Mercantile account entries as receipt of income support taxability where legally due interest is credited in British India.

Interest credited in mercantile account books may be treated as income received, or treated as received, in British India where the entries represent amounts legally due and the surrounding circumstances support that characterisation. On that basis, the interest entries in the head office books were taxable under section 4(1) of the Income-tax Act, 1922. The contention that the entries were only book entries was rejected, and a new argument that a person cannot trade with herself was refused because it had not been raised earlier.

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Issues: Whether the interest credited in the assessee's mercantile account books could be treated as income received in British India and taxed under section 4(1) of the Income-tax Act, 1922.

Analysis: The assessee maintained accounts on the mercantile system, under which credit entries are made when amounts become legally due and not only when cash is actually received. The interest entries were made in the head office books in British India in respect of amounts due from the shop at Chistian, and the surrounding circumstances showed that the Department was entitled to treat those entries as representing income received or treated as received by the assessee in British India. The contention that the entries were mere book entries was rejected, and the new argument that a person cannot trade with herself was not permitted to be raised for the first time in appeal.

Conclusion: The interest amounts were liable to tax as income received or treated as received in British India, and the challenge on that point failed.

Ratio Decidendi: Where an assessee keeps accounts on the mercantile basis, credit entries representing legally due income may be treated as receipt for income-tax purposes, and a new legal contention not raised at earlier stages may be refused at the appellate stage.

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