Discretionary court-awarded interest on salary arrears was treated as compensation and held not taxable income.

Interest awarded by the Court on arrears of salary, granted in its discretion on payment of a higher pay scale, was treated as compensation for delayed payment rather than statutory interest. The distinction drawn was that interest payable under a statute is ordinarily taxable as income, whereas discretionary court-awarded interest linked to the facts does not necessarily assume that character. On that basis, the receipt was held not to be taxable income and was characterised as a capital receipt.

---

---

Issues: Whether interest awarded by the Court on arrears of salary, granted in the Court's discretion on payment of higher pay scale, constituted taxable income.

Analysis: The interest in question was not a statutory payment awarded as a matter of course. The governing distinction drawn from the authorities was that interest payable under a statute is ordinarily treated as income, whereas interest awarded in the discretion of the Court, as compensation linked to delayed payment in the particular facts, does not necessarily assume the character of income. On the facts, the amount represented compensation awarded by the Court in exercise of its discretionary power and not a statutory interest payment falling to be taxed as income.

Conclusion: The receipt was not taxable income and was to be treated as a capital receipt.

---