Interest for wrongful detention of money was taxable as income, not capital, despite being labelled damages or judgment debt.

Interest awarded for the wrongful detention of money was treated in substance as income, not capital, for income tax purposes. The controlling test was the real character of the receipt, rather than the label of damages or compensation attached to it. Because the sum accrued from the date the money should have been paid and represented a recurring accretion during the period of withholding, it was chargeable as interest of money under Schedule D. The fact that the amount was included in a judgment debt did not change its character, and earlier contrary authorities were distinguished.

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Issues: Whether interest awarded under Section 3(1) of the Law Reform (Miscellaneous Provisions) Act, 1934, and included in the judgment debt, constituted "interest of money" chargeable to income tax under Schedule D to the Income Tax Act, 1918.

Analysis: The award under Section 3(1) was held to be interest in substance, notwithstanding that it was described as damages or compensation for the wrongful detention of money. The controlling test for income tax purposes was whether the receipt was capital or income, not the label attached to it. Interest awarded under the 1934 Act accrued from the date when the money ought to have been paid, represented recurring accretions for the period of withholding, and was therefore income. Earlier authorities treating similar sums as damages on capital account were distinguished, while cases where interest was taxed as income were treated as the governing line of authority. The argument that the sum lost its character as interest because it was awarded only when judgment was entered was rejected.

Conclusion: The award was taxable as interest of money under Schedule D, and deduction of income tax was permissible.

Ratio Decidendi: A sum awarded as interest for the wrongful detention of money is chargeable to income tax where, in substance, it is income and not capital, even if it is awarded by way of damages or included in a judgment debt.

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