly delineate Deceased's share of income from the businesses. These facts necessitate that the entire amount from the business ventures is treated as income. Similarly, the amount earned from the bank interests and remaining investments must also be included as income", the Court observed.
The Appellants produced audit reports for the last four financial years which highlight the amounts under 'Income from Business Ventures and other Investments' which is as per follows – (i) for FY 2000-2001 is Rs. 8,95,812/ (ii) for FY 2001-2002 is Rs. 10,31,091/ (iii) for FY 2002 2003 is Rs. 14,65,060/ and (iv) for FY 20032004 is Rs. 9,79,099/. The average of these amounts comes up to Rs. 10,92,765.50/, which is rounded off to Rs 10,93,000/ and the same was awarded to the Appellants as loss of income derived under 'Income from Business Ventures and other Investments'.
Treatment of Income from House Property and Agricultural Land
As per audit reports, the deceased used to draw all his rental income from the share he held in a commercial building known as 'Lakshmi Complex' and the remaining income was from his agricultural lands, which have been bequeathed to his legal heirs on his death.
The Court considered whether this income should be deducted from compensation, as the properties have been bequeathed to the dependents. In this regard, reference was made to the decision in State of Haryana v Jasbir Kaur, wherein it was observed in the context of an agricultural land that the income from it need not be deducted completely from compensation, as the claimants may have to engage persons to look after agriculture. So, attendant circumstances have to be looked into.
Taking a cue from this precedent, the Court observed.
"In our opinion, the abovementioned observations, though made in the context of agricultural land, would also be applicable to rent received from leased out properties as the loss of dependency arises mainly out of loss of management capacity or efficiency. As a rule of prudence, 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".
Two factors were taken into account - first, the rental amount which is sought to be deducted partakes the character of investment; and second, that the managerial skills required for supervising the said building would require sophisticated contract management skills and goodwill among the business community, it is necessary that we determine the value of managerial skills of the Deceased on the higher side.
The Court deemed it appropriate to award Rs 2,50,000/ as the amount for the Deceased's managerial skills. It clarified that the said amount would also include the amount for the managerial skills in respect of the Deceased's agricultural lands
Case Title : K Ramya and others versus National Insurance Co Ltd
Citation : 2022 LiveLaw (SC) 816
Motor Vehicles Act 1988 - Section 168- Motor accident claims - compensation must be fair, reasonable and equitable. Further, the determination of quantum is a fact-dependent exercise which must be liberal and not parsimonious- Motor Vehicles Act of 1988 is a beneficial and welfare legislation7 that seeks to provide compensation as per the contemporaneous position of an individual which is essentially forwardlooking [Paras 11, 12]
Motor Accident Compensation - documents such as income tax returns and audit reports are reliable evidence to determine the income of the deceased [Para 14]
Motor Accident Compensation - mere fact that the Deceased's share of ownership in these 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 [Para 17]
Motor Accident Compensation - Entire amount under 'Income from House Property and Agricultural Land' need not be deducted merely because properties have been bequeathed to dependents- compensation towards loss of managerial skills can be awarded [Para 22]
Motor Accident Compensation - Dependents entitled to compensation for loss of income even if businesses & properties of deceased were bequeathed to them [Para 14,17 & 22]
Click here to read/download the judgment