Treaty classification of refund interest was debatable, so section 154 rectification for alleged patent error failed.

Section 154 could not be used to reclassify refund interest under the Indo-Australia DTAA where the original treatment under Article 11 was sought to be led to Article 22. The classification issue required a fresh examination of the treaty position and was debatable, so it was not a patent mistake apparent from the record. The rectification order was therefore beyond the scope of section 154 and was quashed in favour of the assessee.

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Issues: Whether the Assessing Officer could invoke section 154 of the Income-tax Act, 1961 to rectify the assessment on the ground that interest granted under section 244A was taxable under Article 22 of the Indo-Australia DTAA instead of Article 11.

Analysis: The interest on income-tax refund had been subjected to tax under Article 11 of the DTAA. The attempted rectification proceeded on a different treaty classification and required a fresh examination of the treaty position. The question whether such interest fell under Article 11 or Article 22 was debatable and, therefore, could not be treated as a patent mistake amenable to rectification under section 154.

Conclusion: The rectification order was beyond the scope of section 154 and was liable to be quashed. The issue was decided in favour of the assessee.

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