Rectification based on later Supreme Court law upheld; revised tax treatment of land acquisition interest could not be disturbed under revision

A subsequent authoritative Supreme Court declaration that interest on land acquisition compensation is not separately taxable, but forms part of compensation, could be applied in rectification proceedings as a mistake apparent from the record. The Assessing Officer's section 154 rectification granting relief on that basis was therefore valid. Once the rectification correctly reflected the settled legal position, it could not be treated as prejudicial to the Revenue, and revision under section 263 was not sustainable. The CBDT circular relied upon was consistent with that approach, and the Commissioner's objection that the Assessing Officer had acted beyond jurisdiction was rejected.

---

---

Issues: Whether the Commissioner was justified in exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961 to annul the Assessing Officer's rectification under section 154 granting relief on interest received under the Land Acquisition Act.

Analysis: The interest received by the assessee on land acquisition compensation had been returned as taxable, but the legal position was subsequently settled by the Supreme Court holding that such interest is not taxable and forms part of compensation. The subsequent declaration of law could therefore be taken into account in rectification proceedings as a mistake apparent from the record, consistent with the CBDT circular relied upon. Once the Assessing Officer rectified the intimation on that basis, the order could not be treated as prejudicial to the interests of the Revenue. The Commissioner's view that the Assessing Officer acted beyond jurisdiction was not accepted.

Conclusion: The revision under section 263 was not sustainable, and the rectification order under section 154 was valid.

Ratio Decidendi: A subsequent authoritative judicial declaration that alters the taxability of an item can constitute a mistake apparent from the record and justify rectification under section 154, and such rectification cannot be revised under section 263 when it correctly applies the settled law.

---