Madras High Court
The Oriental Insurance vs Yasodha on 9 July, 2026
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
C.M.A.(MD).No.201 of 2025
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on : 24.06.2026 Pronounced on :09.07.2026
CORAM
THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH
and
THE HONOURABLE MR.JUSTICE K.K.RAMAKRISHNAN
C.M.A.(MD).No.201 of 2025
and
C.M.P.(MD).No.3268 of 2025
The Oriental Insurance Company Limited Hub,
Through its Regional Manager,
having office at
Door No.16/4,
K.J.R.Complex,
South Veli Street,
Madurai. ... Appellant / Respondent No.2
Vs.
1.Yasodha
2.Jeyabharathi
3.Gokulnath
4.Natchiar ... Respondent Nos.1 to 4 / Petitioner Nos.1 to 4
5.Suresh Arora ... Respondent No.5 / Respondent No.1
PRAYER:- Civil Miscellaneous Appeal is filed under Section 173 of the Motor
Vehicles Act, 1988, to set aside the fair and decreetal order dated 01.08.2023
made in M.C.O.P. No.13 of 2018 on the file of the learned Tribunal of MACT
cum Special District Court, Madurai and allow this appeal.
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C.M.A.(MD).No.201 of 2025
For Appellant : Mr.C.Jawahar Ravindran
For Respondents : Mr.M.Rajaram
JUDGMENT
(Judgment of the Court was made by K.K.RAMAKRISHNAN,J.)
The second respondent in M.C.O.P. No. 13 of 2018 on the file of the
Motor Accident Claims Tribunal (Special District Court), Madurai, has
preferred the present appeal challenging the quantum of compensation awarded
by the Tribunal, namely a sum of Rs.1,73,96,398/-.
2. Facts of the Case:
2.1. The facts, in brief, are that on 14.05.2017 at about 4.30 a.m., the
deceased, Kumar, along with others, was travelling in the offending vehicle.
Owing to the rash and negligent driving of its driver, the vehicle plunged into a
deep valley of about 100 yards from the National Highway. As a result of the
accident, Kumar suffered serious injuries and succumbed to the injuries, while
the other occupants sustained injuries. A criminal case was thereafter registered
against the driver of the offending vehicle. The legal representatives of the
deceased, arrayed as respondents 1 to 4 herein, instituted M.C.O.P. No. 13 of
2018 claiming compensation of more than Rs.1 crore. According to the
claimants, prior to the accident, the deceased was employed in Malaysia and
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C.M.A.(MD).No.201 of 2025
was earning a substantial income through his employment there.
2.2. The appellant–Insurance Company filed a counter statement denying
the averments made in the claim petition. It disputed the manner of the
accident, the negligence attributed to the driver of the offending vehicle, and
the employment and income of the deceased, and prayed for dismissal of the
claim petition. In order to establish the employment and income of the
deceased, the claimants examined P.Ws.1 and 2 and marked Exs.P-1 to P-121,
including Ex.P-52, which related to the employment and salary particulars of
the deceased in Malaysia.
3. Finding of the Tribunal:
3.1. Relying principally upon Ex.P-52 and the oral evidence, the Tribunal
awarded a total compensation of Rs.1,73,96,398/- together with interest at the
rate of 7.5% per annum under the following heads:
Sl.
Head of Compensation Amount (Rs.)
No.
1. Loss of Dependency 1,71,56,398/-
2. Spousal Consortium (P1) 40,000/-
3. Parental Consortium (P2 & P3) 80,000/-
4. Filial Consortium (P4) 40,000/-
5. Transportation of Dead Body 50,000/-
6. Funeral Expenses 15,000/-
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C.M.A.(MD).No.201 of 2025
Sl.
Head of Compensation Amount (Rs.)
No.
7. Loss of Estate 15,000/-
Total Rs.1,73,96,398/-
4. Submission of the learned counsel for the appellant:
4.1. Assailing the award, the learned counsel appearing for the appellant–
Insurance Company submitted that the challenge is confined only to the
quantum of Rs.1,73,96,398/- over and above Rs.1 crore. It was contended that
Ex.P-52 could not have been relied upon to determine the income of the
deceased, as admittedly, on the date of the accident, the deceased was in India
and not in Malaysia. Therefore, the salary reflected in Ex.P-52 could not form
the basis for assessing the loss of dependency.
4.2. It was further contended that, even assuming Ex.P-52 is admissible,
the Tribunal committed an error in including the bonus component while
calculating the monthly income of the deceased. The learned counsel also
argued that the Tribunal failed to deduct the income tax payable while
computing the loss of dependency. It was further submitted that, in cases
involving foreign employment, a Division Bench of this Court, in unreported
judgments in CMA(MD).No.2623 of 2008 dated 06.06.2013 and
CMA(MD).No.670 of 2009 dated 27.06.2013, adopted a lower multiplier, and
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C.M.A.(MD).No.201 of 2025
therefore the Tribunal ought to have applied the said principle instead of
applying multiplier ’15’. On these grounds, the appellant sought reduction of the
compensation.
