Statutory deeming for compensation moneys applies only on actual receipt, not on mercantile accrual.

Section 10(2)(vii)'s fourth proviso was construed as a narrow deeming provision applying only to insurance, salvage or compensation moneys actually received in respect of destroyed capital assets. The court reasoned that mercantile accounting under section 13 did not expand the statutory word "received" into "receivable", because the fiction created by the proviso had to be confined to its express terms. The reference to "paid" elsewhere in the Act did not justify taxing compensation for destroyed machinery and buildings on accrual. The amount therefore became assessable only on actual receipt, not on mere receivability.

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Issues: Whether the word "received" in the fourth proviso to section 10(2)(vii) of the Indian Income-tax Act meant "receivable" for an assessee maintaining mercantile accounts, so that insurance compensation for destroyed machinery and buildings became taxable on accrual rather than on actual receipt.

Analysis: Section 13 requires computation of profits in accordance with the method of accounting regularly employed, but the fourth proviso to section 10(2)(vii) creates a special statutory fiction dealing with insurance, salvage or compensation moneys received in respect of destroyed capital assets. The proviso brings the excess into profit only when such moneys are received, and the fiction must be confined to the terms in which the legislature created it. The reference in section 10(5) to "paid" as meaning actually paid or incurred according to the accounting method did not justify reading an equivalent mercantile meaning into "received" in the proviso. The compensation for capital assets was not a trading receipt, and there was no basis for taxing the amount before actual receipt merely because the assessee followed mercantile accounting.

Conclusion: The word "received" did not mean "receivable"; the amount became assessable only on actual receipt. The answer was in the negative and in favour of the assessee.

Ratio Decidendi: A statutory deeming provision taxing compensation moneys for destroyed capital assets must be strictly confined to actual receipt, and mercantile accounting does not convert "received" into "receivable" unless the statute expressly so provides.

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