Receipt basis taxation bars assessment of renewal interest not actually received under promissory notes.

Interest added to the principal on renewal of promissory notes was not taxable where the assessment was made on a receipt basis and the amounts had not been actually received by the assessee. Mere capitalisation on renewal did not amount to receipt, and constructive receipt was held inapplicable on these facts. Earlier settlement-based assessments did not control the year in question. The renewal interest was therefore excluded from income for the assessment year.

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Issues: Whether interest added to the principal on renewal of promissory notes, though not actually received, could be treated as income in an assessment made on receipt basis.

Analysis: The assessment was on receipt basis, not on accrual basis. The amounts in question had not been actually received by the assessee; they were only capitalised by renewal of the promissory notes. The earlier assessments made on a settlement basis did not govern the present year. On a receipt basis, constructive receipt could not be equated with actual receipt, and the doctrine of constructive receipt was treated as inapplicable.

Conclusion: The sum added on account of renewal interest could not be assessed as income for the year and was required to be excluded from assessment.

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