5. Submission of the learned counsel for the respondents:
5.1. Per contra, the learned counsel appearing for the claimants submitted
that the Constitution Bench judgment of the Hon’ble Supreme Court in
National Insurance Co. Ltd. v. Pranay Sethi has comprehensively settled the
law governing the determination of compensation under the Motor Vehicles
Act. It was contended that the Constitution Bench reaffirmed the settled
principles governing the application of the multiplier and prescribed uniform
guidelines, leaving no distinction between persons employed in India and those
employed abroad. Therefore, the Tribunal rightly applied multiplier ’15’.
5.2. The learned counsel further submitted that Ex.P-52 itself mentions
the salary after deduction of income tax and, therefore, there was no necessity
for making any further deduction towards income tax. It was also submitted that
this Court, in an earlier judgment, after an elaborate discussion, had held that no
further deduction towards income tax is warranted where the salary certificate
already reflects the income after statutory deductions. According to the learned
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C.M.A.(MD).No.201 of 2025counsel, the said principle squarely applies to the present case.
5.3. The learned counsel finally contended that the other objections raised
by the appellant are devoid of merit and prayed for confirmation of the award
passed by the Tribunal.
6. This Court has carefully considered the rival submissions advanced by
the learned counsel appearing on either side, perused the entire records, and
examined the precedents relied upon by them.
7. The point that arises for consideration in this appeal is:
Whether the compensation awarded by the Tribunal requires
interference, particularly with regard to the assessment of the annual income of
the deceased, the application of the multiplier, and the computation of loss of
dependency?
8.Discussion:
8.1. It is the specific case of the claimants, as pleaded in the claim
petition, that the deceased was employed in Malaysia and was earning more
than Rs.1,00,000/- per month through his employment/business. In support of
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C.M.A.(MD).No.201 of 2025the said contention, Ex.P-52 was marked with the only objection that the
document contained two languages, namely English and Malay. Significantly,
the appellant did not dispute the genuineness, authenticity, or contents of the
document. The objection was confined solely to its bilingual nature and not to
its evidentiary value.
8.2. The learned Tribunal, after carefully considering Ex.P-52 along with
the other documentary evidence placed on record, rightly accepted its
genuineness and relied upon the same for determining the income of the
deceased. This Court finds no reason to differ from the said finding, as the
authenticity of Ex.P-52 has remained unchallenged throughout the proceedings.
8.3. A perusal of Ex.P-52 discloses that the deceased had earned an
annual income of RM 72,000, which, on conversion, works out to
approximately Rs.13,07,154/- per annum. The Tribunal adopted the said figure
as the annual income of the deceased. However, this Court finds that in the
claim petition itself the claimants had specifically pleaded that the deceased
was earning about Rs.1,00,000/- per month. In other words, the monthly income
pleaded by the claimants works out to Rs.12,00,000/- per annum.
8.4. Having regard to the pleadings contained in the claim petition, this
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C.M.A.(MD).No.201 of 2025Court is of the view that the annual income of the deceased is liable to be fixed
at Rs.12,00,000/-, instead of Rs.13,07,154/- adopted by the Tribunal. Since the
deceased was aged 45 years at the time of the accident, an addition of 25%
towards future prospects, in terms of the Constitution Bench judgment in
National Insurance Company Limited v. Pranay Sethi, is fully justified.
Accordingly, the annual income after adding future prospects works out to Rs.
15,00,000/-.
8.5. The learned counsel appearing for the appellant-Insurance Company
further contended that, in cases involving foreign employment, a lower
multiplier ought to be adopted in view of certain Division Bench judgments of
this Court. This Court is unable to accept the said submission. The Constitution
Bench in National Insurance Company Limited v. Pranay Sethi has reiterated
that the multiplier method is to be uniformly applied while determining
compensation under the Motor Vehicles Act. The multiplier depends solely
upon the age of the deceased and not upon the place of employment or the
nature of currency in which the income was earned. The said principle has
recently been reiterated by the Hon’ble Supreme Court in the case of Syam
Prasad Nagalla and Others v. Andhra Pradesh State Road Transport
Corporation and Others, reported in MANU/SC/0189/2025, wherein it was
held that no exception can be carved out merely because the deceased was
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C.M.A.(MD).No.201 of 2025
earning in foreign currency and the relevant portion is as follows:
“ 10. On the second issue, as per National Insurance Co.
Ltd. v. Pranay Sethi MANU/SC/1366/2017: 2017:INSC: 1068:
(2017) 16 SCC 680 the law is settled that the multiplier for a
person aged 43 must be 14. No exception is made for a person
earning in foreign currency.”Therefore, the contention of the appellant that a lower multiplier should be
adopted is liable to be rejected.
8.6. The distinction, if any, in cases involving foreign employment arises
only in the assessment of the actual income of the deceased and the deductions
that are permissible while arriving at the multiplicand. In the present case,
Ex.P-52 itself reflects the salary received by the deceased after statutory
deductions, including taxes payable in Malaysia. Therefore, there is no
justification either to adopt a different multiplier or to make any further
deduction towards income tax.
