Accrual of compensation profit depends on final ascertainment, not an interim figure under the mercantile system.

Profit from compensation payable on termination of a contract accrues only when the amount is finally ascertained, even for an assessee following the mercantile system. Although an interim basis of computation was fixed in February 1945, it was not accepted as final and remained subject to further approval. The contractual liability to pay compensation existed earlier, but the sum payable became definite only on 28 January 1946 when it was finally settled. The profit was therefore assessable in assessment year 1946-47, not 1945-46.

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Issues: Whether the profit arising from compensation payable on termination of the contract accrued on the earlier meeting date in February 1945 or only when the compensation amount was finally settled on 28 January 1946, and in which assessment year it was assessable.

Analysis: The assessee followed the mercantile system, but the decisive question was when the compensation amount became finally ascertained. Although an intermediate basis of computation was fixed in February 1945, that figure was not accepted as final and was referred for further approval. The liability to pay compensation existed under the contract, but the amount payable remained unsettled until the last meeting on 28 January 1946, when the compensation was finally fixed.

Conclusion: The profit accrued only on 28 January 1946 and was assessable in assessment year 1946-47, not assessment year 1945-46.

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