Court-awarded interest remains taxable interest of money, and tax must still be deducted when the judgment debt is paid.

Interest awarded by a court on a money debt for a defined period and at a specified rate retained its character as "interest of money" for tax purposes, even though it was included in the judgment sum and treated as merged in the debt between the parties. The analysis distinguishes such interest from damages merely assessed by reference to interest. It also states that the statutory duty to deduct tax at source remained mandatory on payment of the judgment debt, because merger did not defeat the Crown's right to tax or the payer's obligation to deduct when satisfying the debt.

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Issues: (i) Whether the sum awarded as interest under Section 3(1) of the Law Reform (Miscellaneous Provisions) Act, 1934, was "interest of money" chargeable to tax under Schedule D of the Income Tax Act, 1918. (ii) Whether the payer was bound to deduct tax at source under Rule 21(1) of the General Rules to All Schedules under the Income Tax Act, 1918, when the interest formed part of the judgment debt.

Issue (i): Whether the sum awarded as interest under Section 3(1) of the Law Reform (Miscellaneous Provisions) Act, 1934, was "interest of money" chargeable to tax under Schedule D of the Income Tax Act, 1918.

Analysis: The sum was awarded by the court as interest on a money debt for a defined period and at a specified rate. It was not converted into damages merely because it was awarded in judicial discretion or because it compensated for delay. The fact that the award was retrospective and included in the judgment sum did not alter its essential character as interest. The authorities distinguished cases where a sum was awarded as damages calculated by reference to interest from cases where interest itself was awarded as the substantive relief.

Conclusion: The sum was interest of money and was chargeable to tax under Schedule D.

Issue (ii): Whether the payer was bound to deduct tax at source under Rule 21(1) of the General Rules to All Schedules under the Income Tax Act, 1918, when the interest formed part of the judgment debt.

Analysis: Although the interest had merged in the judgment debt as between the parties, that merger did not destroy the Crown's right to tax or the statutory duty to deduct. Rule 21 was mandatory and was designed to secure collection of tax at the time of payment. The payer's first practical opportunity to comply arose when the judgment debt was satisfied, and the inclusion of interest in the judgment sum did not prevent the payment from being treated as payment of interest for tax purposes.

Conclusion: The payer was bound to deduct the tax at source when satisfying the judgment debt.

Final Conclusion: The appeal failed because the awarded sum retained the character of taxable interest and the statutory obligation to deduct tax applied on payment of the judgment debt.

Ratio Decidendi: Interest awarded by a court under a statutory discretion remains "interest of money" for tax purposes, and the payer must deduct tax at source even if that interest has been merged into a judgment debt.

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