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Issues: Whether the portion of the instalment payment referable to the award described as interest up to decree, though received under a compromise and treated as damages for detention of movable properties, constituted income chargeable to tax.
Analysis: The receipt was examined in the light of the distinction between interest payable under contract or by rule of law and damages or compensation awarded for wrongful detention. Amounts received as interest are taxable where they represent a true accrual of interest on money due, but where a sum is awarded merely as damages, or compensation calculated by reference to interest, its character remains compensatory and not income. On the facts, the assessee had no contractual right to interest on the detained movables, and the decree and compromise showed that the relevant sum was part of the damages awarded for wrongful withholding of property. The payment was therefore not a receipt in the nature of interest, but compensation for detention.
Conclusion: The amount was not income chargeable to tax and the reference had to be answered against the assessee's contention.
Final Conclusion: The sum received as part of the damages component was held to be a capital-compensatory receipt, not a taxable income receipt.
Ratio Decidendi: Where a payment is awarded as damages or compensation for wrongful detention of property, and interest is used only as a measure of quantification without any underlying contractual or legal obligation to pay interest, the amount does not acquire the character of taxable income.
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