Capital gains accrue on sale when the right to receive the price arises, even if payment is later varied or not received.

Capital gains under section 12B accrued when a capital asset was sold and the assessee obtained an enforceable right to receive the sale price in the relevant accounting year; actual receipt of money was not required. The transfer of vehicles and route rights to another legal entity for an agreed price was treated as a sale, and the later agreement to accept shares or a reduced amount did not alter the year of taxability. Later non-recovery or variation in the mode of satisfaction could not defer or negate the accrual of profits in that year. The Madras HC therefore held the assessee liable to capital gains tax and answered the reference against the assessee.

---

---

Issues: Whether profits arose in the relevant accounting year on the transfer of capital assets so as to attract section 12B of the Income-tax Act.

Analysis: Section 12B levies tax on profits or gains arising from the sale, exchange, or transfer of a capital asset effected after 31 March 1946. The transfer of the vehicles and route rights to a distinct legal entity for an agreed price constituted a sale. The later agreement to accept shares or a reduced amount did not affect the liability for the accounting year in which the sale took place. The provision turns on profits arising, not on actual receipt of money. Once the assessee had an enforceable right to receive the sale price in the relevant year, the profits arose in that year. The subsequent acceptance of shares or any later loss in recovery could not alter the accrual of capital gains for that year.

Conclusion: The assessee was liable to capital gains tax under section 12B, and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: For the purposes of section 12B of the Income-tax Act, capital gains are taxable when they arise on the sale of a capital asset, and actual receipt of the sale proceeds is not necessary if the assessee had a right to receive them in the relevant accounting year.

---