8.7. The next contention of the appellant relates to deduction of income
tax while computing the loss of dependency. This Court is not inclined to
accept the said submission. In C.M.A.(MD).No.426 of 2026 dated 30.03.2026,
this Court has elaborately considered the relevant provisions of the Income-tax
Act, the judgments of the Hon’ble Supreme Court, and the Division Bench
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C.M.A.(MD).No.201 of 2025
decisions governing the field, and has categorically held that no further
deduction towards income tax is permissible where the income taken into
account already represents the post-tax income or where the statutory
deductions have already reflected in the income documents relied upon. The
relevant portions of the said judgment are extracted hereunder:
“ 8.2.With regard to the second contention relating to
deduction of income tax, this Court is unable to accept the
submission made by the learned counsel for the appellant. It is well
settled that compensation awarded under the Motor Vehicles Act is
in the nature of just compensation for loss suffered and cannot be
equated to taxable income in stricto sensu so as to warrant
automatic deduction of income tax at source. Before the Division
Bench of this Court in C.M.A(MD).No.609 of 2024, a similar
contention was raised and the Division Bench has framed the
following question:
(i)Whether the appellant is entitled to deduct 20% in the total
income towards income tax?
8.3.After framing the said question, after elaborate discussion
answered negatively. The operative portion of the judgment as
follows:
“ 18.Point No.3
The learned counsel for the claimant opposed to deduct the
income tax and he specifically submitted that the compensation is
awarded to recompense for the death caused due to the “act of
tortfeasor”. Therefore, he submitted that the present practice of
deducting the income tax from deceased income while calculating
the compensation is against the law as laid down by the Hon’ble
Supreme Court and the various Division Bench of the various High
Courts. He elaborated the above argument on the basis of the
following judgment:
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C.M.A.(MD).No.201 of 202518.1.In the case of All India Reporter Ltd. v. Ramchandra D.
Datar, reported in AIR 1961 SC 943.
“The Hon’ble Three Member Bench of the Supreme Court has
not accepted the contention that there should be a deduction of the
income tax while calculating the compensation payable to an
employee by an employer for wrongful termination of the
employment in the following
3. We are not concerned to decide in this appeal whether in the
hands of the respondent the amount due to him under the decree,
when paid, will be liable to tax; that question does not fall to be
determined in this appeal. The question to be determined is whether
as between the appellant company and the respondent the amount
decreed is due as salary payment of which attracts the statutory
liability imposed by Section 18. The claim decreed by the civil court
was for compensation, for wrongful termination of employment,
arrears of salary, salary due for the period of notice and interest and
costs, less withdrawals on salary account. The amount for which
execution was sought to be levied was the amount decreed against
which was set off the claim under the cross-decree. A substantial
part of the claim decreed represented compensation for wrongful
termination of employment and it would be difficult to predicate of
the claim sought to be enforced what part thereof if any represented
salary due. Granting that compensation payable to an employee by
an employer for wrongful termination of employment be regarded as
in the nature of salary, when the claim is merged in the decree of the
court, the claim assumes the character of a judgment-debt and to
judgment-debts Section 18 has not been made applicable. The
decree passed by the civil court must be executed subject to the
deductions and adjustments permissible under the Code of Civil
Procedure. The judgment-debtor may, if he has a cross-decree for
money, claim to set off the amount due thereunder. If there be any
adjustment of the decree, the decree may be executed for the amount
due as a result of the adjustment. A third person who has obtained a
decree against the judgment-creditor may apply for attachment of
the decree and such decree may be executed subject to the claim of
the third person : but the judgment-debtor cannot claim to satisfy, in
the absence of a direction in the decree to that effect the claim of a
third person against the judgment-creditor, and pay only the
balance. The rule that the decree must be executed according to its
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C.M.A.(MD).No.201 of 2025
tenor may be modified by a statutory provision. But there is nothing
in the Income Tax Act which supports the plea that in respect of the
amount payable under a judgment-debt of the nature sought to be
enforced, the debtor is entitled to deduct income tax which may
become due and payable by the judgment-creditor on the plea that
the cause of action on which the decree was passed was the contract
of employment and a part of the claim decreed represented amount
due to the employee as salary or damages in lieu of salary.”
18.2.The Hon’ble Division Bench of the Allahabad in [2012]
211 TAXMAN 369(AII) in the case of Commissioner of Income tax
Vs. The Oriental Insurance Co. Ltd., has held that the amount of
compensation under the Motor Vehicle Act do not come within the
definition of income and has held as follows in Paragraph No.40:
“40. To our opinion, the award of compensation under motor
accidents claims cannot be regarded as income. The award is in the
form of compensation to the legal heirs for the loss of life of their
bread earner.”18.3.The Hon’ble Thiru.Justice J.B.Padriwala, (as he then
was) leading the Division Bench of Gujarat High Court, after
eloquent discussion has held as follows:
“73.The upshot of the aforesaid discussion is that the
compensation received under the Motor Vehicle act is either on
account of loss of earning capacity on account of death or injury or
on account of pain and suffering and such receipt is not by way of
earning or profit. The award of compensation is on the principle of
restitution to place the claimant in the same position in which he
would have been as the loss of life or injury would not have been
suffered.”
