Tax Implications For Judgment Debtor And Judgment Creditor While Paying Or Receiving The Amount Under A Court Decree Or Arbitration Award

In our experience while dealing with corporate clients in representing them in an action for damages, contractual claims etc. in arbitration proceedings or in court of law and in advising them afterwards, we have seen many companies having a question as to whether a receipt pursuant to settlement in a lawsuit or in an arbitration matter or a receipt pursuant to court decree or arbitration award after successful prosecution of claims is taxable under Income Tax Act, 1961("ITA"). We have indeed seen some clients offering such amount under ITA and some settlements prescribing that the payee will raise invoice along with Goods and Service Tax("GST") and payor will consequently remit amount along with GST.