 If a taxpayer in the course of carrying on a business or earning income from a property receives damages or similar compensation, such as that received as a result of another party's breach of contract or tortuous act, the receipt will be either income or capital for income tax purposes.As a general rule, the courts have held that the character of such a receipt will depend on the character of the item or subject matter that the receipt is intended to replace.This judge-made rule is often described as the “surrogatum principle”.