18.4.From the above discussion, this Court accepts the
argument of the learned counsel for the claimant and declines to
deduct 10% of the amount as claimed by the learned counsel
appearing for the insurance company and holds that the claimant is12/30
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C.M.A.(MD).No.201 of 2025entitled to receive the entire compensation without any income tax
deduction. This point is answered accordingly.”8.4.The similar view also taken by one of us, leading the
Division Bench in C.M.A.(MD).No.555 of 2019, 609 of 2024 and 925
of 2021 and held that compensation awarded in the case of death or
injury is not liable to be taxed under the any of the provision of the
Income Tax Act.
8.5.Earlier, The Income Tax Department issued a circular
dated 14.10.2011, whereby rates of income tax has been added on
the award amount and interest accrued and deposit made under the
order of the Court in the Motor Accident cases. The Hon’ble
Division Bench of Himachal Pradesh took suo motu cognizance of
the matter in Court on its Motion v. H.P. State Cooperative Bank
Ltd., & ors., 2014 SCC Online HP 4273 and has quashed the
circular upon making elaborate consideration and the operative
portion of the judgment as follows:
7. The circular, dated 14.10.2011, issued by the Income-tax
Authorities, is not in tune with the mandate of Sections 2(42) and
2(31), read with Section 6 of the Income Tax Act, 1961, (hereinafter
referred to as the Act). The said circular also is not in accordance
with the mandate of Section 194A of the Act.
…..
13. While going through the said provisions of law, one comes
to the inescapable conclusion that the mandate of the said provisions
does not apply to the accident claim cases and the compensation
awarded under the Motor Vehicles Act cannot be said to be taxable13/30
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C.M.A.(MD).No.201 of 2025income. The compensation is awarded in lieu of death of a person or
bodily injury suffered in a vehicular accident, which is damage and
not income.
14. Chapters X and XI of the Motor Vehicles Act, 1988
provides for grant of compensation to the victims of a vehicular
accident. The Motor Vehicles Act has undergone a sea change and
the purpose of granting compensation under the Motor Vehicles Act
is to ameliorate the sufferings of the victims so that they may be
saved from social evils and starvation, and that the victims get some
sort of help as early as possible. It is just to save them from
sufferings, agony and to rehabilitate them. We wonder how and
under what provisions of law the Income Tax Authorities have
treated the amount awarded or interest accrued on term deposits
made in Motor Accident Claims cases as income. Therefore, the said
Circular is against the concept and provisions referred to
hereinabove and runs contrary to the mandate of granting
compensation.
15. The Apex Court has gone to the extent of saying that the
Claims Tribunals, in Motor Accident Claims cases, should award
compensation without succumbing to the niceties of law and
procedural wrangles and tangles.
16. The Apex Court in the cases titled N.K.V. Bros. (P.)
Ltd. v. M. Karumai Ammal, AIR 1980, SC 1354, and Sohan Lal
Passi v. P. Sesh Reddy, AIR 1996 Supreme Court 2627, observed that
the Courts, while awarding compensation under the Motor Vehicles
Act, should not succumb to niceties, technicalities and mystic
maybes.
17. The Apex Court in Savita v. Bindar Singh, 2014 AIR SCW
2053, has held that at the time of fixing compensation, courts should14/30
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C.M.A.(MD).No.201 of 2025not succumb to niceties or technicalities of law. It is apt to reproduce
paragraph 6 of the said decision hereunder:
“6. After considering the decisions of this
Court in Santosh Devi (Supra) as well as
Rajesh v. Rajbir Singh (supra), we are of the opinion
that it is the duty of the Court to fix a just
compensation. At the time of fixing such
compensation, the court should not succumb to the
niceties or technicalities to grant just compensation
in favour of the claimant. It is the duty of the court to
equate, as far as possible, the misery on account of
the accident with the compensation so that the
injured or the dependants should not face the
vagaries of life on account of discontinuance of the
income earned by the victim. Therefore, it will be the
bounden duty of the Tribunal to award just,
equitable, fair and reasonable compensation judging
the situation prevailing at that point of time with
reference to the settled principles on assessment of
damages. In doing so, the Tribunal can also ignore
the claim made by the claimant in the application for
compensation with the prime object to assess the
award based on the principle that the award should
be just, equitable, fair and reasonable
compensation.”
18. The ratio of the above said decision is to
provide immediate relief to the victims of a vehicular
accident, who have suffered damages, in order to
save them from starvation and other social evils.
19. The damages are to be assessed while
making guess work read with the fact as to what is
the loss of dependency to the claimants/victims of a
vehicular accident.
