Grindlays Bank Limited Vs. The Income
Tax Officer, 'H' Ward Companies [1980] INSC 3 (15 January 1980)
PATHAK, R.S.
PATHAK, R.S.
UNTWALIA, N.L.
CITATION: 1980 AIR 656 1980 SCR (2) 765 1980
SCC (2) 191
CITATOR INFO :
R 1992 SC1888 (15)
ACT:
Bar of limitation under section 153
(1)(a)(iii) of the Income Tax Act, 1961- When the assessment proceeding
remained during the entire period by successive orders of the Court, the fresh
assessment order cannot be faulted on grounds of limitation.
Powers of High Court to make the order a
fresh assessment under certiorari jurisdiction under Art. 226 of the
Constitution.
HEADNOTE:
The appellant, a banking company incorporated
in the United Kingdom, carries on banking business in India and is assessed
under the Income Tax Act, 1961. The appellant filed a return of its income for
the assessment year 1972-73.
During the assessment proceedings the Income
Tax Officer issued a notice under section 142(1) of the Income Tax Act
requiring the appellant to produce certain account books and documents. The
appellant applied against the notice to the High Court of Calcutta under
Article 226 of the Constitution. The High Court construing the notice in
specifically limited terms directed the appellant to comply with it. The appellant
preferred an appeal in the High Court. Meanwhile, pursuant to the direction by
the learned single judge, the Income Tax Officer made an assessment order on
March 31, 1977. Thereafter the appeal was allowed by a Division Bench of the
High Court by its judgment dated May 8 and 12, 1978, and the impugned notice
under section 142(1) and the consequent assessment order were quashed. But
while doing so, the Division Bench also directed the Income Tax Officer to make
a fresh assessment. Aggrieved by that direction, the appellant applied for, and
obtained special leave to appeal to this Court.
Dismissing the appeal, the Court
HELD: 1. The High Court was competent to make
the order directing a fresh assessment since the limitation for making the
assessment had not expired and no valuable right to be assessed had thereby
accrued to the appellant. [769 D-E] The facts of the case make it clear that
the assessment proceedings remained pending during the entire period from March
17, 1975 to March 31, 1977 by virtue of successive stay orders of the Court. If
regard be had to clause (ii) of Explanation 1 to section 153 which provides
that in computing the period of limitation for the purposes of section 153 the
period during which the assessment is stayed by an order or injunction of any
court shall be excluded, it is abundantly clear that the assessment order dated
March 31, 1977 is not barred by limitation. In computing the period for making
the assessment, the Income Tax Officer would be entitled to exclude the entire
period from March 17, 1975, on which date there were fourteen days still left
within the normal 766 operation of the rule of limitation. The assessment order
was made on the very first day after the period of stay expired; it could not
be faulted on the ground of limitation. [769 B-D]
2. The character of an assessment proceeding
of which the impugned notice and the assessment order formed part, being
quasi-judicial, the "certiorari" jurisdiction of the High Court under
Article 226 was attracted. Ordinarily, where the High Court exercises such
jurisdiction it merely quashes the offending order, and the consequential legal
effect is that but for the offending order the remaining part of the proceeding
stands automatically reviewed before the inferior court or tribunal with the
need for fresh consideration and disposal by a fresh order. Ordinarily the High
Court does not substitute its own order for the order quashed by it. It is, of
course, a different case where the adjudication by the High Court establishes a
complete want of jurisdiction in the inferior court or tribunal to entertain or
to take the proceeding at all. In that event on the quashing of the proceeding
by the High Court there is no revival at all. But although in the former kind
of case the High Court, after quashing the offending order, does not substitute
its own order it has power nonetheless to pass such further orders as the
justice of the case requires.
[769 F-H, 770 A]
3. When passing such orders the High Court
draws on its inherent power to make all such orders as are necessary for doing
complete justice between the parties. The interests of justice require that any
undeserved or unfair advantage gained by a party invoking the jurisdiction of
the court, by the mere circumstance that it has initiated a proceeding in the
court, must be neutralised. The simple fact of the institution of litigation by
itself should not be permitted to confer an advantage on the party responsible
for it. [770 A-C] In the present case, the appellant would not have enjoyed the
advantage of the bar of limitation if, notwithstanding his immediate grievance
against the notice under s. 142(1) of the Income-Tax Act, he had permitted the
assessment proceeding to go on after registering his protest before the Income-Tax
Officer, and allowed an assessment order to be made in the normal course. In an
application under s. 146 against the assessment order, it would have been open
to him to urge that the notice was unreasonable and invalid and he was
prevented by sufficient cause from complying with it and therefore the
assessment order should be cancelled. In that event, the fresh assessment made
under s. 146 would not be fettered by the bar of limitation.
