Income accrual depends on enforceable right, not book entries, so managing agency commission was taxable when profits were ascertained.

A managing agent's contractual right to 5% commission on annual net profits accrued when those profits were ascertained at year-end, because that was the point at which the enforceable right to receive payment and the company's liability to pay arose. The absence of corresponding credit entries in the managed company's books did not defer accrual, since book treatment is not determinative of taxability where the right to income has crystallised. The commission was therefore assessable in the assessee's hands in the relevant assessment year.

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Issues: Whether the 5% commission on the profits of the Usilampatti and Pudukottah branches accrued to the assessee under the managing agency agreement, notwithstanding that the amounts were not credited in the mills' books, so as to be taxable in the relevant assessment years.

Analysis: The agreement conferred on the managing agents a contractual right to 5% of the annual net profits of the company, payable after those profits were ascertained at the end of the accounting year. Once the profits were determined on 31 March, the assessee's right to receive the commission arose simultaneously with the company's liability to pay it. The absence of book entries by the managed company did not prevent accrual, because accrual depends on the creation of an enforceable right to receive income and not on the debtor's unilateral accounting treatment. The authorities relied on by the assessee were distinguished on their facts and did not support the proposition that credit entries are a condition precedent to accrual.

Conclusion: The commission accrued to the assessee when the annual profits were ascertained, and it was assessable in the assessee's hands even though the mills had not credited the amounts in their books.

Ratio Decidendi: Income accrues when the assessee acquires an enforceable right to receive it upon the fulfilment of the contractual contingency, and the payer's failure to make corresponding book entries does not defer accrual.

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