20.The Apex Court in Ghaziabad Development
Authority v. Dr. N.K. Gupta, 2002 INDLAW NCDRC
189, has held that damages paid for the death of a
person cannot be equated with the income and tax
cannot be deducted. It is apt to reproduce the
observations made by the Apex Court hereunder:
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C.M.A.(MD).No.201 of 2025“It would, therefore, appear to us that the
provisions of the Land Acquisition Act where interest
is payable under Sections 28 and 34 and tax is
deducted at source under section 194A of the
Income-tax Act would not apply in the present case
where the GDA has been asked to pay interest on the
amount refunded to the complainant because of its
failure to construct the promises flat and to prive
necessary facilities. The amounts which were paid to
the GDA by the complainant were not paid by way of
any deposit or the GDA had not borrowed that
money. And, as a matter of fact, interest as defined in
clause (28) of Section 2 of the Income Tax Act is not
that interest as was directed to be paid to the
complainant by the GDA. Interest to the complainant
(here Dr. Gupta) has not been awarded on the basis
of any deposit made by the complainant or the GDA
being the borrower of any money of the complainant.
Here interest payment is by way of damages. Merely
describing the damages as by way of interest does
not make them as interest under the Income-tax Act.
A similar question arose before the Income-tax
Appellate Tribunal in the case of Delhi Development
Authority v. ITO 1995 53 ITD 19 (Delhi), and the
Appellate Tribunal held that the amounts credited in
the accounts of the allottees were not in the nature of
interest within the meaning of section 2(28A) of the
Income-tax Act and the Appellate Tribunal quashed
the orders of those authorities and directed that what
is recovered by the DDA be refunded. The Appellate
Tribunal also hoped that the DDA will be equally
quick in paying back the amounts it recovered from
the allottees. It appears to us that the Revenue
authorities did not challenge this order of the
Appellate Tribunal by making reference to the High
Court under Section 256 of the Income-Tax Act. The
Appellate Tribunal held that the amounts
paid/credited to the allottees by the DDA under SFS
(Self-Finance Scheme) did not fall under any
category in section 2(28A) of the Income-tax Act, but
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C.M.A.(MD).No.201 of 2025for delay in construction and handling over
possession of dwelling unit which was in the nature
of non-taxable capital income. In coming to this
conclusion the Appellate Tribunal relied on various
judgments including that of the Supreme Court in the
case of Dr. Shamlal Narula v. CIT 1964 Indiaw SC
263.
In our view, therefore, considering the
definition of “interest” as contained in Section
2(28A) of the Income-tax Act, the provisions of
section 194A were not applicable and the GDA was
clearly wrong in deducting the tax deducted at source
from the interest payable to the complainant.
Accordingly, the order of the State Commission is
upheld and this revision petition is dismissed.”
21. The Apex Court in the decision in Haryana Urban
Development Authority v. Dev Dutt Gandhi, (2005) 9 SCC 497, while
dealing with the land acquisition cases, held that compensation
awarded in lieu of the acquired land or enhanced amount paid or
interest thereon made cannot be termed as income and income tax
cannot be deducted. It is apt to reproduce paragraphs 3, 8 and 9
hereunder:
“3. Before this Court a large number of Appeals have been
filed Ghaziabad Development Authority challenging Orders of the
National Consumer Disputes Redressal Commission, granting to
Complainants, interest at the rate of 18% per annum irrespective of
the fact of each case. This Court has, in the case of Ghaziabad
Development Authority v. Balbir Singh reported in (2004) 5 SCC 65,
deprecated this practice. This Court has held that interest at the rate
of 18% cannot be granted in all cases irrespective of the facts of the
case. This Court has held that the Consumer Forums could grant
damages/compensation for mental agony/harassment where it finds
misfeasance in public office. This Court has held that such17/30
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C.M.A.(MD).No.201 of 2025compensation is a recompense for the loss or injury and it
necessarily has to be based on a finding of loss or injury and must
co-relate with the amount of loss or injury. This Court has held that
the Forum or the Commission thus had to determine that there was
deficiency in service and/or misfeasance in public office and that it
has resulted in loss or injury. This Court has also laid down certain
other guidelines which the Forum or the Commission has to follow
in future cases.”Xxxxxxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxxxxx
8. The National Commission disposed of the Revision filed by
the Appellants with a one paragraph Order relying upon its own
decision the case of Haryana Urban Development Authority v. Darsh
Kumar.
9. We are informed that on 18th March, 1998 a sum of Rs.
2,26,470/- has been paid to the Respondent. As the Appellants were
at fault in not developing the area for a number of years, the
Commission was right in directing refund of amounts deposited.
Normally, in case of refund of amount the Interest Act would have
been applicable. However, as interest at the rate of 18% has already
been paid on the principle laid down by this Court in the case
of Ghaziabad Development Authority v. Balbir Singh (supra) no
refund can be claimed. Counsel could not explain whether TDS had
been deducted before making the payment of Rs. 2,26,470/-. As has
been set out by the National Commission in its earlier Judgments
and even by this Court, these are cases where amounts are being
directed to be paid as compensation for mental harassment and
agony and for failure of public duty. In such cases there is no
question of deduction of TDS. If TDS has been deducted the
Appellants shall, within two weeks from today, forward to the
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C.M.A.(MD).No.201 of 2025
Respondent the amount of TDS deducted along with interest thereon
at the rate of 12% from the date it was deducted till payment.”
22. The Apex Court in another case titled Commissioner of
Income-Tax v. Ghanshyam (HUF), reported in [2009] 315 ITR
1 (SC) 1, laid down similar preposition. It is apt to reproduce
paragraphs 24, 25 and 27 hereunder:
“24. To sum up, interest is different from compensation.
