Accrual of income under mercantile accounting includes commission already due, even if payment is deferred or kept in suspense.

Cash drawings in the company's books did not establish that the assessee had been assessed on a cash basis in prior years, because the entries were consistent with mercantile accounting; the earlier finding on cash basis was therefore unsupported. Managing agents' commission became taxable when it accrued under the managing agency agreement and the regular method of accounting, even though payment was deferred and the amount was placed in suspense due to a dispute. The right to receive had already arisen, and quantification was not a condition precedent to accrual. The commission was accordingly assessable for the relevant year.

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Issues: (i) Whether there was material to support the finding that the assessee had been assessed on the cash basis in prior years; and (ii) whether the managing agents' commission of Rs. 2,26,850-5-0 accrued to the assessee during the accounting year and was therefore assessable for the assessment year 1942-43.

Issue (i): Whether there was material to support the finding that the assessee had been assessed on the cash basis in prior years.

Analysis: The evidence showed that the assessee kept no separate books apart from the company's books, and the entries relating to remuneration and commission were carried in the company's accounts. The existence of some cash drawings did not establish a cash system of accounting, since cash entries are consistent with mercantile accounting. The High Court was therefore justified in holding that there was no material for the Tribunal's finding that the assessee had been assessed on a cash basis in earlier years.

Conclusion: The finding that the assessee was on the cash basis in prior years was unsupported and was rightly rejected, against the assessee.

Issue (ii): Whether the managing agents' commission of Rs. 2,26,850-5-0 accrued to the assessee during the accounting year and was therefore assessable for the assessment year 1942-43.

Analysis: The commission had been earned under the managing agency agreement and had been debited in the company's books as a revenue expenditure while simultaneously being credited to the assessee. Under the scheme of the Act, income from business or other sources is chargeable when it accrues or arises, and section 13 requires computation according to the regular method of accounting. The deferment of payment and placement of the amount in suspense because of a dispute did not prevent accrual, since the amount had already become due and quantification of commission was not a condition precedent to accrual. The cases relied upon were distinguished on the ground that they turned on different statutory language or different factual settings.

Conclusion: The commission had accrued to the assessee and was taxable for the year in question, against the assessee.

Final Conclusion: The appeals failed on the substantive tax issue, and the assessee could not exclude the managing agents' commission from the taxable profits of the relevant year.

Ratio Decidendi: Income becomes taxable when it has accrued or arisen under the applicable accounting method, and a mere deferment of payment or entry in suspense does not prevent accrual where the right to receive the amount has already arisen.

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