Rectification of partner assessments after firm registration was permissible because it formed part of assessment proceedings.

Rectification under section 35(5) of the Income-tax Act, 1922 was available through section 297(2)(a) of the 1961 Act for assessment years governed by the old Act, because rectification forms part of assessment proceedings. Orders passed after registration of the firms were treated as assessment orders since they determined firm tax, refund, and apportionment of income to partners. The absence of a separate express finding in the partners' individual assessments did not bar correction, because section 35(5) was intended to align partner assessments with the proper tax position and prevent income from escaping assessment.

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Issues: (i) Whether rectification of the partners' assessments, arising out of the registration and reassessment of the firms, could be made under section 35(5) of the Income-tax Act, 1922 by virtue of section 297(2)(a) of the Income-tax Act, 1961; (ii) Whether the composite orders passed in the firms' cases amounted to orders in assessment proceedings so as to satisfy the conditions for action under section 35(5); (iii) Whether the absence of a separate express finding in the partners' assessments that their shares had not been correctly included barred rectification under section 35(5).

Issue (i): Whether rectification of the partners' assessments, arising out of the registration and reassessment of the firms, could be made under section 35(5) of the Income-tax Act, 1922 by virtue of section 297(2)(a) of the Income-tax Act, 1961;

Analysis: The expression "assessment" in the income-tax law is of wide import and includes the entire process of ascertaining and imposing tax liability, not merely the final computation stage. Proceedings for rectification under section 35(1) or section 35(5) are part of assessment proceedings. Since the assessments in question related to years governed by the 1922 Act, section 297(2)(a) preserved recourse to the old Act, and the Revenue was therefore entitled to proceed under section 35(5).

Conclusion: Yes. Section 35(5) of the Income-tax Act, 1922 was available through section 297(2)(a) of the Income-tax Act, 1961.

Issue (ii): Whether the composite orders passed in the firms' cases amounted to orders in assessment proceedings so as to satisfy the conditions for action under section 35(5);

Analysis: The orders passed after the firms were granted registration did more than recalculate tax. They determined the tax payable by the firms, directed refund where necessary, and apportioned the firms' income among the partners. Under the statutory scheme for registered firms, computation of income, determination of tax, and apportionment to partners are all steps in the assessment of the firm. The proceedings were therefore not complete until those steps were taken, and the orders were properly treated as assessment orders for the purpose of section 35(5).

Conclusion: Yes. The orders were orders made in assessment proceedings and satisfied the statutory precondition.

Issue (iii): Whether the absence of a separate express finding in the partners' assessments that their shares had not been correctly included barred rectification under section 35(5).

Analysis: The partners' shares had not been brought to tax in their individual assessments because the firms had originally been assessed as unregistered firms. Once that basis disappeared, the partners' individual assessments required correction so that their shares could be taxed under the proper statutory scheme. Section 35(5) was enacted to meet precisely such a situation and to prevent income from escaping tax altogether.

Conclusion: No. The absence of a separate express finding did not bar rectification under section 35(5).

Final Conclusion: The statutory scheme permitted rectification of the partners' assessments after the firms' registration was recognised, and the challenge to the notices therefore failed.

Ratio Decidendi: Rectification proceedings under section 35(5) of the Income-tax Act, 1922 are part of assessment proceedings, and where the assessment of a firm is altered to reflect registration, the partners' assessments may be corrected so that their shares are taxed in accordance with the proper legal position.

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