Contingent pendente lite interest did not accrue while recovery suits were pending, so it was excluded from taxable income.

Interest on doubtful loans kept in a suspense account did not accrue during the relevant previous year where recovery suits were pending and pendente lite interest had not been determined by the court. Although the assessee followed the mercantile system, the right to receive such interest was contingent under section 34 CPC, because interest from the date of suit to decree depends on judicial discretion and is not an enforceable claim until awarded. Applying the real income principle, the court treated the amount as not having accrued year by year. The interest was therefore not includible in the assessee's total income.

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Issues: Whether interest on doubtful loans kept in suspense account accrued during the relevant previous year when recovery suits were pending and the rate of pendente lite interest had not yet been determined by the court.

Analysis: The assessee maintained its accounts on the mercantile system, but the loans had become doubtful and suits for recovery were already pending during the relevant previous year. Under section 34 of the Code of Civil Procedure, 1908, interest from the date of suit to the date of decree is within the court's discretion, and the plaintiff cannot assert a fixed enforceable claim to such interest until the court determines it. On those facts, the right to receive interest during the pendency of the suits was contingent and the amount could not be treated as having accrued year by year. The decision relied on the distinction between mere mercantile accounting and actual accrual of income, and the principle of real income did not require inclusion of interest whose award depended on the pending suits.

Conclusion: The interest did not accrue during the relevant previous year and was not includible in the assessee's total income; the issue is answered in favour of the assessee.

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