Mercantile accounting and accrual of income: later receipt from earlier coffee sales was not taxable in a subsequent year.

Under the mercantile system of accounting, income is taxable when it accrues, not when it is later received. Excess sale proceeds from coffee produced and delivered in the 1953-54 season under the statutory Coffee Board scheme were attributable to that earlier accounting period, because the underlying right to the balance had already arisen then. As the charging provision under the Madras Plantations Agricultural Income-tax Act, 1955 did not apply to agricultural income of any year before 1 April 1954, the later receipt could not be assessed in 1956-57. The amount was therefore not taxable for that assessment year.

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Issues: Whether the excess amount received from the Coffee Board in respect of the 1953-54 season was assessable in the assessment year 1956-57 under the mercantile system of accounting, or whether it had accrued in an earlier accounting period and was therefore not taxable under the Madras Plantations Agricultural Income-tax Act, 1955.

Analysis: The assessee maintained mercantile accounts. Under that system, income is brought into account when it accrues or arises, not merely when it is received. The coffee in question had been produced and delivered to the Coffee Board in the 1953-54 season in pursuance of the statutory scheme under the Coffee Act, 1942. The excess amount later received in the accounting period April 1, 1955 to March 31, 1956 represented the balance of the sale proceeds of that earlier season. Since the Act did not apply to agricultural income of any year prior to April 1, 1954, the receipt had to be attributed to the earlier accounting period in which the underlying right accrued.

Conclusion: The amount was not liable to taxation for the assessment year 1956-57 and the application was allowed.

Ratio Decidendi: Under the mercantile system of accounting, income is taxable in the year in which it accrues, and a later receipt attributable to an earlier statutory sale cannot be assessed in a subsequent year if the income accrued before the charging statute became applicable.

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