Mercantile system accrual rules: waiver of an already booked trading liability was not taxable income.

Under the mercantile system, income and liability are recognised on accrual, and a later remission of an already accrued trading liability does not, by itself, become a trading receipt. The assessee had earlier brought the managing agents' office allowance into account as a liability, and the subsequent waiver was only a forgiveness of that liability, not an actual cash refund. On that basis, the amount was not chargeable as the assessee's income for the assessment year in question.

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Issues: Whether the amount of Rs. 1,57,500 forgone by the managing agents was chargeable as the assessee's income for the assessment year 1951-52.

Analysis: The assessee kept its accounts on the mercantile system, and the office allowance due to the managing agents had already been brought into account in earlier years as a trading liability. The subsequent forgoing of that liability was not an actual cash refund but only a remission of a liability that had already been accounted for in the trading results. In a mercantile system, the crucial consideration is accrual of income or liability, and the release of a previously accrued liability does not, by itself, become a trading receipt chargeable as income in the year of remission.

Conclusion: The sum of Rs. 1,57,500 was not chargeable as the assessee's income for the assessment year 1951-52 and the issue was decided in favour of the assessee.

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