Unreceived interest is not taxable income where it is only carried as due in the books.

Interest shown in the assessee's books as merely due, without actual or constructive receipt, was not assessable as income under Section 13 of the Income Tax Act. Section 13 applies only where sums are shown as received, either actually or constructively; amounts carried as outstanding and recoverable in future remain assets, not realised income. The court therefore held that unpaid interest credited only as due in the ledger could not be treated as taxable income.

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Issues: Whether interest which had fallen due but had not been actually received, and was shown in the assessee's books only as still due, could be treated as income, profit or gain assessable under Section 13 of the Income Tax Act.

Analysis: The reference proceeded on the footing that the interest had merely been entered as due in the interest ledger under the mercantile system of accounts, without actual or constructive receipt. Section 13 applies where sums are shown in the accounts as received, whether actually or constructively. It does not extend to sums shown as not received at all. Amounts merely carried as outstanding and recoverable in future, if at all, are only assets and not income realised or constructively realised.

Conclusion: The sums of interest shown as having fallen due but not received could not be treated as income and were not liable to assessment under Section 13 of the Income Tax Act.

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