Section 153(3)(i) removes the bar. But the
appellant preferred the constitutional jurisdiction of the High Court under
Article 226. If no order was made by the High Court directing a fresh
assessment, he could contend that a fresh assessment proceeding is barred by
limitation. That is an advantage which the appellant seeks to derive by the
mere circumstance of his filing a writ petition. It will be noted that the
defect complained of by the appellant in the notice was a procedural lapse at
best and one that could be readily corrected by serving an appropriate notice.
It was not a defect affecting the fundamental jurisdiction of the Income Tax
Officer to make the assessment. The High Court was plainly right in making the
direction which it did. [770 C- G] Director of Inspection of Income Tax
(Investigation) New Delhi and Anr. v. Pooran Mall and Sons and Anr. (1974) 96
ITR 390 @ 395; followed.
767 Cachar Plywood Ltd. v. Income Tax
Officer, 'A' Ward, Karimganj Dist. Cachar and Anr., (1978) 114 ITR (Cal.);
approved.
Rajinder Nath etc. v. The Commissioner of
Income Tax, Delhi, [1980] 1 SCR 272; distinguished.
Pickles v. Falsham, 9 Tax Cases, 261, 288;
Anisminic Ltd. v. The Foreign Compensation Commission & Anr. [1969] 1 All
E.L.R. 208; Bath and West Countries Property Trust Ltd. v. Thomas (Inspector of
Taxes) [1978] All. E.R. 305;
distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2009 of 1978.
Appeal by Special Leave from the Judgment and
Order dated 8/12th May, 1978 of the Calcutta High Court in Appeal from Original
Order No. 884/76.
Devi Pal. P. K. Pal, J. B. Dadachanji and K.
J. John for the Appellant.
S. T. Desai, B. B. Ahuja and Miss A.
Subhashini for the Respondents 1-2 The Judgment of the Court was delivered by
PATHAK, J: This appeal by special leave is directed against the judgment of the
High Court at Calcutta dated May 8 and 12, 1978 in so far as it directs the
Income-tax Officer to make a fresh assessment in respect of the appellant.
The appellant is a banking company
incorporated in the United Kingdom with its registered office at London. It
carries on banking business in India, and is assessed under the Income-tax Act,
1961.
The appellant filed a return of its income
for the assessment year 1972-73. During the assessment proceeding, the
Income-tax Officer issued a notice under s. 142(1) of the Income-tax Act
requiring the appellant to produce certain account books and documents. The
appellant applied against the notice to the High Court at Calcutta under
Articles 226 of the Constitution. A learned Single Judge of the High Court did
not accept the wide construction which the appellant sought to put upon the
impugned notice, and construing it in specific limited terms he directed the
appellant to comply with it. The appellant preferred an appeal in the High
Court. Meanwhile, pursuant to the direction by the learned Single Judge, the
Income-tax Officer made an assessment order on March 31, 1977.
Thereafter, the appeal was allowed by a
Division Bench of the High Court by its judgment dated May 8 and 12, 1978, and
the impugned notice under s. 142(1) and the 768 consequent assessment order
were quashed. But while doing so, the Division Bench also directed the
Income-tax Officer to make a fresh assessment. Aggrieved by that direction, the
appellant applied for, and obtained, special leave to appeal, to this Court.
The sole question before us is whether the
High Court erred in directing a fresh assessment. The appellant contends that
the High Court was in error in making the direction because the assessment had
already become barred by limitation and thereby a valuable right not to be
assessed had accrued to the appellant, and the High Court was not competent to
deprive the appellant of that accrued right.
It is necessary first to examine whether the
bar of limitation had come into play at any time before the High Court passed
the impugned order.
