Arbitration award compensation treated as partly taxable profit only where the receipt offset delay-driven project costs

An arbitration award received for escalation in work costs caused by delay was treated as compensatory in nature and not wholly as business income or profit. The amount related to increased labour cost, interest charges and other delay-induced expenses, so it could not be characterised in full as taxable income. The Tribunal's view that only a portion of the award represented profit was upheld on the facts, and the dispute was treated as one turning on factual assessment rather than any question of law.

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Issues: Whether the amount received by the assessee under an arbitration award was assessable as business income or profit, or was only part of the contract receipts and compensatory in nature.

Analysis: The award was found to relate to escalation in cost caused by delay in execution of the work, including interest charges and increased labour cost, and was intended to offset the loss suffered by the contractor. On that basis, the amount could not be treated in full as profit or income. The Tribunal's view that only a portion of the award amount represented profit was held to be justified, and the dispute was treated as turning on facts rather than raising any question of law.

Conclusion: The arbitration award amount was not wholly taxable as income or profit, and the Tribunal's treatment of only 11 per cent. as profit was upheld.

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