Accrual basis for excess profits tax prevents later enhanced contractual receipts from being taxed in an earlier period.

Enhanced contractual receipts arising only after the close of the chargeable accounting period could not be treated as profits of that period for excess profits tax. On a mercantile basis, income accrues when the right to receive it arises, and the Excess Profits Tax Act required profits to be computed on that accrual basis for the relevant period. Because the contractual terms did not confer an enforceable right to the enhanced amount during the chargeable accounting period, and the enhancement was made later by military authorities, the receipt could not be related back to the earlier period. The amount was therefore not assessable as profits of the chargeable accounting period ending 31 March 1944.

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Issues: Whether the sum received by the assessee after the close of the chargeable accounting period could be treated as profits of that period for excess profits tax purposes.

Analysis: The receipt arose only when the military authorities later enhanced the contractual rates. The contractual terms did not by themselves confer a right to the enhanced amount during the chargeable accounting period, and the record did not establish that the enhancement was made as of right under the contract. On a mercantile basis, profits are brought to account when the right to receive them accrues or arises. The provisions of the Excess Profits Tax Act, read with the scheme of computation and the incorporated accounting principles, require the profits of the chargeable accounting period to be determined on that same accrual basis. A receipt that comes into existence only after the period cannot be related back merely because the work giving rise to it was done earlier.

Conclusion: The amount was not assessable as profits of the chargeable accounting period ending 31 March 1944, and the reference was answered against the Revenue.

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