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K. Ramya & Ors. vs. National Insurance Co. Ltd. & Anr.

Civil Appeal · 2022 INSC 1044Decided 30 Sept 2022
Civil Appeal No. 7046 of 2022
Surya Kant · V. Ramasubramanian

Background

A 31-year-old businessman died in a head-on car collision in 2004. He ran several ventures (jewellery, textiles, exports and transport) and also earned rent and agricultural income. His widow and children sought compensation based on his income tax returns and audit reports; the Tribunal awarded about Rs. 4.29 crore. The Madras High Court cut this drastically to about Rs. 58 lakh, reasoning that income from capital assets (like rent and inherited land) was not truly "earned" through his personal effort and should not count, and instead fixed a low notional salary. The family appealed to the Supreme Court.

Decision Breakdown

The Supreme Court restored the use of income tax returns and audit reports as reliable evidence of income, rejecting the High Court's notional-salary approach. It drew a distinction: income from actively run business ventures (which the deceased personally managed day-to-day) should be counted in full, while income from rented-out property and agricultural land, largely passive, should only be reduced by the value of the managerial skill needed to run it (normally 10-15%, but assessed higher here at Rs. 2.5 lakh given the complexity of managing a multi-tenant commercial building). Applying the standard formula (adding 40% for future prospects, deducting a quarter for personal expenses, and a multiplier of 16), the Court recalculated total compensation at about Rs. 2.27 crore with 7.5% interest.

Lesson Learnt

In motor accident claims involving a self-employed or business-owning victim, courts should not discard genuine income-tax and audit evidence just because some income came from investments rather than a salary: the correct approach is to count actively-earned business income in full and deduct only a modest "managerial skill" portion from passive rental or agricultural income.

Official source (sci.gov.in)View Judgment (PDF)

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