Real income principle: book entries cannot create taxable commission where the contractual right was reduced within the accounting period.

Income-tax is chargeable only on real income that has actually accrued or been received, and a book entry alone cannot create taxable income. Where a later agreement within the same accounting period validly altered the commission arrangement, the assessee's contractual right was confined to the reduced commission. The larger amount credited in the books was therefore notional and did not represent income of the relevant year. The adjustment was part of the commercial bargain, not a post-accrual diversion of income by gift, so the larger commission was neither accrued nor received for tax purposes.

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Issues: Whether the larger managing agency commission credited in the books, but later reduced by agreement within the accounting period, constituted income that accrued or was received by the assessee for the relevant previous year.

Analysis: Income-tax is chargeable on income actually arising or received. A mere book entry does not create income unless the income has in fact resulted. On the facts, the later agreement within the accounting year replaced the earlier commission arrangement and altered the contractual right to commission, so the assessee became entitled only to the reduced commission. The larger amount shown in the books was therefore only notional and did not represent real income. The reduction formed part of the commercial arrangement and was not a post-accrual diversion of income by way of gift.

Conclusion: The larger commission did not accrue to, and was not received by, the assessee; the issue is decided in favour of the assessee on taxability, and against the Revenue.

Ratio Decidendi: Tax is payable only on real income that has actually accrued or been received, and book entries cannot by themselves create taxable income where the contractual right to the larger amount has been validly altered within the relevant period.

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