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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. 180 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 181 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. 187