129. Interest awarded in legal proceedings.

Interest awarded on a claim for debt1 is taxable as such even though it is in the nature of damages2; and earlier judicial views to the contrary may be taken as overruled3. The question to be decided is whether the added sum is capital or income and not whether the sum is damages or interest4. If the added sum would have been taxable if paid without a court order, it will be considered to be income5. Where the payer is not empowered to award interest but only compensation, the sum awarded will be capital in the recipient's hands even