Actual receipt governs taxability of compensation for destroyed assets; mercantile accrual cannot expand the statutory deeming rule.

Compensation or insurance money received for destruction of buildings, machinery or plant is deemed to be profits of the previous year only when actually received under the fourth proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922. The statutory deeming fiction cannot be expanded by mercantile accounting concepts of accrual or receivability, because assessable income under section 10 is governed by the Act's specific charging and allowance provisions, not by section 13 alone. Accordingly, such compensation is taxable only on actual receipt, not when it merely becomes receivable.

---

---

Issues: Whether compensation for destruction of buildings and machinery by fire was taxable as profits of the previous year when it was receivable, or only when it was actually received under the fourth proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922.

Analysis: Section 13 governs computation of commercial profits according to the method of accounting regularly employed by the assessee, but assessable income under section 10 is determined by the statutory allowances and deeming provisions. Under the fourth proviso to section 10(2)(vii), insurance or compensation moneys received in respect of destroyed building, machinery or plant are deemed to be profits of the previous year in which such moneys are received. The deeming fiction is limited and cannot be expanded by importing the mercantile concept of receipt as equivalent to receivable. The statutory use of the word "received" must be given its natural meaning, especially where the Act separately defines "paid" in section 10(5) but gives no similar extended meaning to "received".

Conclusion: The compensation became assessable only on actual receipt, not on the date when it became receivable. The answer to the reference was therefore in favour of the assessee.

Final Conclusion: The compensation for loss of the capital assets could not be brought to tax for the earlier assessment year on an accrual basis, and the revenue's appeal was not sustainable.

Ratio Decidendi: A statutory deeming provision taxing compensation moneys as profits is confined to the year of actual receipt and cannot be enlarged by applying mercantile accounting notions of accrual or receivability.

---