Rectification under income tax law is limited to apparent mistakes; income assignment without transfer of source does not shift tax incidence.

Rectification under Section 254(2) is confined to correcting an apparent mistake and cannot be used for rehearing on merits; the Tribunal's refusal to rectify was upheld because the alleged omission involved appreciation of facts and evidence, not a recordable error. On taxability of lease rentals under the agreement dated 31.03.2008, the arrangement was treated as only an assignment of income, not a transfer of the source of income, because ownership of the asset remained with the hotel company and the right to receive rent was finite and revocable. The rental income was therefore assessed in the hands of the owner, and the challenge failed.

---

---

Issues: (i) Whether the Tribunal's refusal to rectify its earlier order under Section 254(2) of the Income-tax Act, 1961 suffered from any mistake apparent from the record; (ii) whether the lease rental income arising under the agreement dated 31.03.2008 was assessable in the hands of the assessee that received it or in the hands of the owner under Sections 22, 60 and 63 of the Income-tax Act, 1961.

Issue (i): Whether the Tribunal's refusal to rectify its earlier order under Section 254(2) of the Income-tax Act, 1961 suffered from any mistake apparent from the record.

Analysis: The rectification power is confined to correcting an apparent mistake and is not a rehearing on merits. The earlier appellate order had already considered the core factual matrix, the agreement between the parties, and the authorities relied upon by the assessees, including the principle that prejudice caused by an apparent error may be corrected. The Tribunal found that the alleged omission did not disclose any recordable mistake, since the dispute turned on appreciation of facts and evidence rather than on an overlooked binding proposition.

Conclusion: No mistake apparent from the record was shown, and the refusal to rectify was upheld.

Issue (ii): Whether the lease rental income arising under the agreement dated 31.03.2008 was assessable in the hands of the assessee that received it or in the hands of the owner under Sections 22, 60 and 63 of the Income-tax Act, 1961.

Analysis: The agreement conferred a finite and revocable right to receive rentals against an interest-free refundable deposit, while ownership of the source asset remained with the hotel company. On the concurrent findings, the arrangement did not amount to a transfer of the source of income but only an assignment of income, and the lower authorities were entitled to treat the arrangement as tax-ineffective for shifting the incidence of tax. The authorities cited by the assessees did not displace the conclusion that the rental income was taxable in the hands of the owner of the property, particularly where the arrangement was found to facilitate tax avoidance.

Conclusion: The rental income was correctly assessed in the hands of the owner and not in the hands of the assessee claiming the income under the agreement.

Final Conclusion: The writ petitions were found to be without merit, and the challenge to the Tribunal's orders failed in full.

Ratio Decidendi: A rectification application under Section 254(2) lies only for an apparent mistake on the record, and an arrangement that merely assigns income without transferring the source does not alter the tax incidence under Sections 22, 60 and 63 of the Income-tax Act, 1961.

---