Trading receipt timing determines taxability: a later distribution cannot convert earlier accrued income into taxable income of a new year.

A trading receipt received as an enhanced sale price accrued in the earlier years when the goods were sold, and its tax character was fixed at the time of receipt under the mercantile system. Keeping the amount in a separate account, excluding it from the profit and loss account, or later distributing it among partners did not convert it into income of a later assessment year. The amount was therefore not assessable in assessment year 1955-56, and the tax question was answered in favour of the assessee.

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Issues: Whether the balance standing to the credit of the Pakistan duty account could be taxed as income of the assessment year 1955-56 merely because it was distributed among the partners in that year.

Analysis: The amount was realised as an enhanced sale price in the earlier years when the goods were sold, and on the mercantile system the relevant receipt accrued and was received in those years. Keeping the amount in a separate account and excluding it from the profit and loss account did not change its character. A trading receipt retains its nature when received and cannot be converted into income of a later year by a subsequent book entry or distribution among partners. The authorities relied on principles concerning appropriation of receipts and later treatment of receipts, but those principles did not apply because the amount here was not a debt recovery or a liability item, and its character was fixed when received.

Conclusion: The amount was not assessable as income of the assessment year 1955-56 and the question was answered in the negative, in favour of the assessee.

Final Conclusion: The reference was decided by holding that the disputed amount was a trading receipt of the earlier years and could not be brought to tax in the year of distribution.

Ratio Decidendi: A receipt which is a trading receipt when received cannot be transformed into income of a later assessment year by being carried in a separate account or distributed subsequently; its tax character is fixed at the time of receipt.

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