Issue on Income calculation made u/s 44-AE of the Income Tax Act for Awarding compensation : Orissa HC Directs Re calculation [Read Order]

The High Court of Orissa directed the recalculation on the issue of Income calculation made under Section 44-AE of the Income Tax Act, 1961  for Awarding compensation. The court held that the amount of compensation is to be accordingly recalculated. The annual income of the deceased is to be reassessed at Rs.1,76,496/- taking into account the average income of the previous three years.

The appellant, Pratibha Kumari Baral & Others filed appeal under Section 173 of the Motor Vehicles Act, 1988 (‘the M.V. Act’) at the behest of the claimants for modification of the award dated 10th February 2023 passed in M.A.C. Case No.63 of 2017 by Additional District Judge-cum-3rd M.A.C.T., Dhenkanal with enhancement of compensation amount since the same is not just and proper commensurate to the loss suffered by them on account of death of the deceased in a motor vehicular accident dated 28th July, 2016.

It was submitted that though the Tribunal held that the accident has taken place involving the offending vehicle (Truck) bearing registration No. OR-06G-8473 but fell into gross error, while computing the amount of compensation. It is contended by Mr. Mohanty that the learned Tribunal instead of taking average of previous three years of Income Tax Return (ITR) considered four years as it was available on record and hence, a wrong approach was adopted at the time of determination of the monthly income of the deceased.

The Tribunal assessed a sum of Rs.60,000/- per year as income in respect of the heavy goods vehicles owned by the deceased instead of a presumptive sum of Rs.7,500/- a month given Section 44-AE of the Income Tax Act and therefore, the amount on the said head is to be accordingly enhanced. It was argued that the tribunal failed to award a periodical increment of 10% on general damages payable every three years in view of the Supreme Court dictum in National Insurance Co. Ltd. Vrs. Pranay Sethi AIR 2017 SC 5157.

Tribunal calculated the annual income of the deceased at Rs.1,53,861/- taking into account the ITR of four years, such as, 2011-12, 2012-13, 2013-14 and 2014-15 marked as Exts.13, 13/1,13/2 and 13/3, wherein, the gross total incomes were shown as Rs.85,960/-,  Rs.1,45,630/-,  Rs.1,98,235/-  and  Rs.1,85,620/-respectively, which according to Mr. Mohanty, ought to have been by considering the last of the three financial years only.

The petitioner referring to Section 44-AE of the Income Tax Act to claim that at least, an amount of Rs.7,500/- a month should have been assessed at instead of Rs.5,000/-. According to Section 44-AE of the Income Tax Act, small business engaged in plying, hiring or leasing goods carriage having not more than ten goods carriages vehicle can adopt the presumptive taxation scheme to ascertain the taxable income in a particular assessment year.

Justice R K Pattanaik observed that as per the calculation of income under Section 44-AE of the Income Tax Act, the net total taxable income for such business involving carriage vehicles shall be calculated at the rate of Rs.7,500/- a month or part thereof during which the assessees own the carriage of the goods in the previous year.

The court held that the amount of compensation is to be accordingly recalculated. The annual income of the deceased is to be reassessed at Rs.1,76,496/- taking into account the average income of the previous three years, such as, 2012-13, 2013-14 and 2014-15. Assuming the income from the heavy goods vehicles of the deceased, the Court is inclined to add an amount of Rs.22,500/- only (not counting for the entire year) since the hypothecated TATA ACE and JCB had been purchased shortly before the accident.

No evidence is on record either to ascertain, if both the vehicles are still with the claimants or in the meantime, disposed of after the death of the deceased. Anyways, the income with an additional sum of Rs.22,500/- becomes Rs.1,99,996/-. 

The Court modified the impugned award to the extent as aforesaid with a direction to the Insurance Company to deposit a sum of Rs.30,88,592/- along with interest at the rate of 7% per annum from the date of claim application filed till its realization within eight weeks.

Mr. Mohanty, counsel appeared for the claimants, Mr. Das, counsel appeared for the owner of the offending vehicle and Mr. Dasmohapatra, counsel appeared for the Insurance Company.

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