Accrual of income fails where interim receipts remain contingent and subject to restitution until rights become final

Amounts received under interim court directions, subject to possible restitution, do not accrue as taxable income when the recipient has no vested or unconditional right to retain them. Because the receipt remained contingent on the outcome of the underlying dispute and could be refunded if the opposing party succeeded, the income test of accrual in praesenti was not satisfied. The operative principle is that compensation or similar receipts become taxable only when the right to receive them is final and unconditional; on that basis, the addition was deleted.

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Issues: Whether the amount received by the assessee under interim orders of the High Court, subject to possible restitution, had accrued as income in the relevant previous year and was taxable.

Analysis: The amount was received only pursuant to interim directions during the pendency of the dispute and the assessee had no vested or absolute right to retain it. The possibility of refund in the event of the opposing party succeeding meant that the receipt remained contingent and did not amount to income that had accrued in praesenti. The principle applied was that compensation or similar receipts do not accrue as taxable income until the right to receive them becomes final and unconditional.

Conclusion: The amount did not accrue as taxable income in the relevant year and the addition was rightly deleted.

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