Full Judgment Text
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PETITIONER:
CHHATHU RAM AND ORS. ETC. ETC.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, BIHAR, PATNA AND ORS.
DATE OF JUDGMENT03/03/1993
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
VENKATACHALA N. (J)
CITATION:
1993 AIR 1505 1993 SCR (2) 179
1993 SCC Supl. (2) 582 JT 1993 (2) 430
1993 SCALE (1)757
ACT:
Indian Income Tax Act, 1922.
Sections 34(1A), (1B), (1D), 35(6)-Settlement-Assessment
years 1940-41 to 1947 offer of settlement of escaped income-
Order accepting settlement passed-Subsequent appellate order
from excess profits tax assessment passed holding no excess
profit-tax was leviable in respect of assessment year 1942-
43-Rectification withdrawing deduction of excess profits tax
allowed earlier-Whether barred by settlement.
HEADNOTE:
The appellants-assessees were assessed as individuals under
Section 23(3) of the Indian Income Tax Act, 1922, for the
assessment year 194243. The incomes assessed included the
cash credits in their personal accounts in the books of a
company. On the basis of the said incomes, an assessment
order was made under the provisions of the Excess Profits
Tax .Act, and the tax so determined was deducted in
computing the total income assessable under the Income Tax
Act.
While the assessees’ appeals against the inclusion of the
cash credits were pending before the Appellate Assistant
Commissioner, notices were served on the assessees under
Section 34(lA) of the Act for the assessment years 194041 to
1947-48. The assessees applied to the Central Board of
Revenue for settlement under sub-section (lB) and this was
accepted. Subsequently the appeals were dismissed by the
Appellate Assistant Commissioner.
Thereafter, consequent on the dismissal of the Revenue’s
appeals against the Appellate Assistant Commissioner’s order
allowing the assessees’ appeals under the E.P.T. Act and the
Tribunal’s order becoming final, the Income Tax Officer,
passed order under Section 35(6) rectifying the assessment
order under the Income Tax Act, relating to assessment year
194243, and withdrew the deduction allowed earlier by him on
account of the Excess Profit Tax.
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On appeal by the assessees, the Appellate Assistant
Commissioner held that in view of the settlement, it was not
open either to the Revenue or to the assessee to disturb the
finality of the tax liability. However, the Tribunal held
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that the orders of rectification purported to have been
passed under Section 155(3) of the Income Tax Act, 1961 were
really orders passed under Section 35(6) of the 1922 Act and
hence no appeal could lay against such order and that the
Appellate Assistant Commissioner’s orders were without
jurisdiction.
The assessees’ applications under Section 256(1) of the
Income Tax Act, 1961, were treated by the Tribunal as
applications under Section 66(1) of the 1922 Act, and
dismissed as barred by limitation.
The assessees’ writ petitions for quashing not only the
orders of the Tribunal but also the rectification made by
the Income Tax Officer were dismissed by the High Court.
Dismissing the appeals, preferred by the assessees, this
Court,
HELD: 1.1. The High Court was right in holding that the
settlement order did not preclude the Income Tax Officer
from passing the order of rectification. [184D]
1.2. The deduction allowed in the original assessment
proceedings on account of the Excess Profits Tax was not
the subject matter of either the notice issued under sub-
section (1A) of Section 34 or of the order of settlement
made under sub-section (1B) of the Indian Income Tax Act,
1922. The appeals under the E.P.T. Act were allowed by the
A.A.C. subsequent to the acceptance of settlement under
Section 34(lB). The question of withdrawing the deduction
granted earlier on account of the Excess Profits Tax arose
only after the Appellate Assistant Commissioner allowed the
appeals preferred by the assessee under the E.P.T. Act, by
virtue of which no Excess Profits Tax was payable by the
assessees. In these circumstances, the bar contained in
sub-section (ID) of Section 34 does not come into play.
Once the liability of the assessees under Excess Profits Tax
Act was held to be nil, the deduction given earlier had to
be withdrawn and it was accordingly withdrawn under Section
35(6) of the Act. [186B-C]
13. In these circumstances, it is not necessary to decide
whether no appeal could lie from the order of rectification
under Section 35(6) and
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whether the Appellate Tribunal had no power to condone the
delay in a reference application under Section 66(1). [186D]
Sankappa & Ors. v. Income-tax Officer, Central Circle II,
Bangalore, 68 I.T.R. 760, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 14531454 of
1980.
From the Judgment and Order dated 8.12.1978 of the Patna
High Court in C.W.J.C. Nos. 174 & 179 of 1975.
WITH
Civil Appeal Nos. 3928-3929 of 1991.
S.N. Misra, Manish Misra, D.P. Mukherjee and B.S. Gupta for
the Appellant.
G.C. Sharma and B.S. Ahuja for the Respondents.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J.
IN CIVIL APPELLATE NOS. 1453 AND 1454 OF 1980
These appeals are preferred against the judgment of the
Patna High Court dismissing the writ petitions filed by the
two assessees herein, Chhathu Ram and Darshan Ram. The
assessment year concerned is 194243. Both of them were
assessed in the status of individuals under Section 23(3) of
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the Income Tax Act, 1922 by an order dated March 14, 1945.
