Rectification in pre-1961 income-tax assessments must follow the old Act, and debatable issues cannot justify correction.

Rectification of a pre-1961 assessment year could not be sustained under section 154 of the Income-tax Act, 1961, because rectification forms part of the assessment process and the proceeding remained governed by the Income-tax Act, 1922 under the savings provision. The court also held that no mistake apparent from the record was shown: the alleged error depended on the debatable question whether a partner's share of a firm's capital gain changed character as business income, and such a contested issue cannot justify rectification. The rectification order and consequential refund notice were quashed.

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Issues: (i) Whether rectification of an assessment for a pre-1961 assessment year could be made under section 154 of the Income-tax Act, 1961, or only under the corresponding provision of the Income-tax Act, 1922; (ii) Whether the assessment order suffered from a mistake apparent from the record so as to justify rectification.

Issue (i): Whether rectification of an assessment for a pre-1961 assessment year could be made under section 154 of the Income-tax Act, 1961, or only under the corresponding provision of the Income-tax Act, 1922.

Analysis: Proceedings for rectification are part of the assessment process. Where the return and assessment relate to a period governed by the earlier Act, section 297(2)(a) preserves the application of the old law to assessment proceedings, and that preservation extends to rectification as well. A wrong recital of the new Act does not validate the action if the power is otherwise referable to the old Act, but the reverse is not permissible where the new Act does not govern the proceeding.

Conclusion: Rectification could not validly be founded on section 154 of the Income-tax Act, 1961, and the proceeding was referable only to the old Act.

Issue (ii): Whether the assessment order suffered from a mistake apparent from the record so as to justify rectification.

Analysis: The asserted mistake was the failure to apply section 23(5)(b) on the assumption that capital gain in the hands of the firm would become business income in the hands of the partners. That assumption was rejected: a partner's share in the firm's capital gain retains its character and does not become business income merely because it is received through partnership. Even otherwise, a debatable point requiring reasoning and possible alternative views is not a mistake apparent from the record.

Conclusion: No mistake apparent from the record was shown, so rectification was not permissible.

Final Conclusion: The rectification order and the consequential refund notice were quashed, and the assessee succeeded in challenging the reopening by rectification.

Ratio Decidendi: Rectification under the income-tax law can be sustained only under the statute applicable to the relevant assessment year, and a debatable question of law or fact cannot be treated as a mistake apparent from the record.

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