Mercantile accrual of disputed electricity charges makes them taxable once a legal right to recover arises.

Enhanced electricity charges were treated as accrued income because the assessee had obtained a legally enforceable right to recover them after the Supreme Court upheld that entitlement. Under the mercantile system, accrual depends on the right to receive income, not on actual collection, pending disputes, or book entries. The real income doctrine did not prevent taxation because the amounts remained legally recoverable, were not forfeited, and no statutory obligation to refund existed. The disputed sums were therefore taxable in the relevant assessment years, with the issue decided against the assessee and in favour of the Revenue.

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Issues: Whether the enhanced electricity charges, though disputed and not yet realised, had accrued as income to the assessee under the mercantile system of accounting and the real income doctrine.

Analysis: The assessee had unilaterally enhanced its electricity charges and, after the Supreme Court upheld that right, it acquired a legal entitlement to recover the enhanced amounts from consumers. Under the mercantile system, income accrues when the assessee obtains a legally enforceable right to receive it, and mere non-receipt, pending disputes, or book treatment does not prevent accrual. The facts did not show any forfeiture of the assessee's right, any statutory obligation to refund the amounts, or any shift from the mercantile system. The doctrine of real income did not assist the assessee because the amounts were legally recoverable and had not been forgone.

Conclusion: The disputed sums represented accrued income and were taxable in the relevant assessment years; the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: Under the mercantile system, income accrues when the assessee acquires a legally enforceable right to receive it, and disputed receipts remain taxable unless the right is abandoned or a legal obligation to refund them exists.

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