Accrual of income requires a vested right to receive payment; later sanction of enhanced sums does not create earlier tax liability.

Income accrues for tax purposes only when the assessee acquires a vested right to receive it and a corresponding debt arises in favour of the payer. Here, the assessee had only a contractual entitlement to the original rates during the relevant previous year; no enforceable right to enhanced payment existed until the reviewing authority sanctioned the additional amount. Because that sanction came later and the sum was paid only after the close of the year, the additional amount could not be treated as having arisen or accrued in the assessment year 1946-47. It was therefore not assessable in that year.

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Issues: Whether the additional sum of Rs. 72,637 became liable to be assessed in the assessment year 1946-47 as income that had arisen or accrued to the assessee during the relevant previous year.

Analysis: The assessee had only a contractual right to receive payment at the rates originally stipulated in the agreement during the previous year. The agreement permitted a review of rates, but no enforceable right to enhanced payment arose until the reviewing authority passed an order sanctioning the additional amount. The later review order created the liability to pay the extra sum, and the amount was actually paid only after the close of the previous year. Applying the principle that income accrues only when the assessee acquires a right to receive it and there is a corresponding debt owed by another, the additional amount could not be treated as having accrued merely because the contract had been performed in the earlier year.

Conclusion: The question was answered in the negative. The additional sum did not arise or accrue in the previous year relevant to the assessment year 1946-47 and was not assessable in that year; the decision is in favour of the assessee.

Ratio Decidendi: Income accrues for tax purposes only when, in the relevant previous year, the assessee acquires a vested right to receive it and a corresponding debt comes into existence.

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