HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Chhathu Ram and Ors. etc. v. Commissioner of Income Tax, Bihar, Patna and Ors.
Civil Appeal Nos. 1453-1454 of 1980 with 3928-3929 of 1991
[1993] 2 SCR 179 ·
Indian Income-tax Act, 1922: sections 34(1A), 34(1B), 34(1D), 35(6) and 66(1) · Excess Profits Tax Act: section 12(1) · Income-tax Act, 1961: sections 155(3), 256(1) and 297 (procedural history)
Sources & disclosures includedDownload original judgment / order
2-judge bench · B. P. Jeevan Reddy, J. · N. Venkatachala, J.
Assessment years: 1942-43 (principal appeals), 1940-41 to 1947-48 (settlement notices), Connected appeal assessment years not specified
01 · Facts of the case
Chhathu Ram and Darshan Ram were individually assessed for AY 1942-43, with cash credits included in their income. Excess profits tax was separately assessed and deducted in computing taxable income. Following notices for AYs 1940-41 to 1947-48, settlement orders were made on 20 August 1960. Their excess-profits-tax appeals were later allowed, ultimately leaving no such liability. The Income-tax Officer consequently withdrew the earlier deduction by rectification. The assessees relied on settlement finality and challenged the rectification through appellate and writ proceedings.
Source: SCR pp. 181-184 / PDF pp. 3-6
02 · Discussion by the Hon’ble Court
Section 34(1D) made settlement conclusive only as to matters stated in it. The Court read the notice and settlement provisions as one scheme, and found that the deduction for excess profits tax was neither part of the notice nor of the settlement. The basis for withdrawing the deduction arose later, when the excess-profits-tax appeals succeeded. Section 35(6) specifically treated the resulting recomputation after modification of that tax liability as rectification.
Source: SCR pp. 183-186 / PDF pp. 5-8
03 · Judicial decision
Civil Appeal Nos. 1453-1454 of 1980 were dismissed without costs. On counsel's agreement that the same judgment governed the otherwise identical connected matters, Civil Appeal Nos. 3928-3929 of 1991 were also dismissed without costs. The Court found it unnecessary to decide other questions after sustaining rectification on the settlement issue.
Source: SCR p. 186 / PDF p. 8
04 · Outcome / in whose favour
In favour of the Revenue: settlement did not prevent withdrawal of the excess-profits-tax deduction in these circumstances. The outcome does not authorise reopening matters actually covered by a settlement, and is not a Supreme Court ruling on the procedural issues it expressly left undecided.
05 · AKHB REVIEW POINT
AKHB analysis: compare the notice, settlement application and final settlement terms issue by issue before asserting finality. Trace whether a later adjustment concerns the settled income or a separate consequential deduction. Keep statutory appealability and limitation arguments distinct; a lower-court proposition recounted in a judgment is not automatically a Supreme Court holding.
Source: AKHB analysis based on SCR pp. 183-186 / PDF pp. 5-8
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