Mercantile accounting governs tax on interest for delayed land compensation, with income taxed on accrual rather than receipt.

Interest on compensation for acquired land was chargeable under the mercantile system when the right to receive it accrued, not merely when it was later received. Because the assessee kept accounts on a mercantile basis, the revenue could not assess the entire interest on a receipt basis in the later assessment years or ignore accrual once it had arisen. The interest had to be spread over the relevant years and taxed only to the extent it accrued in each year, so the sums in question were not wholly taxable in the two assessment years on receipt basis.

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Issues: Whether the interest component of compensation for acquired land was taxable wholly in the assessment years 1955-56 and 1956-57 on a receipt basis, or whether it had to be spread over the years on an accrual basis in accordance with the assessee's mercantile system of accounting.

Analysis: The interest arose because payment of compensation was delayed after the Government became liable to pay compensation for the acquired property. On the facts found, the assessee maintained its accounts on the mercantile basis. Under that system, income is taxable when the right to receive it accrues, and accrual is not postponed until quantification or actual receipt. The revenue had no option to ignore accrual and assess the same income on receipt basis in a later year. Once income has accrued, it cannot be taxed again merely because it was received later, and the method of accounting regularly employed governs the point of charge.

Conclusion: The whole of the sums of Rs. 50,592 and Rs. 78,124 was not liable to be taxed in the two assessment years on receipt basis; the interest had to be apportioned and assessed only to the extent it accrued in the respective years, in favour of the assessee.

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