THE HON'BLE SRI JUSTICE U.DURGA PRASAD RAO
AND
HON'BLE MS. JUSTICE J. UMA DEVI
M.A.C.M.A.No.1532 of 2011
JUDGMENT: (Per Hon'ble Sri Justice U.Durga Prasad Rao)
Challenging the award dated 12.05.2011 in M.V.O.P.No.241 of
2008 passed by the Chairman, Motor Accidents Claims Tribunal-cum-
III Additional District Judge, Nandyal, awarding a compensation of
Rs.13,54,420/- with proportionate costs and interest at 6% p.a. against
the claim of Rs.55.00 lakhs, the claimants preferred the instant
M.A.C.M.A.
2. The claimants are parents of the deceased Narahari Prashanth
who died on the night of 17.09.2006 while his motor cycle bearing
No.TN 20H 2885 was hit behind by a lorry bearing No.HR 38K 8869.
The claimants pleaded that the deceased was aged 27 years and
working as Software Engineer in Kanbay Softward (I) Private
Limited, Hyderabad and getting monthly salary of Rs.27,098/- and
due to his untimely death, which was caused by the rash and negligent
driving of the driver of the lorry, they lost their son and future
supporter. They laid the claim against respondent Nos.1 and 2, who
are the owners of the offending lorry, and the 3rd respondent who is its insurer.
3. While respondent Nos.1 and 2 remained ex parte, the 3rd respondent alone contested the O.P. and repudiated its liability mainly 2 UDPR,J & JUD,J MACMA No.1532 of 2011 on the ground that the lorry driver was not at fault and that he did not have valid and effective driving licence at the time of the accident.
4. The Tribunal, upon consideration of the facts and evidence on record, held that the accident was occurred due to the fault of the lorry driver and granted compensation as follows: Sl.No. Description of head Awarded amount (Rs.) 1 Compensation for death of Narahari Prashanth 17,88,468-00 Monthly salary of Rs.27,098 - ½ = Rs.13,549 Rs.13,549 x 12 = Rs.1,62,588/-
Rs.1,62,588 x 11 multiplier = 17,88,468/-
2 Funeral expenses 5,000-00
Total (Rs.) 17,93,468-00
From the above amount, the Tribunal deducted a sum of Rs.4,39,048/- towards income tax payable on the compensation and granted the net amount of Rs.13,54,420/- as compensation with proportionate costs and interest at 6% p.a. from the date of O.P. till the date of realization.
Hence the M.A.C.M.A.
5. Heard arguments of learned counsel for the appellants Sri J. Janaki Rami Reddy and Sri C. Prakash Reddy learned counsel for the 3rd respondent.
6. Learned counsel for the appellants firstly argued that the Tribunal committed an error in accepting the age of mother of the deceased for fixing multiplier instead of the age of the deceased. He argued that the age of the deceased should be the basis for applying multiplier. In this regard, he placed reliance on the decisions of 3 UDPR,J & JUD,J MACMA No.1532 of 2011 Hon'ble Apex Court in National Insurance Company Limited Vs. Pranay Sethi and others1 and Chikkamma and others Vs. Parvathamma and others2.
Nextly he argued that the Tribunal committed a grave error in deducting income tax from the compensation amount. He vehemently argued that compensation cannot be termed as income. He placed reliance on the decision of the High Court of Madras in the Managing Director, Tamilnadu State Transport Corporation (Salem) Ltd., Vs. Chinnadurai3. He however fairly admitted that while accepting the income of the deceased for computation of compensation, statutory taxes payable by him including income tax shall be deducted and net salary alone should be taken up. In this regard, he referred to the decision in Panay Sethi case (1 supra).
7. In his turn, Sri C. Prakash Reddy, learned counsel for the 3rd respondent/Insurance Company admitted that compensation amount is not exigible to income tax and the Tribunal committed an error in that regard. He however would argue that though compensation amount is not taxable, the interest awarded on the said amount, if exceeds Rs.50,000/- in a financial year, the same is liable for tax and the Insurance Company has to make TDS before depositing compensation and interest. He relied upon the decision of the High Court of 1 MANU/SC1366/2017=AIR 2017 SC 5157 2 MANU/SC/0680/2017=AIR 2017 SC 1732 3 MANU/TN/0981/2016=AIR 2016 Mad 146 4 UDPR,J & JUD,J MACMA No.1532 of 2011 Madhya Pradesh (Indore Bench) in United Insurance Company Ltd. Vs. Ramlal and others4.
8. The points for consideration are:
1) Whether the age of the deceased bachelor or his dependent (mother in this case) is to be taken for selection of multiplier?
2) Whether compensation awarded in motor vehicle accident cases is liable for income tax?
3) Whether the interest awarded on compensation is liable for income tax?
4) To what relief?
