Income Receipt vs Accrual: received amounts were taxable in the relevant year absent proof of mercantile accounting

Income actually received on behalf of an assessee during the relevant previous year is assessable in that year where the assessee does not establish that its accounts were kept on a mercantile basis. Although lease income may accrue when the lessee's profits are ascertained at year-end, subsequent audit or formal passing of accounts does not defer accrual. On the facts discussed, the amounts were received on the assessee's behalf in the relevant years and were not reflected in its own accounts, so the taxable event was receipt and the amounts were taxable under the Income-tax Act in those years.

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Issues: Whether the sums received on behalf of the assessee were liable to assessment as income in the relevant previous years, having regard to the manner in which the income accrued and the method of accounting followed.

Analysis: The amounts payable under the lease accrued at the close of each accounting year when the lessee's profits were ascertained, and the subsequent audit or formal passing of accounts did not postpone that accrual. At the same time, the assessee failed to establish that its books were kept on the mercantile basis, and the amounts were in fact received on its behalf during the relevant previous years without being reflected in its own accounts. In these circumstances, the taxable event was the actual receipt of income during the previous years, and the amount was assessable under the Income-tax Act.

Conclusion: The amounts were liable to assessment as income during the relevant previous years, and the answer was against the assessee.

Ratio Decidendi: Where income is actually received on behalf of an assessee during the relevant previous year and the assessee does not establish a mercantile basis of accounting, the amount is assessable in that year notwithstanding that the assessee contends it accrued earlier.

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