However, interest paid on the excess amount under Section 28 of the
1894 Act depends upon a claim by the person whose land is acquired
whereas interest under Section 34 is for delay in making payment.
This vital difference needs to be kept in mind in deciding this matter.
Interest under Section 28 is part of the amount of compensation
whereas interest under Section 34 is only for delay in making
payment after the compensation amount is determined. Interest
under Section 28 is a part of enhanced value of the land which is not
the case in the matter of payment of interest under Section 34.
25. It is clear from reading of Sections 23(1A), 23(2) as also
Section 28 of the 1894 Act that additional benefits are available on
the market value of the acquired lands under Section 23(1A) and
23(2) whereas Section 28 is available in respect of the entire
compensation. It was held by the Constitution Bench of the Supreme
Court in Sunder v. Union of India – (2001) 7 SCC 211, that “indeed
the language of Section 28 does not even remotely refer to market
value alone and in terms it talks of compensation or the sum
equivalent thereto. Thus, interest awardable under Section 28, would
include within its ambit both the market value and the statutory
solatium. It would be thus evident that even the provisions of Section
28 authorise the grant of interest on solatium as well.” Thus
solatium means an integral part of compensation, interest would be
payable on it. Section 34 postulates award of interest at 9% per19/30
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C.M.A.(MD).No.201 of 2025annum from the date of taking possession only until it is paid or
deposited. It is a mandatory provision. Basically Section 34 provides
for payment of interest for delayed payment.
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27. In the case of Hindustan Housing (supra) certain lands
belonging to the assessee-company, which was in the business of
dealing in land and which maintained its account on mercantile
system, were first requisitioned and then compulsorily acquired by
the State Government. The Land Acquisition Officer awarded Rs.
24,97,249/- as compensation. On appeal the Arbitrator made an
award at Rs.30,10,873/- with interest at 5% from the date of
acquisition. Thereupon, the State preferred an appeal to the High
Court. Pending the appeal, the State Government deposited in the
Court Rs.7,36,691/- being the additional amount payable under the
award and the assessee was permitted to withdraw that additional
amount on furnishing a security bond for refunding the amount in
the event of the said Appeal being allowed. On receiving the amount,
the assessee credited it in its suspense account on the same date. The
question was : whether the additional amount of Rs. 7,24,914/-
could be taxed as the income on the ground that it became payable
pursuant to the award of the Arbitrator. The Tribunal held that the
amount did not accrue to the assessee as its income and was,
therefore, not taxable in the assessment year 1956-57. The financial
year in which the additional amount came to be withdrawn ended on
31.3.56. It was held by this Court that although award was made on
29.7.1955, enhancing the amount of compensation payable to the
assessee, the entire amount was in dispute in the appeal filed by the
State. Therefore, there was no absolute right to receive the amount at
that stage. It was held that if the Appeal was to be allowed in its
entirety, the right to payment of enhanced compensation would have
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C.M.A.(MD).No.201 of 2025
fallen altogether. Therefore, according to this Court, the extra
amount of compensation of Rs. 7,24,914/- was not income arising or
accruing to the assessee during the previous year relevant to the
assessment year 1956-57.”
23. Having said so, the Circular, dated 14.10.2011, issued by
the Income Tax Authorities, whereby deduction of income tax has
been ordered on the award amount and interest accrued on the
deposits made under the orders of the Court in Motor Accident
Claims cases, is quashed and in case any such deduction has been
made by respondents, they are directed to refund the same, with
interest at the rate of 12% from the date of deduction till payment,
within six weeks from today.
9. Against the said decision of 2014 SCC Online HP 4273, the
Department prepared appeal before the Supreme Court and no stay
was granted. Subsequently, the said issue was reconsidered by the in
a celebrated judgment of the Hon’ble Thiru.Justice J.B.Padriwala
(as he then was) leading the Division Bench of Gujarat High Court
in the case of Oriental Insurance Company Ltd. vs. Chief
Commissioner of Income Tax (TDS) reported in 2023 (1) TNMAC
465 and has held that there shall be no deduction of income tax.
10.Now in the similar line, in the new Land Acquisition Act
(RLCTR Act), there is provision incorporated to the effect that there
shall be no income tax reduction in the compensation awarded under
the Act in favour of the land owners.
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C.M.A.(MD).No.201 of 2025
10.1.The Motor Vehicle Act is a social welfare legislation and
provided benevolent provisions for compensating the accident
victims and hence any compulsory deduction of income tax has crept
into the realm of Compensation payment in Motor Vehicle Accident
cases and the same is in deprivation of achievement of social justice
as enshrined in the constitution of India. Therefore, now the Central
Government , keeping in view the objective of “ease of living” and
to ensure that victims of motor accidents receive full and unimpeded
compensation under the Motor Vehicles Act, 1988., has provided
exemption in the year 2025-2026 and the relevant portion as
follows:
Exiting Section 11 of the Income-tax Act, 2025
inter alia provides for the exemption of income of
persons included in Schedule III subject to the
fulfilment of conditions specified therein.
