Bombay HC rules housing loan interest cannot reduce motor accident compensation; family gets ₹17.58 lakh more

The High Court also clarified that income arising from assets such as house property, capital gains or investments may continue to accrue even after the earning member's death. (This is an AI-generated image.)AI Quick ReadThe Bombay High Court has ruled that interest paid on a housing loan cannot be used to reduce the income of a deceased person while calculating compensation under the Motor Vehicles Act (MV Act), holding that income-tax provisions meant to determine tax liability cannot be imported to lower compensation payable to accident victims' families.

Justice Jitendra Jain delivered the ruling while allowing an appeal filed by the widow and children of a medical practitioner who died in a road accident. The family had challenged an order of the Motor Accident Claims Tribunal (MACT), which had calculated the deceased's income after setting off a loss under the "Income from House Property" head, representing housing loan interest, against his professional income disclosed in income-tax returns.

The High Court held that this approach was legally flawed because the Income-tax Act and the Motor Vehicles Act serve different purposes. While tax laws provide for set-off of losses to determine taxable income, compensation under the MV Act is intended to provide "just compensation" to dependants who have lost the financial support of the deceased.

The insurance company had argued that only the deceased's disposable income, after deducting housing loan interest, should be considered, as that represented the amount actually available for the family's maintenance.

Rejecting the contention, the High Court said the set-off mechanism under Section 71 of the Income-tax Act exists only for computing tax liability and cannot be mechanically borrowed while determining compensation under the MV Act. If such deductions were allowed, the compensation payable to dependants would be artificially reduced even though the liability to service the housing loan continues after the borrower's death.

The court further observed that if Parliament intended compensation to be based strictly on taxable income reflected in income-tax returns, it would have expressly provided so under the MV Act. Instead, tax returns are merely a guiding document for assessing income.

The High Court also clarified that income arising from assets such as house property, capital gains or investments may continue to accrue even after the earning member's death. Therefore, the relevant measure for computing dependency compensation is the income generated through the deceased's personal skill, profession or business, rather than taxable income after statutory adjustments.

On a separate issue, the court held that interest on compensation should ordinarily run from the date the claim petition is filed under Section 171 of the Motor Vehicles Act, and not from the date the correct insurance company is impleaded in the proceedings.

Applying these principles, the High Court recalculated the deceased doctor's income without reducing it by the housing loan interest claimed under the "Income from House Property" head. It enhanced the compensation payable to the family by ₹17,58,465 and directed that interest on the enhanced amount be paid from the date of filing of the claim petition.

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