Accrual of interest depends on real and substantial right to receive it, not mere mercantile entry or doubtful recovery.

Interest is taxable on accrual only when the right to receive it is real and substantial, not merely notional. For loans secured by immovable property and backed by decrees, delay in obtaining certified copies did not defeat accrual; the enforceable decretal position controlled, and only the interest actually awarded under the decrees could be treated as accrued, subject to verification. For loans where recovery of principal was doubtful, including film distribution rights security and an unsecured promissory-note loan, the court found the prospect of real recovery too remote and held that interest had not accrued.

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Issues: (i) Whether interest on loans secured by immovable property and covered by decrees had accrued to the assessee; and (ii) whether interest on loans where recovery of principal was doubtful, including loans secured by film distribution rights and an unsecured promissory-note loan, had accrued to the assessee.

Issue (i): Whether interest on loans secured by immovable property and covered by decrees had accrued to the assessee.

Analysis: The loans advanced to certain debtors were secured by immovable properties and decrees had already been obtained. The Court held that mere delay in obtaining certified copies of the decrees did not show absence of accrual. In such cases, the enforceable decretal position had to be examined, and whatever interest had been awarded by the Court under the decree would represent real accrual in the relevant assessment years. The possibility of recovery from the secured assets was not shown to be so remote as to deny accrual.

Conclusion: Interest on these secured loans was held to have accrued to the assessee to the extent awarded by the decrees, and the matter was sent back for verification and addition accordingly.

Issue (ii): Whether interest on loans where recovery of principal was doubtful, including loans secured by film distribution rights and an unsecured promissory-note loan, had accrued to the assessee.

Analysis: For the loans connected with film distribution rights, the suits had been placed in the long cause list and the security was of doubtful value, so the possibility of real recovery was remote. For the unsecured promissory-note loan, there was no security and only a small part of the principal had been repaid after several years, showing that expectations of full recovery were not real or substantial. The Court applied the principle that accrual must be real and substantial and not illusory merely because the assessee maintained mercantile accounts.

Conclusion: Interest on these loans was held not to have accrued to the assessee.

Final Conclusion: The revision was sustained only in part, with interest on the secured decree-backed debts requiring verification and inclusion to the extent awarded, while interest on the other doubtful and unsecured debts was excluded from taxable accrual.

Ratio Decidendi: Income can be taxed on accrual only when the right to receive it is real and substantial, and not merely notional; where a court decree governs the debt, only the interest actually awarded under the decree can be treated as accrued.

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