Mumbai: Bombay high court recently held that while awarding compensation in accident cases under the Motor Vehicles (MV) Act, interest paid on a housing loan — allowed as deduction under the Income-Tax (I-T) Act — should not subtracted from the victim’s income to determine payout amount to kin. Nor can a ‘loss’ under the I-T Act determine “just compensation” under the MV Act, Justice Jitendra Jain held.A victim’s income forms the basis of a compensation under the MV Act and such earning is only from either a salary, if employed, or from a business or profession, if self-employed, Justice Jain observed. The July 10 ruling on the interplay of I-T Act and salutary MV Act paved way for Rs 17 lakh more as compensation to a Pune doctor who, 20 years ago, at age 26, became a widow with two minors.The legal issues that cropped up and decided for the first time, as observed by the HC, was over whether ‘loss’ under the I-T Act from property and interest paid on housing loan could be factored in to calculate what the income was. Justice Jain held, “Loss as per the I-T Act under the head “House Property” cannot be set-off against income under the head “Business or Profession” for the purposes of the MV Act.’’ The HC rejected the insurer’s submissions that the loss ought to be set off. Justice Jain said if the insurer’s argument is accepted, it may lead to no payout, as the loss is permitted under the I-T Act to be offset for upto seven years and may even lead to a ‘nil’ income.In 2014, the widow and her two children had challenged a 2012 order of a Motor Accident Claims Tribunal (MACT). She had, in December 2005, lost her doctor husband Bhupendra Kothadia. A speeding truck driven in a wrong direction hit his car and he died on the spot. Seven years on, the tribunal awarded her close to Rs 17 lakh after deducting the interest he paid on a home loan and calculating his income by setting-off of loss under the head ‘Income from House Property’ against positive income under the head ‘Income from Business’.“The set-off provision is for the purpose of determining lower tax, but same cannot be read to lower the compensation under the MV Act,’’ said Justice Jain.Her lawyers. Amit Singh and Abhay Nevgi. argued that the income payable for housing loan was part of victim’s income and only permissible exclusions are income tax and profession tax. But advocate Amol Gatne, for the insurer, argued that home loan interest must be excluded as only then the “disposable income’’ is seen.Claim cases abound and similar issues are pending in other matters, hence the HC also heard four amicus curiae — T J Mendon, Yogesh Pande, D S Joshi and Karishma Jhaveri — who submitted that “on this issue there is not a single decision of any court”.The MV Act is a socio-welfare law, the HC said, and reasoned that if insurer’s contention is accepted, “it would amount to reducing the compensation’’ payable. The HC held that interest payable on a home loan is to be included in the victim’s income.The HC reasoned, “Even if it is accepted that on death full repayment of loan becomes due and payable, still to repay that loan, interest has to be factored in awarding compensation because had the person not died interest liability would continue,’’ but clarified: “This, however, should not be construed to mean that insurance company undertakes to bear repayment liability, but certainly while awarding compensation the interest liability should be added to the compensation award for determining income.”The HC said any income from house or property or income from capital gains or income from other sources, which continue to be earned even after the death, cannot form the basis to decide the compensation.The widow and two children had sought enhancement of compensation.The Tribunal had directed the insurer, United India Insurance Company Ltd, to pay interest from 2008 when it was added as party. The HC ruled that the insurer must pay from 2006, when the claim for compensation was filed. The MV Act requires an insurer to pay from claim plea date, said Justice Jain and knowledge of claim cannot be the criterion.JudgeSpeak* When it comes to awarding compensation under the MV Act, it is only income from salary or income from business or profession which should be considered for compensating the dependents* Section 71 of the I-T Act provides that if there is a loss under one head, it can be set-off against income from another head. The aim is to make the person liable to pay tax on net income. This provision cannot be borrowed mechanically for the purpose of arriving at “just compensation” under the MV Act. Therefore, the Tribunal’s approach to adopt the taxable income after set-off of loss under property loan, to calculate compensation is erroneous* If interest on loan excluded from income, the dependent would have insufficient funds to service the interest, which otherwise would have been, had the vehicular accident victim not died. Hence for compensation under MV Act, interest on housing loan should not be reduced
