Compensation accrual turns on final crystallisation of entitlement; disputed requisition compensation was not taxable in the earlier year.

Reassessment based on alleged non-disclosure was not sustainable because the compensation-related facts, including the award, pending appeals, and non-receipt of payment, had been fully disclosed in the original assessment. However, reopening was still maintainable to give effect to an earlier appellate finding or direction. On taxability, compensation for requisitioned property did not accrue in assessment year 1964-65 because the right to receive it and the quantum remained in real dispute until the High Court finally settled the matter. Income arose only when entitlement crystallised, so the amount could not be taxed in that year.

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Issues: (i) Whether the reassessment was validly reopened under the provisions relating to escaped income and notices for reassessment, including the effect of a finding or direction in earlier appellate orders; (ii) Whether the compensation received for requisitioned property accrued in the assessment year 1964-65 and was taxable in that year.

Issue (i): Whether the reassessment was validly reopened under the provisions relating to escaped income and notices for reassessment, including the effect of a finding or direction in earlier appellate orders.

Analysis: The balance-sheet filed with the return disclosed the award, the pendency of appeals, and the fact that no amount had been received. Those facts were available to the Assessing Officer during the original assessment, so the material facts relating to the compensation were fully and truly disclosed. Reopening could not, therefore, be sustained on the basis of non-disclosure. However, the later appellate orders had treated the compensation as assessable in the relevant year by reason of the finding/direction principle, and the deeming rule in the explanatory provision to the reassessment scheme permitted reopening to give effect to that appellate finding or direction.

Conclusion: Reopening was not justified under the non-disclosure limb, but the reassessment was maintainable in consequence of the appellate finding or direction.

Issue (ii): Whether the compensation received for requisitioned property accrued in the assessment year 1964-65 and was taxable in that year.

Analysis: The right to receive compensation and the quantum payable remained in genuine dispute until the High Court finally settled the matter. Where the right to receive payment itself is disputed, income does not accrue merely because an award has been made or an interim payment has been received subject to security. The decisive accrual occurred only when the High Court disposed of the dispute and the liability crystallised. On that basis, the compensation did not accrue in the assessment year 1964-65, and the amount could not be brought to tax in that year.

Conclusion: The compensation was not assessable in the assessment year 1964-65.

Final Conclusion: The assessee succeeded on the core taxability issue, while the reopening challenge did not ultimately alter the result; the addition for the disputed compensation could not stand in the assessment year in question.

Ratio Decidendi: Income by way of compensation does not accrue for tax purposes while the right to receive it and its quantum remain subject to a real and substantial dispute, and it becomes taxable only when the entitlement finally crystallises.

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