CHHATHU RAM AND ORS. ETC. ETC. vs. COMMISSIONER OF INCOME TAX, BIHAR, PATNA AND ORS.

CIVIL APPEAL No. 1453/1980Supreme Court[1993] 2 S.C.R. 17903 March 1993Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, N. VENKATACHALA RAM AND ORS. ETC. ETC. A8 pages
AI SummaryDismissed

What were the facts?

The assessees were assessed for the assessment year 1942-43, with their total income including cash credits from a company. Excess Profits Tax (EPT) was levied on this income, and the EPT paid was deducted in computing the total income under the Income Tax Act. While appeals against the cash credit additions were pending, notices under Section 34(1A) of the Indian Income Tax Act, 1922, were issued for assessment years 1940-41 to 1947-48. The assessees sought and obtained settlement under Section 34(1B). Subsequently, EPT appeals were allowed, holding no EPT was leviable. Consequently, the Income Tax Officer rectified the 1942-43 assessment order under Section 35(6) to withdraw the earlier EPT deduction. The Appellate Assistant Commissioner initially ruled against rectification due to the settlement, but the Tribunal overturned this, holding the rectification orders were under Section 35(6) and thus not appealable. The High Court dismissed writ petitions challenging the Tribunal's orders and the rectification.

What did the Supreme Court hold?

The Supreme Court held that the settlement order did not preclude the Income Tax Officer from passing the order of rectification. The Court reasoned that the deduction allowed in the original assessment proceedings on account of Excess Profits Tax was not the subject matter of either the notice issued under Section 34(1A) or the settlement order under Section 34(1B). The question of withdrawing the deduction arose only after the Appellate Assistant Commissioner allowed the assessees' appeals under the E.P.T. Act, resulting in no Excess Profits Tax being payable. In these circumstances, the bar contained in Section 34(1D) did not apply. Once the EPT liability was held to be nil, the earlier deduction had to be withdrawn under Section 35(6). The Court found it unnecessary to decide whether no appeal lay from the order of rectification or whether the Tribunal had power to condone delay in a reference application. The appeals were dismissed.

What were the issues?

1. Whether the settlement order under Section 34(1B) of the Indian Income Tax Act, 1922, precluded the Income Tax Officer from passing an order of rectification under Section 35(6) of the Act, withdrawing the deduction allowed for Excess Profits Tax. Assessee's contention: The settlement, being conclusive under Section 34(1D), barred any subsequent disturbance of tax liability, including rectification. The Appellate Assistant Commissioner's initial order supporting this was cited. Revenue's contention: The deduction of Excess Profits Tax was not part of the settlement under Section 34(1A) or (1B). The withdrawal of deduction arose from the subsequent allowance of EPT appeals, making the rectification permissible. The Tribunal's view that the rectification was under Section 35(6) and not appealable was also implicitly supported.

Which sections of the Income-tax Act were involved?

Section 34(1A),Section 34(1B),Section 34(1D),Section 35(6),Section 155(3),Section 23(3),Section 66(1)

AI-generated summary — verify with the full judgment below

- CHHATHU RAM AND ORS. ETC. ETC. A v. COMMISSIONER OF INCOME TAX, BIHAR, PATNA AND ORS. MARCH 3, 1993 (B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.) B Indian Income Tax Ac4 1922: Sections 34(1A), (JB), (JD), 35(6)-Settlenuml-74.ssessment years 194().41to1947-48-0ffer of settlement of escaped'incom~rder ai:cepting C settlement passed-Subsequent appellate order from excess profits tax assess- ment passed holding no excess profit-tax was leviable in respect of assessment year 1942- 41-i?.ectificacion withdrawing deduction of excess profits tax al- lowed earlier-Whether barred by settlement.

The appellants-assessees were assessed as individuals under Section D 23(3) of the Indian Income Tax Act, 1922, for the assessment year 1942-43. 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 assess- ment order was made under the provisions of the Excess Profits Tax Act, and the tax so determined was deducted in computing the total income E assessable under the Income Tax Ac!.

While the assessees' appeals against the inclusion of the cash credits were pending before the Appellate Assistant Co

The order continues below.

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