Compensation / Liquidated Damages Whether Capital or Revenue

Gaurav,

Treatment of liquidated damages as a revenue receipt or capital receipt depends on case to case basis.

In your case, it looks like the capital of the party to the contract (not the defaulting party) was blocked in the contract.The purchase of property had nexus with the capital asset and no nexus with the profit earning process.Hence the amount of damages received is in the nature of capital receipt.

But dear Fatema if u treat it as capital receipt then What should be the treatment in accounts as well as tax???