Taxability of decree-based delayed-payment receipts depends on whether the award is truly interest or compensatory damages.

A decree-awarded additional sum arising from delayed payment under supply contracts was taxable as interest, because the claim itself was expressly founded on the Interest Act and damages under the Sale of Goods Act, and the decree awarded principal with interest. The amount could not be re-characterised as compensatory merely because it was described as damages by the assessee. On the facts and the terms of the decree, the receipt represented income by way of interest and was rightly brought to tax.

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Issues: Whether the sum of Rs. 1,52,470 received pursuant to the High Court decree was a compensatory receipt not taxable, or income by way of interest liable to tax.

Analysis: The amount arose out of claims for delayed payment under contracts for supply of goods. The plaint specifically claimed interest under the Interest Act and by way of damages under section 61 of the Sale of Goods Act, 1930. The High Court dealt with the claim on that footing and awarded the principal sum with interest. The receipt could not be re-characterised as compensation merely because the assessee treated it as damages. On the facts and the decree, the additional amount represented interest for delayed payment and not a non-taxable compensatory sum.

Conclusion: The receipt was income from interest and was rightly brought to tax, against the assessee.

Final Conclusion: The common order resulted in acceptance of the Revenue's position on the character of the disputed receipt, leaving the assessee unsuccessful on the main issue of taxability.

Ratio Decidendi: Where a court decree awards an additional sum on a claim expressly founded on delayed payment and interest, the receipt is taxable as interest unless the decree or surrounding circumstances clearly show it to be compensation.

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