Juristic and Legal Assessment of Taxation on Delay Damages: A Critical Review of Income-Based Reasoning

Safaii, Seyed Hossein; Darvishzadeh, MohammadJavad

doi:10.22034/jrpl.2025.2064385.1156

Juristic and Legal Assessment of Taxation on Delay Damages: A Critical Review of Income-Based Reasoning

Document Type : Original Article

Authors

Seyed Hossein Safaii ¹

MohammadJavad Darvishzadeh ²

¹ Professor, Department of Private and Islamic Law, Faculty of Law and Political Science, University of Tehran, Tehran, Iran

² Researcher at the Iranian Law and Legal Research Institute, and Master of Jurisprudence and Fundamentals of Law, Allameh Tabatabai University,Tehran,Iran

10.22034/jrpl.2025.2064385.1156

Abstract

In Iranian law, delay damages are viewed as a form of compensatory relief, designed to preserve the real value of monetary claims harmed by undue delay. Despite this, the Iranian Tax Administration has recently treated such damages as taxable income, triggering contentious enforcement actions against creditors. This paper critically evaluates the legal and juristic validity of this interpretation, focusing on the conceptual confusion between compensatory damages and income.
Using a descriptive-analytical approach grounded in doctrinal and normative legal sources, the study compares the legal essence of income and compensatory payments under Iranian civil law and Shi'a Islamic jurisprudence. The analysis demonstrates that subjecting delay damages to income tax lacks legal foundation, contravenes core tenets of Islamic legal theory, undermines principles of tax fairness, and, in some instances, may amount to administrative overreach. The article concludes that taxing such damages on the basis of income distorts legal obligations, weakens contractual discipline, and diminishes public confidence in the legal and taxation systems.

Keywords

Delay Damages

Income Tax

Shi'a Jurisprudence

Contractual Remedies

Civil Liability

Fiscal Justice

Legal Integrity

Subjects