Accrual of interest for tax purposes requires an enforceable right to receive it; statutory suspension defeats taxable income.

Interest on debentures was held not to accrue for tax purposes where nationalisation and acquisition statutes extinguished or suspended the assessee's enforceable right to immediate payment. Because no corresponding debt arose in the assessee's favour during the relevant year, the interest could not be assessed, even though the accounts were maintained on the mercantile basis. The statutory scheme gave the claims a lower priority and, in one instance, nothing was payable, so notional interest was not taxable merely on an accounting entry.

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Issues: Whether interest on debentures ceased to accrue during the relevant accounting year, and therefore could not be assessed in the assessment year in question.

Analysis: The right to receive interest was extinguished or suspended by the operation of the nationalisation and acquisition statutes governing the debtor companies. Once the claims became subject to statutory priority and the assessee had no enforceable right to immediate payment, no debt came into existence in its favour for the relevant year. Income accrues only when it becomes due and the assessee acquires a right to receive it; where that right is taken away by law, notional interest cannot be brought to tax merely because accounts are kept on the mercantile basis. The statutory scheme also showed that the assessee's claims ranked in lower priority and, in one case, nothing was payable.

Conclusion: Interest on debentures did not accrue during the relevant previous year and was not assessable in the assessment year concerned.

Ratio Decidendi: Income accrues for tax purposes only when the assessee acquires an enforceable right to receive it and a corresponding debt arises; if the right to receive is suspended or extinguished by law, no taxable accrual occurs, even under mercantile accounting.

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