Preheat oven to 350°.
To prepare cake, place 1 cup sugar and butter in a large bowl; beat with a mixer at medium speed until well blended (about 5 minutes). Add egg; beat well. Beat in rind. Lightly spoon flour into dry measuring cups; level with a knife. Combine flour, baking powder, baking soda, and salt, stirring well. Add flour mixture and buttermilk alternately to sugar mixture, beginning and ending with flour mixture. Stir in walnuts.
Pour batter into an (8-inch) square baking pan coated with cooking spray. Bake at 350° for 30 minutes or until a wooden pick inserted in center comes out clean. Cool in pan on a wire rack 10 minutes. Remove from pan. Cool completely on a wire rack.
To prepare sauce, combine 1 cup sugar and remaining ingredients in a small saucepan over medium-high heat; bring to a boil. Cook until reduced to 1 cup (about 15 minutes). Cool. Serve over cake.