Book entries are not conclusive income: only accrued or received sums can be taxed as true income.

Where admitted facts show that sewai was credited in the books before it became payable, the dispute turns on the legal effect of the entries and whether they represented income. The High Court held that mere book entries are not conclusive for computing business income, and that section 13 of the Income-tax Act, 1922 does not permit taxation of amounts that are not true income. Income must have been received or accrued in a legal sense, not be a mere debt or unrealised expectancy. A question of law therefore arose on the reference sought, and the Commissioner was bound to refer it.

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Issues: Whether, on the admitted facts, a question of law arose for reference under Section 66(3) of the Income-tax Act, 1922, regarding whether sewai credited in the books before it became payable constituted taxable income.

Analysis: The admitted facts showed that the disputed amounts were credited in the kasar khata on the very day of the advance and before they had become due. The Court held that mere book entries are not conclusive for the purpose of computing business income and that the legal effect of undisputed facts and the proper construction of the entries raise a question of law. Section 13 of the Income-tax Act, 1922, which requires computation according to the regular method of accounting, does not authorize taxation of imaginary sums that do not represent true income. The Court further held that income must be money that has come in or has accrued in a legal sense, and not a mere debt or unrealized expectancy.

Conclusion: A question of law did arise, and the Commissioner was bound to make the reference sought by the applicant.

Ratio Decidendi: Where the facts are admitted and the dispute concerns the legal effect of book entries and their character as income, the issue is one of law; accounting entries cannot be treated as taxable income unless they represent true income that has accrued or been received.

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