7. Compensation money may be income general principle is it takes on 'income' or 'capital' character of whatever it replaces (for example, these will take on income- insurance company, breach of contract, loss of income, loss of trading stock, temporary loss of use of capital asset)
loss of finger is capital
Heavy Minerals' Case (1966) taxpayer had entered into four forward selling contracts with American and German customers for the sale of rutile. Subsequent to contracts, the market for rutile collapsed and the price fell. Following this turn of events the contracts were cancelled and the taxpayer received compensation by way of lump sum. High Court held that payments were ordinary income in hands of taxpayer because it stood on the same footing as profits lost, hence, income
Compensation money may be income when compensation for permanent loss of a capital asset and compensation for loss of the whole business [Glenboig Union Fireclay Co Ltd v IR Commissioner of Inland Revenue (1922) this is where the taxpayer, the lessee of land which contained fireclay, was in business of mining clay deposits. A railway company had tracks running over part of the land and it prevented the taxpayer from working parts of the land. The taxpayer was paid compensation calculated by reference to the profits that would have been earned from the unworked part of the land, the House of Lords held that the amount was capital in nature as part of the taxpayer's company was "sterilised" and destroyed by the exercise of the statutory power.]
McLaurin's Case (1961)

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