Real income doctrine bars tax on unrealised mark-to-market gains from forward commodity contracts until actual accrual or maturity.

Unrealised mark-to-market gains on forward commodity contracts are taxable only when income is actually received, deemed received, or has really accrued; anticipated profit alone is not enough. Even under the mercantile system, commercial accounting entries do not make a hypothetical gain taxable if there is no actual accrual or realisation. Applying the real income doctrine, the analysis treats fluctuation in contract value as non-taxable until maturity or actual accrual, unless a statutory provision clearly overrides that principle. On that basis, the assessed addition was deleted and the assessee's treatment of the unrealised derivative gains was sustained.

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Issues: Whether unrealised mark-to-market gains on forward commodities contracts could be brought to tax before actual accrual or maturity of the instrument.

Analysis: The applicable principle is that income is taxable only when it is received, deemed to be received, or has really accrued, and not on the basis of hypothetical or anticipated gain. Where accounts are regularly maintained under the mercantile system, commercial accounting principles govern computation, but unrealised profit cannot be taxed merely because it is reflected in the books if the gain has not actually accrued. The decision applies the real income doctrine and treats the fluctuation in forward contract value as non-taxable until maturity, since anticipated profit is not brought to charge absent actual realisation or a statutory override.

Conclusion: Unrealised mark-to-market gains on the forward contracts were not taxable in the relevant year, and the addition made by the Assessing Officer was rightly deleted.

Final Conclusion: The appeal was rejected and the assessee's treatment of unrealised derivative gains was sustained, subject to taxation at the time of actual maturity or real accrual in accordance with law.

Ratio Decidendi: Under the real income principle, anticipated or unrealised profits from forward contracts are not chargeable to tax until actual accrual or realisation, unless displaced by a statutory provision.

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