Unliquidated damages accrue when quantified by award, making balance compensation taxable in the year of the award.

Unliquidated damages for breach of contract do not create an enforceable debt until the amount is ascertained or admitted, even where accounts are kept on the mercantile basis. The compensation claim became quantified only when the arbitral award was made, and the right to receive the balance amount accrued on that date. Accordingly, the balance compensation was taxable in the year in which the award was made, and the issue was decided in favour of the Revenue.

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Issues: Whether the balance amount of compensation received for breach of contract was taxable in the year in which the arbitral award was made.

Analysis: The assessee maintained accounts on the mercantile basis, but the claim was for unliquidated damages. In such cases, no debt arises until the amount is ascertained or admitted. The compensation claim became quantified only when the award was made, and the right to receive the amount accrued on that date.

Conclusion: The balance amount of compensation was taxable in the year when the award was made, and the answer was in favour of the Revenue.

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