Tax Treatment of Liquidated Damages and Interest on Refunds

The High Court determined that liquidated damages for delayed possession of property were capital receipts, not revenue. In another matter, interest on a refund of compensatory support was contested for taxability. Despite a retrospective amendment making the support taxable, the Court upheld that taxing the interest would nullify the amendment's effect since the amount was already paid to revenue. The Court dismissed the appeal, finding no substantial legal question under the Income-tax Act.

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Issues involved:
1. Classification of liquidated damages as capital or revenue receipt.
2. Taxability of interest on refund of cash compensatory support.

Issue 1: Classification of liquidated damages
The High Court addressed the first issue concerning the classification of liquidated damages received by the assessee for delayed possession of immovable property. The revenue contended that the liquidated damages should be treated as a revenue receipt. However, the Court, following a previous decision, held that the receipt of liquidated damages was a capital receipt. It was concluded that no substantial question of law was raised under section 260A of the Income-tax Act, 1961, and thus rejected the revenue's contention.

Issue 2: Taxability of interest on refund of cash compensatory support
The second issue involved the taxability of interest received by the assessee on the refund of cash compensatory support. Initially, the Tribunal had considered the cash compensatory support as a capital receipt and non-taxable. However, a retrospective amendment to the statute made the support taxable as business income. The revenue argued that the interest amount accrued to the assessee should also be taxed. The Court noted that the interest amount had already been paid by the assessee to the revenue, and since the assessee did not retain any amount, taxing the interest would negate the retrospective effect of the amendment. The Tribunal's decision to reject the revenue's contentions was upheld by the Court, stating that no substantial question of law arose for their interference under section 260A of the Income-tax Act. Consequently, the appeal was dismissed.

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