One Return Or Three? The Supreme Court Splits It By How You Earn
A Tribunal used the deceased's last return and awarded Rs 2.27 crore. The High Court averaged two returns and cut it to Rs 1.87 crore. The Supreme Court explains which approach belongs to whom.
Income tax returns are a statutory document and an important reference point for assessing income under the Motor Vehicles Act, but the method must be bifurcated. For a salaried individual, the previous year's ITR alone suffices, because the financial effect of a promotion shows up in that year's return only. For a self-employed person or someone running a business, the average of the returns for up to the previous three years is the reference point.
- The category decides the method. Salaried: last return. Self-employed: average of up to three.
- The reason is promotions. A salaried person's rise is captured in the latest return; averaging would dilute it.
- Business income fluctuates, which is why an average across up to three years is the fairer measure.
- The deceased here ran his own construction business, so the averaging approach was the correct category — the dispute was over how many years.
- Court
- Supreme Court of India
- Bench
- Justice N Kotiswar Singh, Justice Sanjay Karol
- Citation
- 2026 INSC 661
- Reported
- [2026] 7 S.C.R. 494
- Case
- CIVIL APPEAL/8735/2026
- Decided
- 30 June 2026
- Outcome
- Appeal allowed
What happened
The deceased was 39, the sole breadwinner, and ran his own construction business. He died in a road accident.
The Tribunal fixed his income at Rs 15 lakh a year on the basis of his previous year's return and awarded Rs 2.27 crore. The High Court took the average of the two returns on record instead and reduced the award to Rs 1.87 crore.
The rule the Court laid down
Returns are statutory documents and an important reference point. But a single method cannot fit both a salaried employee and a person running a business.
For salaried individuals the previous year's return is sufficient, because the financial impact of a promotion is significant and may be reflected in the return for that year alone. Averaging would flatten exactly the increase the family has lost.
For the self-employed and those carrying on business, the average of the income shown in the returns for up to the previous three years is the reference point. Where only one or two returns have been filed, the Court addressed how the assessment is to proceed on the material available.
Who argued it
Appearances as recorded in the judgment of the Court.
Frequently asked
How many years of ITR are used to calculate compensation?
For a salaried person, the previous year's return. For someone self-employed or running a business, the average of up to the previous three years.
Why the difference?
A salaried person's promotion shows up in the latest return, so averaging would understate the loss. Business income fluctuates, so an average across years is fairer.
What if only one return was filed?
The Court addressed cases where only one or two returns exist; the assessment proceeds on the material available rather than failing for want of three years.
Proving the income of a deceased breadwinner
- Identify the category first. Salaried and self-employed are assessed by different methods, and arguing the wrong one loses ground before you start.
- For a salaried deceased, put the last return on record and explain any promotion it reflects.
- For a business, file up to three years of returns. Two will be averaged against you if that is all there is.
- Where returns are missing, be ready to explain why, and to prove income by other material.
Source. Supreme Court of India, 2026 INSC 661, [2026] 7 S.C.R. 494, CIVIL APPEAL/8735/2026, decided 30 June 2026 by Justice N Kotiswar Singh, Justice Sanjay Karol. This explainer is written from the judgment text as reported.
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