Rectification power limited: cannot be used to perpetuate initial errors, and grossing up and credit belong to registered shareholders.

Rectification power is limited to correcting mistakes apparent from the record and does not extend to readjustments that merely perpetuate an initial substantive error; accordingly the attempted adjustment that carried forward the original erroneous treatment was beyond jurisdiction and could not be sustained. The entitlement to statutory grossing up and to credit for tax paid by the company belongs to the person in whose name the shares are registered; treating a different entity as the owner where registration shows otherwise was an error of law and did not confer those benefits.

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Issues: (i) Whether the Income-tax Officer could, under section 35, rectify an assessment so as to gross up dividend income and allow corresponding credit where the rectification would perpetuate or effectuate an initial erroneous treatment of the registered shareholder; (ii) Whether only the registered shareholder is entitled to benefit of grossing up under section 16(2) and credit under section 18(5).

Issue (i): Whether rectification under section 35 can be employed to correct or to readjust an assessment when the proposed rectification would perpetuate an initial substantive error in treating the owner of shares.

Analysis: The rectification notice invoked section 35 but in substance did not seek to correct the foundational error; it proposed an adjustment that carried the initial error forward in a different form. Section 35 permits correction of mistakes apparent from the records but does not authorise readjustments that merely cure anomalies arising from an error while leaving the original error intact. Where the rectification would effectuate the logical extension of an initial error rather than correct that error, jurisdiction under section 35 is not properly invoked.

Conclusion: Rectification under section 35 cannot be used to perpetuate or effectuate an initial error; the officer lacked jurisdiction to make the impugned adjustment that would carry forward the original erroneous treatment.

Issue (ii): Whether the entitlement to grossing up under section 16(2) and credit under section 18(5) attaches only to the registered shareholder.

Analysis: Precedent establishes that the benefit of grossing up and the credit for tax paid by the company belong to the registered shareholder. Where shares stood in the names of particular persons, those registered as shareholders alone were entitled to the statutory grossing up and credit; treating the firm as the owner where shares were registered in the names of partners was an error of law as to the identity of the shareholder entitled to those provisions.

Conclusion: Only the registered shareholder is entitled to grossing up under section 16(2) and to credit under section 18(5); the Income-tax Officer erred in treating the firm as owner of shares registered in the names of individual partners.

Final Conclusion: The appeals are dismissed because the rectification under section 35 sought to perpetuate an initial error rather than correct it, and because statutory grossing up and credit attach solely to the registered shareholder; accordingly the impugned rectification could not be sustained.

Ratio Decidendi: A tax officer's power of rectification under section 35 is limited to correcting mistakes apparent from the record and does not extend to readjustments that perpetuate an initial substantive error; statutory grossing up and company tax credit accrue only to the person in whose name shares are registered.

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