Chhathu Ram was assessed on a total income of Rs. 4,54,431
which included a sum of Rs. 1,92,000 being the cash credit
in her personal account in the Books of M/s. Chhathu Ram
Horilram Ltd. Darshan Ram was assessed on a total income of
Rs. 4,12,576 which included a sum of Rs.1,52,000 being the
cash credit in his personal account in the Books of the
aforesaid company. On the basis of the said income, an
assessment was made on them under the provisions of the
Excess Profits Tax Act. The Excess Profits Tax payable was
determined at Rs. 97,000 and Rs. 53,620 respectively. As
provided by Section 12(1) of the Excess Profit.-, Tax Act,
the tax payable thereunder was deducted in computing the
total income
182
assessable under the Income-tax Act. Both the assessees
filed appeals. The Appellate Assistant Commissioner
confirmed the assessments except with respect to the
aforesaid additions on account of cash credits. He remanded
the matter to the Income-tax officer for further
consideration. After the remand the Income-tax Officer
passed fresh orders. again including the said amounts in the
income of the respective assesses. Appeals were again
preferred to the A.A.C.
While the appeals aforesaid were pending before the A.A.C.,
notices were served upon the assessees under Section 34(1A)
of the 1922 Act for the assessment years 1940-41 to 1947-48.
(Sub- sections (lA) to (ID) were introduced in the year
1954). After receiving the said notices. both the assessees
applied to the Central Board of Revenue for settlement under
sub-section (lB) of Section 34. On the basis of said
applications, orders were passed on August 20, 1960
accepting the settlement offered.
The appeals filed by the assessees (against the orders of
the Income Tax Officer adding the aforementioned cash
credits in their income) were dismissed by the Appellate
Assistant Commissioner. (It is not necessary to notice the
reasons for his orders for the purpose of these appeals).
The assessees had also filed appeals under the E.P.T. Act.
They were allowed by the A.A.C. on October 20, 1967. The
Revenue filed appeals before the Tribunal against the orders
of the A.A.C. under E.P.T. Act. They were dismissed on
November 30, 1970. The Tribunal’s orders became final. In
the light of these orders and purporting to give effect to
them, the Income-tax Officer passed orders rectifying the
assessment orders, made under the Income-tax Act, relating
to the assessment year 1942-43. By these rectification
orders, the Income-tax Officer withdrew the deduction al-
lowed earlier by him on account of the Excess Profits Tax.
Against this order the assessee filed appeals which were
allowed by the A.A.C. holding that in view of the settlement
aforesaid, it is not open either to the Revenue or to the
assessee to disturb the finality of the tax liability. The
Revenue went up in appeal to the Tribunal which set aside
the orders of the A.A.C. The Tribunal held that the orders
of rectification purporting to have been passed under
Section 155(3) of the Income-tax Act were really orders
passed under Section 35(6) of the 1922 Act and if so, no
appeal laid against such order. Sub-section (6) of Section
35 read as follows :
"(6) where the excess profits tax or the
business profits tax
183
payable by an assessee has been modified in
appeal, revision or any other proceeding, or
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where any excess profits tax or business
profits tax has been assessed after the
completion of the corresponding assessment for
income-tax (whether before or after the
commencement of the Indian Income-tax
(Amendment) Act, 1953), and in consequence
thereof it is necessary to re-compute the
total income of the assessee chargeable to
income-tax, such recomputation shall be deemed
to be a rectification of a mistake apparent
from the record within the meaning of this
section, and the provisions of sub-section (1)
shall apply accordingly, the period of four
years referred to in that sub-section being
computed from the date of the order making or
modifying the assessment of such excess
profits tax or business profits tax.
Explanation :- For the purposes of sub-section
(6), where the assessee is a firm, the
provisions of sub-section (5) shall also apply
as they apply to the rectification of the
assessment of the partners of the firm."
It was accordingly held that the orders of the A.A.C. were
without jurisdiction. The assessees filed writ petitions in
the Patna High Court against the orders of the Tribunal but
they withdrew them with a view to move the Tribunal under
Section 256(1) of the Income-tax Act, 1961. They filed
their applications accordingly which were treated by the
Tribunal as applications made under Section 66(1) of the
1922 Act. The Tribunal found that the said applications
were barred by limitation and accordingly dismissed the
same. It is then that the assessees filed the writ
petitions in Patna High Court from which these appeals
arise. In these writ petitions the assessees not only
prayed for quashing the orders of the Tribunal but also
asked for quashing the orders of rectification made by the
Income-tax Officer.