9. Point No.1 : Admittedly the deceased was a bachelor. The Tribunal having regard to the age of his mother/2nd appellant as 51 years, selected '11' as multiplier. It must be noted that in Pranay Sethi case (1 supra) and Chikkamma case (2 supra) the Apex Court has observed that the age of the deceased for the purpose of selection of multiplier should be taken. Therefore, following the same we are of the view that the age of the deceased should be taken as basis for selection of multiplier. The deceased was stated to be 27 years old as on the date of the accident. Hence, following the multiplier table prescribed in Sarla Verma v. Delhi Transport Corporation5, '17' is selected as multiplier.
10. Point Ns.2 & 3: So far as the applicability of income tax to the compensation awarded to the victims to the motor vehicle accidents is concerned, in Managing Director, Tamilnadu State Transport 4 MANU/MP/0841/2010=2012 ACJ 1157 5 2009 ACJ 1298 = MANU/SC/0606/2009 5 UDPR,J & JUD,J MACMA No.1532 of 2011 Corporation (Salem) Ltd. case (3 supra), the High Court of Madras dealt with the question whether the victim, who is awarded compensation, is liable to pay income tax on the compensation and the interest accrued thereon. It posed a question whether the compensation awarded by the Motor Accidents Claims Tribunal to the victim can be classified as taxable income under the Income Tax law. The High Court of Madras answered the question in the negative with observation that the compensation cannot be categorized or even described as income because the intention of the legislature in awarding compensation to the victims of motor accident cases is to restitute them and rehabilitate them. If there is a conflict between the social welfare legislation and a taxation legislation, it is to be viewed that the social welfare legislation should prevail since it sub-serves larger public interest and the Motor Vehicle Act is one such legislation which has been passed with a benevolent intention. The Madras High Court has ultimately held thus:
"18. Hence, with due respect I am unable to concur with the findings of the Karnataka High Court, the Chhattisgarh High Court and this Court cited by the Revision Petitioner. This Court is of the view that the Division Bench judgment of the Himachal Pradesh high Court and the judgment of the Single Judge of the Punjab and Haryana High Court lay down the right law and hence, this Court arrives at the conclusion that the compensation awarded or the interest accruing therein from the compensation that has been awarded by the Motor Accident Claims Tribunal cannot be subjected to TDS and the same cannot be insisted to be paid to the Tax Authorities since the compensation and the interest awarded therein does not fall under the term 'income' as defined under the Income Tax Act, 1961."
We subscribe the similar view as that of the Madras High Court. The object behind awarding compensation is only to restore an injured or the legal representatives of a deceased, who met with an 6 UDPR,J & JUD,J MACMA No.1532 of 2011 accident, to such financial position which they would have been, had there been no accident, and this exercise is not to confer on them any windfall. Therefore, the compensation amount cannot be equated with the income as defined in the Income Tax Act to subject to tax. Therefore, we differ with the judgment of the High Court of Madhya Pradesh (Indore Bench) in Ramlal case (4 supra) cited by the learned counsel for the respondents. Consequently we hold that the Tribunal committed grave error in deducting income tax from the compensation awarded by it. Instead, it ought to have deducted income tax from the salary of the deceased if it comes within the taxable purview.
11. Point No.4 : Taking the above findings into consideration, now the compensation has to be fixed. The deceased was earning a salary of Rs.27,098/- per month. His gross annual income is Rs.3,25,176/- (27098 x 12). During the Financial Year 2005-06, the above income is taxable and hence, the income tax has to be deducted as follows: Income Tax for Rs.3,25,176/-
Gross annual income 3,25,176
Basic exemption - 1,00,000
From Rs.1 to Rs.1,50,000 (10%)
(50,000 x 10%) 5,000
From Rs.1,50,001 to Rs.2,50,000 (20%)
(1,00,000 x 20%) 20,000
30% on Rs.75,176 22,500
______
Total income tax payable 47,500
7 UDPR,J & JUD,J
MACMA No.1532 of 2011
Thus, after deducting the income tax, the net annual salary of the deceased is Rs.2,77,676/- (3,25,176 - 47,500). From this amount 1/2 is to be deducted towards personal and living expenses by following the Sarla Verma case (5 supra). The net contribution of the deceased comes to Rs.1,38,838/-. The said amount is to be multiplied with the multiplier '17' to get the loss of dependency which comes to Rs.23,60,246/- (1,38,838 x 17). Thus, the total compensation payable to the claimants is as follows:
Loss of dependency : 23,60,246
Funeral expenses 5,000
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23,65,246
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12. In the result, this appeal is allowed and compensation is enhanced from Rs.13,54,420/- to Rs.23,65,246/- with proportionate costs and interest @ 7.5% per annum from the date of O.P. till the date of realization and the respondents are directed to deposit compensation amount within two (2) months from the date of this judgment, failing which execution can be taken out against them. No costs.
As a sequel, interlocutory applications, if any, pending for consideration shall stand closed.
_________________________ U. DURGA PRASAD RAO, J ______________ J. UMA DEVI, J 01.03.2021 CBS/MVA