Mercantile accrual of lease rent applies despite disputes, and taxability cannot await civil proceedings.

Under the mercantile system, lease rent accrued month by month when it became contractually due, even though the lessee disputed liability and civil proceedings were pending; the assessee's enforceable right to receive the rent was not extinguished by postponed payment. A direction to defer taxability until final disposal of the court proceedings was also unsustainable because it conflicted with the statutory time limit for completing assessments, and each assessment year had to be examined separately without applying res judicata. The Assessing Officer's assessments were therefore restored for the years under appeal.

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Issues: (i) Whether lease rent under the lease deed accrued to the assessee during the relevant years despite the dispute with the lessee and pending proceedings; (ii) Whether the Commissioner (Appeals) could direct the Assessing Officer to determine taxability of the lease rent only after the court proceedings were finally concluded in view of section 153(2A) of the Income-tax Act, 1961.

Issue (i): Whether lease rent under the lease deed accrued to the assessee during the relevant years despite the dispute with the lessee and pending proceedings.

Analysis: The assessee maintained accounts on the mercantile basis and the lease deed fixed a monthly rent payable by the 10th of each month, so the rent became due month by month during the subsistence of the lease. The existence of disputes, counter-claims, and pending litigation did not extinguish the assessee's enforceable right to receive the rent. On the mercantile system, income accrues when it becomes legally due, and mere postponement of payment does not prevent accrual.

Conclusion: The lease rent accrued to the assessee during the years under consideration, and the finding of the Commissioner (Appeals) to the contrary was incorrect.

Issue (ii): Whether the Commissioner (Appeals) could direct the Assessing Officer to determine taxability of the lease rent only after the court proceedings were finally concluded in view of section 153(2A) of the Income-tax Act, 1961.

Analysis: Section 153(2A) imposes a statutory bar on delayed completion of assessments beyond the prescribed period. A direction to await the final outcome of civil proceedings could push the matter beyond the limitation period and was therefore inconsistent with the statutory scheme. The assessee's reliance on earlier-year treatment could not prevail because each assessment year is a separate unit and res judicata does not apply in tax proceedings.

Conclusion: The direction to defer taxability until final disposal of the court proceedings was unsustainable.

Final Conclusion: The lease rent was held taxable on accrual, and the assessments made by the Assessing Officer were restored for all the years under appeal.

Ratio Decidendi: Under the mercantile system of accounting, income accrues when the assessee acquires a legally enforceable right to receive it, and pending disputes or delayed payment do not defer accrual; a direction that conflicts with the statutory time limit for reassessment or fresh assessment cannot be sustained.

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