Taxability of interest on compensation follows actual receipt when no regular accounts are maintained, not assumed accrual.

Interest on compensation from land acquisition was held taxable on actual receipt where the assessee maintained no regular accounts. The court noted divergent views on accrual and receipt, but ruled that no mercantile system can be presumed in the absence of accounts. Accordingly, the relevant year for taxation of the interest component is the year of receipt, not the period over which the interest is said to have accrued. The reference was answered in favour of the assessee on that basis.

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Issues: Whether, in the absence of regular accounts, interest on compensation awarded under land acquisition proceedings was taxable on receipt basis or accrual basis.

Analysis: The Court compared the competing views on when interest on enhanced compensation becomes taxable and noted the divergent High Court decisions on accrual and receipt. It held that where the assessee does not maintain accounts, no mercantile system can be presumed. In such a case, the relevant point for taxation of the interest component is the year of actual receipt, not the year in which the interest is said to have accrued over prior periods.

Conclusion: The interest was assessable on receipt basis and the assessee succeeded on the referred question.

Final Conclusion: The reference was answered by holding that, in the absence of accounts, interest on compensation is taxable when received by the assessee.

Ratio Decidendi: Where an assessee does not maintain accounts, interest on compensation arising from land acquisition is taxable on actual receipt and cannot be shifted to an accrual basis by presuming a mercantile method of accounting.

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