Mercantile accounting requires accrued commission to be taxed on accrual unless a genuine change in method is proved.

Income computed under a regularly followed mercantile system must be brought to tax on accrual, not on actual receipt. Commission earned during the half-year ended 31 December 1933 was therefore includible in income even though it had not been received in that accounting year, because the assessee had consistently maintained mercantile accounts. A selective attempt to treat only that period on a cash basis was not a genuine change in the regular accounting method. A departure from the established system is permissible only where a real change in method is proved by proper evidence.

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Issues: Whether commission earned during the half-year ended 31 December 1933, but not actually received during that accounting year, was liable to be included in the assessee's income where the assessee regularly kept accounts on the mercantile basis.

Analysis: Under section 13 of the Indian Income Tax Act, income, profits and gains are to be computed in accordance with the method of accounting regularly employed by the assessee for the purpose of section 10. The assessee had consistently maintained mercantile accounts and could have brought the commission into account as accrued commission, while simultaneously claiming a debit for any amount genuinely proved to be a bad debt. The attempt was not a genuine change in the regular method of accounting but an effort to adopt a cash basis for one half-year only. The authorities recognised that a change in the regular system is possible, but only if the assessee proves by proper evidence that the method of accounting has in fact been changed.

Conclusion: The commission was correctly included in the computation of income for the relevant accounting year, and the answer to the reference was in the affirmative.

Final Conclusion: Income earned under a regularly followed mercantile system must be assessed on that basis, and a selective departure from that system for a particular period is not permissible without proof of a real change in accounting method.

Ratio Decidendi: Where an assessee regularly employs the mercantile system, income accruing under that system must be computed on accrual and not on receipt, unless a genuine change in the regular method of accounting is proved.

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