2.The provisions of Motor Vehicles Act, 1988
inter alia provides for compensation and interest on
such compensation to be awarded by the tribunal
under said Act, to an individual or his legal heir, on
account of death or on account of permanent disability
or any bodily injury under the said Act.
3.In order to alleviate sufferings of victims of
such accident and their family which may cause
extreme hardship to the aggrieved person and family, it
is proposed to amend the said Schedule to provide
exemption to an individual or his legal heir, on any
income in the nature of interest under the Motor
Vehicles Act, 1988
4.These amendments will take effect from the 1st
day of April, 2026 and shall accordingly, apply in
relation to the tax year 2026-2027 and subsequent tax
years
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C.M.A.(MD).No.201 of 2025No tax to be deducted at source in respect of
interest on compensation amount awarded by Motor
Accidents Claims Tribunal to an individual:
As per the provisions of Section 393(4)
[Table:Sl.No.7, Column C (c)(iv)] of the Act, tax is not
required to be deducted in respect of interest on the
compensation amount awarded by the Motor Accidents
Claims Tribunal, if the amount or the aggregate of the
amounts of such income does not exceed Rs.50,000/-
during the tax year.
2.In order to provide relief to the individual and
to alleviate the hardship caused due to accident, it is
proposed that no tax shall be deducted at source in
respect of interest on the compensation amount
awarded by the Motor Accidents Claims Tribunal to an
individual.
3.The amendment will take effect from the 1st day
of April, 2026
[Clause 72]10.2.It is evident that this Court’s earlier decision in C.M.A.
(MD).No.555 of 2019, 609 of 2024 and 925 of 2021 rendered by
applying the principle of purposive interpretation to the provisions
of the Income Tax law as they stood prior to the amendment for the
assessment year 2026–2027, stands legislatively affirmed.
10.3.The compensation awarded under the Motor Vehicles Act,
1988 in motor accident claims is made to the legal heirs of the
deceased or to the injured claimant, as the case may be, to
recompense the loss of life, limb, or livelihood caused by the
wrongful act of the tortfeasor,otherwise it is stated that Motor
Accident Compensation is awarded to recompense for death caused
due to the act of tortfeasor. The compensation is thus remedial in
nature and therefore the Such compensation cannot be treated as
“income” or “receipt” in the nature of profit or gain, as it does not
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C.M.A.(MD).No.201 of 2025
arise from any earning activity and cannot be equated with taxable
income in the strict sense so as to warrant automatic deduction of
income tax and should not be subjected to tax deduction at source
10.4.The Hon’ble Supreme Court, in Haryana Urban
Development Authority v. Dev Dutt Gandhi, while dealing with
compensation under land acquisition, held that the amount of
compensation, including enhanced compensation and interest
thereon, cannot be treated as income so as to attract deduction of
income tax at source. Similarly, in Ghaziabad Development
Authority v. Dr. N.K. Gupta, it was held that damages awarded for
death cannot be equated with income and are not subject to taxation.
10.5.The Motor Vehicles Act, being a beneficial and social
welfare legislation, has undergone significant transformation with
the objective of ameliorating the sufferings of victims of road
accidents. The legislative intent is to ensure that victims and their
families receive timely and adequate compensation so as to protect
them from destitution and to facilitate their rehabilitation.
10.6.In this context, any deduction of income tax from the
compensation awarded would defeat the very purpose of the
legislation and result in deprivation of the full measure of relief
intended to be granted. Such an approach would be contrary to the
principles of social justice enshrined in the Constitution of India.
10.7.Proceedings under the Motor Vehicles Act, 1988 are not
in the nature of tax assessments, and the determination of income
therein is only for the purpose of quantifying just compensation.
Therefore, Viewed from another perspective, it is a well-settled
principle that, for the purpose of calculating the monthly income of
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C.M.A.(MD).No.201 of 2025
an accident victim, the gross salary or gross income must be taken
into consideration. The gross income should be computed without
deducting income tax.
10.8.The legislative intent is to ensure that victims and their
families receive timely and adequate compensation so as to protect
them from destitution and to facilitate their rehabilitation. In this
context, any deduction of income tax from the compensation
awarded would defeat the very purpose of the legislation and result
in deprivation of the full measure of relief intended to be granted.
Such an approach would be contrary to the principles of social
justice enshrined in the Constitution of India. In view of the
aforesaid discussion, it is evident that compensation awarded under
the Motor Vehicles Act, whether on account of death, injury, or pain
and suffering, is not income and Compensation under the Motor
Vehicles Act is primarily capital in nature and generally not taxable
therefore not liable to income tax, including any deduction at
source. The same is a measure of restitution and social welfare, and
must reach the claimants in full, without diminution. The deduction
of income tax while computing loss of dependency introduces an
element of speculation and artificial reduction, which is inconsistent
with the principle laid down in Ramachandra D. Datar v. State of
Mysore that compensation must reflect the real and practical loss
suffered. Income tax, being contingent, variable, and dependent on
multiple future factors, cannot be treated as a definite diminution of
income so as to warrant its deduction. As further emphasized in
Ramachandra D. Datar v. State of Mysore, compensation must
reflect the real and practical loss suffered, and not be reduced by
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C.M.A.(MD).No.201 of 2025
hypothetical or technical considerations. Accordingly, the exclusion
of income tax from the computation would better align with the
principle of restitution and the beneficial object of the legislation.