The assessment year under consideration is
the year 1972-73. By virtue of s. 153(1) (a) (iii) of the Income-tax Act, no
assessment order in respect of that assessment year could be made after two
years from the end of that assessment year. The end of the assessment year is
March 31, 1975. However, the appellant filed the writ petition on March 17,
1975, fourteen days before the end of the period for making the assessment
order. On the same date, March 17, 1975, the learned Single Judge granted an
interim injunction restraining the Income-tax Officer from proceeding with the
assessment, and on March 25, 1975 the injunction was made operative for the
pendency of the writ petition. The writ petition was disposed of by the learned
single judge by his judgment dated August 31, 1976. It is apparent that the
assessment proceedings remained stayed throughout the period from March 17,
1975 to August 31, 1976 by virtue of the orders of the court. As has been
mentioned, the learned Single Judge disposed of the writ petition on August 31,
1976. In his judgment, besides directing the appellant to comply with the
notice under s. 142(1) as construed by him, he also included a direction to the
Income-tax Officer to complete the assessment by March 31, 1977. On September
22, 1976, he amended his judgment inasmuch as it now required that "the
assessment for the relevant year must be completed on the 31st of March, 1977
but must not be completed before 31st March 1977." In other words, while
the Income-tax Officer could continue with the assessment proceedings he was
restrained by the Court from making the assessment order before, and in fact
could make it only on, March 31, 1977.
Now it is important to note that when the
amendment was made by the learned Single Judge in his judgment, it was an
amendment made by him to a judgment disposing of the writ petition and having
regard especially to the nature and the terms of the amendment, it must be
deemed to have taken effect as from August 31, 1976, the date of the original
judgment. In the appeal filed thereafter by the appellant, no interim order was
made suspending the operation of the direction that the assessment order be
made on March 31, 1977 only. A stay order was made against the enforcement of
the notice of demand alone. Adhering to the directions of the learned Single
Judge, the Income-tax Officer made an assessment order on March 31, 1977. In
the result, the assessment proceeding remained pending during the entire period
from March 17, 1975 to March 31, 1977 by successive orders of the Court. If
regard be had to clause (ii) of Explanation 1 to s. 153, which provides that in
computing the period of limitation for the purposes of s. 153, the period
during which the assessment is stayed by an order or injunction of any court
shall be excluded, it is abundantly clear that the assessment order dated March
31, 1977 is not barred by limitation. In computing the period for making the
assessment, the Income-tax Officer would be entitled to exclude the entire
period from March 17, 1975, on which date there were fourteen days still left
within the normal operation of the rule of limitation. The assessment order was
made on the very first day after the period of stay expired; it could not be faulted
on the ground of limitation. There is, therefore, no force in the submission of
the appellant that the limitation for making the assessment had expired and a
valuable right not to be assessed had thereby accrued to it, and that
consequently the High Court was not competent to make the order directing a
fresh assessment.
The next point is whether the High court
possessed any power to make the order directing a fresh assessment. The
principal relief sought in the writ petition was the quashing of the notice
under s. 142(1) of the Income-tax Act, and inasmuch as the assessment order
dated March 31, 1977 was made during the pendency of the proceeding consequent
upon a purported non-compliance with that notice, it became necessary to obtain
the quashing of the assessment order also. The character of an assessment
proceeding, of which the impugned notice and the assessment order formed part,
being quasi-judicial, the "certiorari" jurisdiction of the High court
under Article 226 was attracted. Ordinarily, where the High court exercises
such jurisdiction it merely quashes the offending order and the consequential
legal effect is that but for the offending order the remaining part of the
proceeding stands automatically revived before the inferior court or tribunal
with the need for fresh consideration and disposal by a fresh order.
Ordinarily, the High Court does not substitute its own order for the order
quashed by it. It is, of course, a different case where the adjudication by the
High Court establishes a complete want of jurisdiction in the inferior court or
tribunal to entertain or to take the proceeding at all. In that event on the
quashing of the proceeding by the High Court there is no revival at all.
But although in the former kind of case the
High court, after quashing the offending order, does not substitute its own
order it has power nonetheless to pass such further orders as the justice of
the case requires. When passing such orders the High court draws on its
inherent power to make all such orders as are necessary for doing complete
justice between the parties. The interests of justice require that any
undeserved or unfair advantage gained by a party invoking the jurisdiction of
the court, by the mere circumstance that it has initiated a proceeding in the
court, must be neutralised. The simple fact of the institution of litigation by
itself should not be permitted to confer an advantage on the party responsible
for it. The present case goes further. The appellant would not have enjoyed the
advantage of the bar of limitation if, notwithstanding his immediate grievance
against the notice under s. 142(1) of the Income-tax Act, he had permitted the
assessment proceeding to go on after registering his protest before the
Income-tax Officer, and allowed an assessment order to be made in the normal
course. In an application under s. 146 against the assessment order, it would
have been open to him to urge that the notice was unreasonable and invalid and
he was prevented by sufficient cause from complying with it and therefore the
assessment order should be cancelled. In that event, the fresh assessment made
under s. 146 would not be fettered by the bar of limitation.
