Accrual of income turns on enforceable right to receive it, not on linkage to an earlier contract.

Income accrues when the assessee acquires an enforceable right to receive it, and under the mercantile system it is taxed in the year that right comes into existence. A compensation amount referable to an earlier supply contract was therefore not taxable in the earlier period merely because it arose from that transaction; it accrued only in the later year of payment and was assessable in that year. The analysis also notes that the Act does not permit later-accruing income to be related back to an earlier year, and that reopening closed accounts is not the governing test because the statute provides specific machinery for escaped income or mistakes.

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Issues: Whether the compensation amount received in a later accounting year, though referable to an earlier supply contract, accrued or arose in that later year and was assessable in the corresponding assessment year.

Analysis: Income under the Indian Income-tax Act accrues or arises when the assessee acquires a right to receive it. Under the mercantile system, amounts are brought to tax when the legal right to receive them comes into existence, not when they are merely connected with an earlier transaction. The Act contains no provision permitting income that accrues in a later year to be related back to an earlier year merely because it springs from an earlier contract. Reopening of closed accounts is not the statutory test; where income has escaped assessment or a mistake must be corrected, the Act provides specific machinery under the relevant provisions. English authorities allowing relation back of later payments to earlier trading periods were held inapplicable to the Indian statute.

Conclusion: The compensation amount accrued only in the year of payment and was rightly assessable in that year; the contrary view of the High Court was incorrect.

Ratio Decidendi: Income is taxable in the year in which the assessee acquires the enforceable right to receive it, and it cannot be related back to an earlier year merely because it arises out of an earlier commercial transaction.

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