There is no 'Permissions' in User configuration settings.
The options shown are
This is from the latest version of Moodle.
Permissions are accessable in the Navigation Participants options.
There there are an option in the Pariticicants menu (the right-hand side of the screen) to set the user permittions for the course.
Choosing 'Student' and set the 'View Grader report' to 'Prohibit', the correct gradebook appears for the students ('User report' and 'Overview report'