Rectification and development rebate rules hinge on strict statutory conditions and apparent error, with mixed tax relief outcomes.

Rectification withdrawing earlier income-tax relief was held unsustainable where the supposed error on reconstruction was not apparent from the record, though the appellate challenge to that rectification was maintainable. Relief under section 84(2) remained available because the disqualification for splitting up or reconstruction applies only where the undertaking itself is formed in that manner, not merely where later events resemble reconstruction. Development rebate could not be withdrawn under section 155(5) absent a transfer by the assessee or misuse of the reserve outside the business. However, rebate failed under section 34(3)(a) because the reserve had not been utilised by the assessee as the statute expressly required.

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Issues: (i) Whether the rectification withdrawing relief granted under the Indian Income-tax Act, 1922 could be sustained and whether the appeal against that rectification was competent; (ii) whether relief under section 84(2) of the Income-tax Act, 1961 could be denied on the ground of splitting up or reconstruction of the business; (iii) whether development rebate could be withdrawn under section 155(5) of the Income-tax Act, 1961 on the footing of a transfer by the assessee or improper use of the reserve; (iv) whether development rebate failed under section 34(3)(a) of the Income-tax Act, 1961 because the reserve was not utilised by the assessee during the relevant period.

Issue (i): Whether the rectification withdrawing relief granted under the Indian Income-tax Act, 1922 could be sustained and whether the appeal against that rectification was competent.

Analysis: The relief originally granted under section 15C was withdrawn by invoking rectification powers, but the question whether the firm had been reconstructed was not a simple or obvious one and could not be treated as a mistake apparent from the record. The order therefore could not be justified as a rectification order on that basis. The order, though styled under section 154 of the Income-tax Act, 1961, had to be traced to the corresponding power under section 35 of the Indian Income-tax Act, 1922 for the relevant assessment years. An order passed by an appellate authority on an assumed jurisdiction is itself appealable, even if the first appeal ought not to have been entertained.

Conclusion: The rectification was not sustainable on the ground of an apparent mistake, but the appeal to the Tribunal was competent; this issue was substantially decided in favour of the assessee on the merits of rectification and in favour of the revenue on maintainability.

Issue (ii): Whether relief under section 84(2) of the Income-tax Act, 1961 could be denied on the ground of splitting up or reconstruction of the business.

Analysis: Section 84(2) targets undertakings formed by splitting up or reconstruction of a business already in existence. On the facts, the relief had been claimed in relation to a newly established industrial undertaking, and the Court held that even if there was later splitting up or reconstruction, that did not attract the disqualification where the claim was not for a new undertaking formed by splitting up or reconstruction of an existing business. The benefit could not be withdrawn merely on that basis.

Conclusion: The assessee remained entitled to the relief under section 84(2), and the revenue's challenge failed.

Issue (iii): Whether development rebate could be withdrawn under section 155(5) of the Income-tax Act, 1961 on the footing of a transfer by the assessee or improper use of the reserve.

Analysis: Section 155(5) applies only where the assessee itself sells or otherwise transfers the plant, machinery, or ship, or utilises the reserve for a non-business purpose as contemplated by the provision. The vesting of assets under the scheme did not amount to a transfer by the assessee firm. Likewise, the reserve was not shown to have been utilised by the assessee for a purpose outside the business of the undertaking. The preconditions for invoking section 155(5) were therefore absent.

Conclusion: The withdrawal of development rebate under section 155(5) was unsustainable, and this issue was decided in favour of the assessee.

Issue (iv): Whether development rebate failed under section 34(3)(a) of the Income-tax Act, 1961 because the reserve was not utilised by the assessee during the relevant period.

Analysis: The statutory language required the reserve to be utilised by the assessee for the business of the undertaking. The Court declined to rewrite the provision by substituting a broader expression, holding that where the language is clear, the condition attached to the concession must be given effect even if compliance later becomes impossible. On the facts, the assessee firm had ceased to exist, so the statutory condition was not fulfilled.

Conclusion: The assessee was not entitled to development rebate for the relevant years under section 34(3)(a), and this issue was decided in favour of the revenue.

Final Conclusion: The references were disposed of by upholding the assessee's entitlement on the section 84(2) and section 155(5) issues, while denying development rebate for the later years under section 34(3)(a), with mixed success on the rectification-related questions.

Ratio Decidendi: A rectification can be sustained only where the error is apparent from the record and the statutory preconditions for the particular withdrawal provision are strictly satisfied; a clear statutory condition attached to a tax concession must be enforced according to its text.

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