Section 153(3)(i) removes the bar. But the
appellant preferred the constitutional jurisdiction of the High Court under
Article 226. If no order was made by the High Court directing a fresh
assessment, he could contend as is the contention now before us, that a fresh
assessment proceeding is barred by limitation. That is an advantage which the appellant
seeks to derive by the mere circumstance of his filing a writ petition. It will
be noted that the defect complained of by the appellant in the notice was a
procedural lapse at best and one that could be readily corrected by serving an
appropriate notice. It was not a defect effecting the fundamental jurisdiction
of the Income- tax Officer to make the assessment. In our opinion, the High
Court was plainly right in making the direction which it did. The observations
of this court in Director of Inspection of Income-tax (Investigation), New
Delhi and Another v. Pooran Mall & Sons and another(1) are relevant.
It said:
"The court in exercising its powers
under article 226 has to mould the remedy to suit the facts of a case. If in a
particular case a court takes the view that the Income-tax 771 Officer, while
passing an order under section 132(5), did not give an adequate opportunity to
the party concerned it should not be left with the only option of quashing it
and putting the party at an advantage even though it may be satisfied that on
the material before him the conclusion arrived at by the Income-tax Officer was
correct or dismissing the petition because otherwise the party would get an
unfair advantage. The power to quash an order under Article 226 can be
exercised not merely when the order sought to be quashed is one made without
jurisdiction in which case there can be no room for the same authority to be
directed to deal with it. But, in the circumstances of a case, the court might
take the view that another authority has the jurisdiction to deal with the
matter and may direct that authority to deal with it or where the order of the
authority which has the jurisdiction is vitiated by circumstances like failure
to observe the principles of natural justice, the court may quash the order and
direct the authority to dispose of the matter afresh after giving the aggrieved
party a reasonable opportunity of putting forward its case.
Otherwise, it would mean that where a court
quashes an order because the principles of natural justice have not been
complied with, it should not while passing that order permit the tribunal or
the authority to deal with it again irrespective of the merits of the
case." The point was considered by the Calcutta High court in Cachar
plywood Ltd. v. Income-Tax Officer, "A" Ward, Karimganj, Dist.,
Cachar & Another (1) and the High court, after considering the provisions
of s. 153 of the Income-Tax Act, considered it appropriate, while disposing of
the writ petition, to issue a direction to the Income-tax Officer to complete
the assessment which, but for the direction of the High court, would have been
barred by limitation.
Our attention has been drawn to a recent
decision of this Court in Rajinder Nath etc. v. The Commissioner of Income-tax,
Delhi(2) (by a Bench of this Court of which one of us was a member). In that
case, the Court considered the provisions of s. 153(3) (ii) of the Income-tax
Act and laid down that the word "direction" in that subsection refers
to a direction necessary for the disposal of the case and which the court has
power to make while deciding the case. In the view taken by us that the order
made by the High Court directing a fresh assessment is necessary for properly
and completely disposing of 772 the writ petition, the appellant can obtain no
assistance from Rajinder Nath (supra).
Mr. A. P. Mohanti, who appeared for the
intervener, supported the contention that the High Court was not entitled to
make an order directing a fresh assessment, and has referred us to three cases,
Pickles v. Falsham,(1), Anisminic Ltd. v. The Foreign Compensation Commission
and Another(2), and Bath and West Countries Property Trust Ltd. v. Thomas
(Inspector of Taxes)(3). We are of the opinion that the cases are
distinguishable. In Pickles (supra), Cave L.C. declined to remand the case to
the Special Commissioners because the time for making the requisite assessment
had expired. In Anisminic Ltd. (supra) the decision of the Commissioner
considered by the House of Lords was a nullity. The present case is one of a
mere procedural lapse, an imperfect notice which is replaceable by a proper
notice. The third case, Bath and West Countries Property Trust Ltd. (supra) was
again a case where it was too late for the Inspector to make a fresh assessment.
In the case before us a direction by the High court is sufficient to raise the
bar of limitation, a power absent in the aforesaid cases.
In our Judgment, the order made by the High
Court directing the Income-tax Officer to make a fresh assessment was necessary
in order to do complete justice between the parties. The High Court had
jurisdiction to make the order, and it acted in the sound exercise of its
judicial discretion in making it.
The appeal is dismissed with costs.
V.D.K. Appeal dismissed.
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