The High Court dismissed the writ petitions on the following
reasoning: by virtue of Section 297 of the 1961 Act, all the
proceedings including the proceedings for rectification
relating to the assessment year 1942-43 must be deemed to
have been taken under the 1922 Act. Under the said Act the
Tribunal had no power to condone the delay in filing an
application
184
under Section 66(1) as held in Sankappa & Ors. v. Income-tax
Officer, Central Circle II, Bangalore, (68 I.T.R. 760). The
Tribunal is not a court and, therefore, the provisions of
the Limitation Act, 1963 do not apply to the proceedings
before the Tribunal. The dismissal of the applications
under Section 66(1) was, therefore, proper. The provision
contained in sub-section (3) of Section 66 does not also
empower the High Court to condone the delay in filing the
application under sub-section (1). So far as merits are
concerned, the orders of settlement did not, in the facts
and circumstances of this case, preclude the Income-tax
Officer from passing the impugned order of rectification.
The bar contained in Section 34(1D) of the 1922 Act was
conclusive only in respect of the matters to which the
settlement extended. The amount, or the issue which is the
subject matter of the rectification proceedings, was never
the subject matter of settlement.
We are of the opinion that the High Court was right in
holding that the settlement order did not preclude the
Income-tax Officer from passing the aforesaid order of
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rectification. Sub-section (lD) of Section 34 declares that
any settlement arrived under the said, Section ’shall be
conclusive as to the matters stated therein." It further
declares that "no person, whose assessments have been so
settled, shall be entitled to reopen in any proceeding for
the recovery of any sum under this Act or in any subsequent
assessment or reassessment proceeding relating to any tax
chargeable under this Act or in any other proceeding
whatsoever before any court or other authority any matter
which forms part of such settlement." It may be remembered
that the assessees had applied to the Central Board of
Revenue for settlement under sub-section (lB) after
receiving the notices under sub-section (lA) of section 34.
And it was on the basis of such application that the Central
Board had made an order of settlement. Sub-sections (lA)
and (lB) of Section 34 constitute parts of one scheme which
would be evident from a reading of the two sub-sections.
They read as follows:
(lA) If, in the case of any assessee, the
Income-tax officer has reason to believe--
(i) that income, profits or gains chargeable
to income-tax have escaped assessment for any
year in respect of which the relevant previous
year falls wholly or partly within the period
beginning on the lst day of September 1939,
and ending on the 31st day of March, 1946; and
185
(ii)that the income, profits and gains which
have so escaped assessment for any such year
or years amount, or are likely to amount, to
one lakh of rupees or more; he may,
notwithstanding that the period of eight years
or, as the case may be, four years specified
in sub-section (i) has expired in respect
thereof, serve on the assessee, or, if the
assessee is a company on the principal officer
thereof, a notice containing all or any of the
requirements which may be included in a notice
under sub-section (2) of section 22, and may
proceed to assess or reassess the income,
profits or gains of the assessee for all or
any of the years referred to in clause (i),
and thereupon the provisions of this Act
excepting those contained in clauses (i) and
(iii) of the proviso to sub-section (i) and in
sub-sections (2) and (3) of this section
shall, so far as may be, apply accordingly :
Provided that the Income-tax Officer shall not
issue a notice under this sub-section unless
he has recorded his reasons for doing so, and
the Central Board of Revenue is satisfied on
such reasons recorded that it is a fit case
for the issue of such notice
Provided further that no such notice shall be
issued after the 31st day of March, 1956.
(lB) Where any assessee to whom a notice has
been issued under clause (a) of sub-section
(1) or under sub-section (lA) for any of the
years ending on the 31st day of March of the
years 1941 to 1948, inclusive applies to the
Central Board of Revenue at any time within
six months from the receipt of such notice or
before the assessment or reassessment is made,
whichever is earlier, to have the matters
relating to his assessment settled, the
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Central Board of Revenue may, after
considering the terms of settlement proposed
and subject to the previous approval of the
Central Government, accept the terms of such
settlement, and, if it does so, shall make an
order in accordance with the terms of such
settlement specifying among other things
186
the sum of money payable by the assessee."
The deduction allowed in the original assessment proceedings
on account of the Excess Profits Tax was not the subject
matter of either the notice issued under sub-section (lA) of
Section 34 or of the order of settlement made under sub-
section (lB). The appeals under the E.P.T. Act were allowed
by the A.A.C. subsequent to the acceptance of settlement
under Section 34(lB). The question of withdrawing the
deduction granted earlier on account of the Excess Profits
Tax arose only after the Appellate Assistant Commissioner
allowed the appeals preferred by the assessee under the
E.P.T. Act, by virtue of which no Excess Profits Tax was
payable by the assessees. We are unable to see how does the
bar contained in sub-section (lD) of Section 34 come into
play in the above circumstances. Once the liability of the
assessees under Excess Profits Tax Act was held to be nil,
the deduction given earlier had to be withdrawn and it was
accordingly withdrawn under Section 35(6) of the Act.
In this view of the matter, it is not necessary to consider
any other question in these appeals. The appeals
accordingly fail and are dismissed. No costs.
IN CIVIL APPEAL NOS. 3928 AND 3929 OF 1991.
The facts in these appeals are identical to those in the
above appeals. Only the assessee and the assessment years
are different. Both the counsel for the assessee and the
Revenue stated that these appeals will be governed by the
judgment in the aforesaid two appeals. Following the
judgment therein, these appeals are also dismissed. No
costs.
N.P.V.
Appeals dismissed.
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