Accounting method governs lease rent taxation; recovery provision applies only to later realisation of prior deductions.

Lease rent from factory premises, assessable as income from property/business source under the 1922 Act, could not be forced onto an accrual basis where the assessee had adopted the cash system for that source and had not opted for mercantile accounting. The department could not rely on an earlier method of assessment to override the assessee's chosen basis. Section 10(2A) also did not apply because the sum was not shown to be a recovery of a loss, expenditure, deduction, or bad debt previously allowed. The disputed lease rent was therefore not taxable on either basis, and the reference was answered in favour of the assessee.

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Issues: (i) Whether lease rent from factory premises could be assessed on accrual basis when the assessee had not opted for that basis; (ii) Whether the sum could be brought to tax under section 10(2A) of the Indian Income-tax Act, 1922.

Issue (i): Whether lease rent from factory premises could be assessed on accrual basis when the assessee had not opted for that basis.

Analysis: Income from lease of factory premises was treated as income assessable under section 12 of the Indian Income-tax Act, 1922, and the method of assessment depended on the option exercised by the assessee. Where the assessee followed the cash system for that source of income and had not offered it on accrual basis, the department could not force assessment on mercantile or accrual basis merely because the amount had been assessed in that manner earlier.

Conclusion: The amount of Rs. 8,000 was not liable to be taxed on accrual basis and this issue was decided in favour of the assessee.

Issue (ii): Whether the sum could be brought to tax under section 10(2A) of the Indian Income-tax Act, 1922.

Analysis: Section 10(2A) applied only where an amount earlier allowed as a loss, expenditure, deduction, or bad debt was subsequently realised or received. The sum in question was not shown to be a recovery of any such allowance, and the provision had already been applied only to a different amount recovered from the lessee in the relevant previous year.

Conclusion: Section 10(2A) did not apply to the sum of Rs. 8,000 and this issue was decided in favour of the assessee.

Final Conclusion: The reference was answered against the revenue because the disputed lease rent could not be taxed either on accrual basis or under the recovery provision relied upon.

Ratio Decidendi: For income assessable under sections 10 or 12 of the Indian Income-tax Act, 1922, the assessee's chosen method of accounting governs, and a receipt can be taxed under the recovery provision only when it represents a later realisation of an amount previously allowed as a deduction.

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