Accrual of income under mercantile accounting depends on a vested right to receive it, not on later third-party litigation.

Income is taxable on accrual or arising, and under mercantile accounting it becomes chargeable when the assessee acquires a vested right to receive it. A company resolution created an enforceable liability to pay additional remuneration from the relevant accounting years, and the payer and payee were not in dispute about that liability. A third-party shareholder challenge to the resolution did not defer accrual, because it only questioned the validity of the underlying resolution and did not prevent the right from vesting. The later dismissal of that suit merely confirmed the existing entitlement and did not create a new right; the amount therefore accrued in the earlier accounting years, not only when judgment was pronounced.

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Issues: Whether the sum of Rs. 58,125 was held to have accrued to the assessee only in November 1955 when the High Court pronounced its judgment, or whether it had accrued from year to year under the company resolution.

Analysis: Income is chargeable when it accrues or arises, and accrual occurs when the assessee acquires a vested right to receive it. Where accounts are maintained on the mercantile basis, amounts become taxable when they become legally due, even if not actually received. The resolution passed by the company created an enforceable liability to pay the additional remuneration from the relevant accounting years, and there was no dispute between the company and the assessee as to that liability. The shareholders' suit was only a third-party challenge to the validity of the resolution and did not postpone accrual. The subsequent dismissal of the suit in appeal merely declared the existing right and did not create a new one.

Conclusion: The amount accrued to the assessee in the relevant accounting years and not for the first time in November 1955; the answer was therefore in the negative, against the assessee.

Ratio Decidendi: A right to receive income accrues when it becomes vested in the assessee, and such accrual is not postponed merely because a third party challenges the payer's liability, where the payer and payee themselves are not in dispute.

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