The deduction of income tax in computing loss of dependency is
neither conceptually necessary nor practically justified in all cases.
Income tax is not a measure of personal consumption but a statutory
obligation to the State, and its deduction—followed by further
deduction towards personal expenses( I.e. 1/2, 1/3, 1/4 etc…….)—
results in an artificial and excessive reduction of compensation. In
light of the principle laid down in Ramachandra D. Datar v. State of
Mysore that compensation must reflect real and not speculative loss,
such deductions should not be applied mechanically.In determining
compensation under the Motor Vehicles Act, 1988, the guiding
principle is restitutio in integrum, and any ambiguity in computation
must be resolved in favour of the claimant rather than the tortfeasor.
A tortfeasor cannot be permitted to derive advantage from technical
or notional deductions as such reduction would undermine the
beneficial object of the statute and result in unintended enrichment
of the wrongdoer. Wrongdoer should not benefit from ambiguity
created by their own act . In case of interpretational doubt, courts
should not adopt a method that benefits the tortfeasor/insurer at the
cost of the claimant.
10.9.It is also pertinent to note that the Central Government,
in exercise of its powers under Section 194A of the Income-tax Act,
1961, has withdrawn the earlier notification mandating deduction of
tax at source on interest accruing on compensation awarded by
Motor Accident Claims Tribunals. This step has been taken with a
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C.M.A.(MD).No.201 of 2025
view to promote “ease of living” and to ensure that victims receive
the compensation awarded to them without any impediment.
10.10.In view of the above, the process of deducting income
tax while computing the gross income of an injured or deceased
motor accident victim is impermissible. Consequently, the plea of the
insurance company to deduct 10% or 30% from the determined
gross income for the purpose of assessing fair compensation is liable
to be rejected.
10.11.In view of detailed exposition of law, the contention that
income tax ought to have been deducted while computing
compensation is liable to be rejected.”
The said principle squarely applies to the facts of the present case.
8.8. Accordingly, this Court holds that the Tribunal rightly applied the
multiplier of ’14’ and rightly declined to make any further deduction towards
income tax. However, having regard to the pleadings in the claim petition, the
annual income of the deceased requires to be reduced from Rs.13,07,154/- to
Rs.12,00,000/-. Consequently, the compensation payable under the head “Loss
of Dependency” requires re-computation. In all other respects, the award passed
by the Tribunal warrants no interference.
8.9. So far as the direction regarding pay and recovery is concerned, the
issue is no longer res integra. The Tribunal has rightly applied the principle of
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C.M.A.(MD).No.201 of 2025
pay and recovery in accordance with the law laid down by the Hon’ble Supreme
Court in National Insurance Co. Ltd. v. Swaran Singh, reported in 2004 ACJ
1. Accordingly, the said direction is affirmed.
9. Conclusion:
9.1. In the result, the Civil Miscellaneous Appeal is partly allowed. The
award dated 01.08.2023 passed in M.C.O.P. No.13 of 2018 on the file of the
Motor Accident Claims Tribunal (Special District Court), Madurai, is modified
by reducing the annual income of the deceased from Rs.13,07,154/- to Rs.
12,00,000/-. Consequently, the compensation is re-computed as Rs.
1,59,90,000/- in the following manner:
Re-quantified
Sl.
Heads Tribunal (Rs.) by this Court Status
No.
(Rs.)
1 Loss of Dependency 1,71,56,398 1,57,50,000 Reduced
2 Spousal Consortium (P1) 40,000 40,000 Confirmed
3 Parental Consortium (P2 & P3) 80,000 80,000 Confirmed
4 Filial Consortium (P4) 40,000 40,000 Confirmed
5 Transportation of Dead Body 50,000 50,000 Confirmed
6 Funeral Expenses 15,000 15,000 Confirmed
7 Loss of Estate 15,000 15,000 Confirmed
Total 1,73,96,398 1,59,90,000 Reduced
In all other respects, including the application of the multiplier, addition
towards future prospects, award of interest, and the direction to pay and
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C.M.A.(MD).No.201 of 2025recover, the award of the Tribunal is confirmed. No costs. Consequently,
connected miscellaneous petitions, if any, shall stand closed.
[N.A.V.,J.] & [K.K.R.K.,J.]
09.07.2026
NCC :Yes/No
Index :Yes/No
Internet :Yes/No
pal/sbn
To
1.The Tribunal of MACT cum Special District Court,
Madurai.
2.The Section Officer,
VR Section,
Madurai Bench of Madras High Court,
Madurai.
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C.M.A.(MD).No.201 of 2025
N.ANAND VENKATESH,J.
and
K.K.RAMAKRISHNAN,J.
pal/sbn
Judgment made in
C.M.A.(MD).No.201 of 2025
Dated:09.07.2026
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