Accrual of income under a compromise settlement governs taxability, not mere receipt of the entire settlement amount.

Compromise receipts were not taxable solely on receipt; taxability depended on when the underlying remuneration accrued under the contract. The assessee's income arose on sale of plots and full realisation of their value, so amounts already due in earlier years and amounts referable to profits accruing up to the compromise date had to be identified separately from any component for future profits. The compromise sum was therefore a composite settlement, not a single income item of the year of receipt. Only the portion that had accrued in the relevant previous year could be assessed in assessment year 1959-60, and the balance was not chargeable then.

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Issues: Whether the sum of Rs. 98,000 received under the compromise accrued wholly in the relevant previous year so as to be taxable in assessment year 1959-60, or whether only that part which had already accrued in earlier periods could be brought to tax in that year.

Analysis: Under the agreement, the assessee's remuneration arose on sale of plots and full realisation of their value, so income accrued when the contractual events occurred and not merely on receipt. The Court accepted that the compromise amount represented a composite settlement, consisting of sums already due in earlier years, amounts referable to profits accruing up to the date of compromise, and a component for loss of future profits. Taxability therefore depended on when the underlying remuneration accrued, and not on treating the entire compromise payment as income of the year in which it was received. The Tribunal's direction to segregate the amount relatable to plots actually sold during the previous year from the balance was held to be correct.

Conclusion: The whole sum of Rs. 98,000 was not taxable in assessment year 1959-60 merely because it was received in that year; only the portion that accrued in the relevant previous year could be assessed then, and the reference was answered against the Department and in favour of the assessee.

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