Mesne profits as taxable income accrue only on judicial quantification, not merely when the right is declared.

Mesne profits are treated as taxable income because they compensate for loss of income or usufruct from property wrongfully possessed, rather than constituting capital compensation. They are therefore taxable unless expressly exempted. For accrual, fiscal principles apply: where the amount remains unascertained and requires judicial determination, no concrete income accrues until the sum is quantified. On that basis, mesne profits accrued only when the trial court fixed the amount in rupees and paise, and the earlier assessment year was upheld.

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Issues: (i) Whether mesne profits decreed by a court constitute taxable income in the hands of the decree-holder; (ii) when such mesne profits accrue for income-tax purposes.

Issue (i): Whether mesne profits decreed by a court constitute taxable income in the hands of the decree-holder.

Analysis: Mesne profits represent recompense for deprivation of the income or usufruct of property by a person in wrongful possession. They are calculated by reference to the actual or reasonably estimated income from the property, and are therefore in the nature of income rather than capital compensation. Income not expressly exempted under the Act is taxable.

Conclusion: The mesne profits were taxable income and the issue was decided against the assessee.

Issue (ii): When such mesne profits accrue for income-tax purposes.

Analysis: Accrual of income must be determined on fiscal principles and not by reference merely to the assessee's method of accounting. Where the amount is unascertained and requires judicial determination, no concrete accrual occurs until the sum is quantified. The right declared earlier by the Supreme Court was only a right in principle; the income became concrete only when the trial court fixed the amount in rupees and paise.

Conclusion: The mesne profits accrued only when quantified by the trial court and were assessable in the earlier assessment year, against the assessee's contention for later taxation.

Final Conclusion: The reference was answered in favour of the Revenue on both taxability and year of accrual, and the assessment made by the appellate authority for the earlier year was upheld.

Ratio Decidendi: Mesne profits awarded by a court are taxable income, and where the amount is unascertained until judicial quantification, accrual occurs only when the sum becomes a determinate amount.

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