Ram & Ors Vs. Commissioner of Income Tax, Bihar, Patna & Ors  INSC 117 (3 March 1993)
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Venkatachala N. (J)
1993 AIR 1505 1993 SCR (2) 179 1993 SCC Supl. (2) 582 JT 1993 (2) 430 1993 SCALE
Income Tax Act, 1922.
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
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.
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.
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.
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 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.
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.
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.
the appeals, preferred by the assessees, this Court,
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]
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.
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]
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.
APPELLATE JURISDICTION : Civil Appeal Nos. 14531454 of 1980.
the Judgment and Order dated 8.12.1978 of the Patna High Court in C.W.J.C. Nos.
174 & 179 of 1975.
Appeal Nos. 3928-3929 of 1991.
Manish Misra, D.P. Mukherjee and B.S. Gupta for the Appellant.
Sharma and B.S. Ahuja for the Respondents.
Judgment of the Court was delivered by B.P. JEEVAN REDDY, J.
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 the Income Tax Act, 1922 by an order dated March 14, 1945.
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.
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.
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.
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).
had also filed appeals under the E.P.T. Act.
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.
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 :
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 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.
:- 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
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
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.
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 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.
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.
read as follows:
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
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.
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 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
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.
CIVIL APPEAL NOS. 3928 AND 3929 OF 1991.
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.