Rectification of section 23A orders unavailable where the order is not an assessment order and later rectification powers do not apply retrospectively.

An order under section 23A of the Indian Income-tax Act, 1922 was held to be a direction for payment of tax, not an assessment order, so rectification powers limited to assessment or refund orders could not extend to it. Section 35 of the 1922 Act therefore did not authorise rectification of such an order. Section 154 of the Income-tax Act, 1961 was also unavailable, because the repeal and saving scheme in section 297 governed the matter and there was no express or necessary implication allowing retrospective application of the later rectification provision. The rectification order could not be sustained under either enactment.

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Issues: Whether rectification of an order made under section 23A of the Indian Income-tax Act, 1922 could be sustained either under section 35 of the Indian Income-tax Act, 1922 or under section 154 of the Income-tax Act, 1961.

Analysis: The repeal of the 1922 Act was held to be governed by section 297 of the Income-tax Act, 1961, which evinced a contrary intention and displaced section 6 of the General Clauses Act, 1897 to the extent relevant. Under section 297(2)(e) of the Income-tax Act, 1961, section 23A of the repealed Act continued only for the specified assessment years, and matters arising out of such assessments were to be governed by the repealed Act. An order under section 23A was treated as an order directing payment of tax and not as an assessment order. Rectification proceedings could therefore not be characterised as proceedings arising out of an assessment within the meaning of the saving clause. Section 35 of the Indian Income-tax Act, 1922 applied only to mistakes apparent from the record of an assessment or refund order and did not extend to rectification of an order under section 23A. Section 154 of the Income-tax Act, 1961 was also unavailable because the provision could not be applied retrospectively to sustain the impugned rectification in the absence of express or necessary implication.

Conclusion: The question referred was answered in the affirmative and against the revenue, and the rectification order could not be sustained under either enactment.

Ratio Decidendi: An order under section 23A is not an assessment order, and rectification powers confined to assessment or refund orders cannot be extended to such orders unless the statute expressly provides for it; a later rectification provision will not operate retrospectively to validate a pre-existing matter in the absence of clear legislative intent.

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