Regular method of accounting governs money-lending profits, including accrued interest where consistently reflected in the books.

Money-lending profits were to be computed under the method of accounting regularly employed by the assessee, because the statutory rule required profits and gains to follow that regular method unless no proper deduction of profits was possible. The court found that the assessee had consistently used a mixed cash and accrued basis in his accounts, and that this regular practice governed the profit computation even though the accounts were not a full scientific profit and loss account. Unrealised interest was therefore included only because it formed part of the assessee's own regular accounting method, not because unpaid interest was automatically taxable. The reference was answered in favour of assessment on that basis.

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Issues: Whether the assessee's money-lending profits were to be computed on the mixed cash and accrued basis regularly employed in his accounts, and whether unrealised interest could be brought into assessment only if the computation was made in accordance with a properly regular method of accounting.

Analysis: The assessee's returns and supporting statements showed a consistent method over the years by which realised interest and accrued interest were aggregated for the purpose of computing business profits. The statutory rule under Section 13 required profits and gains to be computed in accordance with the method of accounting regularly employed by the assessee, and the proviso applied only where no regular method existed or where profits could not properly be deduced. On the facts found, the accounts were not scientific in the sense of a full profit and loss account, but they did represent a regular method of computation adopted by the assessee. Unrealised interest was not treated as taxable merely because it remained unpaid; rather, it was included as part of the business profit as reflected in the assessee's own regular accounting method. The computation therefore did not proceed on the footing that unrealised interest was always taxable as such, but on the footing that the assessee's own method of accounting legitimately brought it into the profit calculation.

Conclusion: The reference was answered in the affirmative, and the assessee was held assessable on the basis of the method of accounting regularly employed, which included the accrued interest as part of business profits.

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