Grindlays Bank Limited v. The Income Tax Officer, 'H' Ward, District-IV, Calcutta and Ors

765 GRINDLA YS BANK LIMITED _v._ THE INCOME TAX OFFICER, 'H' WARD COMPANIES, DISTRICT-IV, CALCUTTA AND ORS. _January_ 15, 1980 [N. L. UNTWALIA AND R. s. PATHAK, JJ.] A B c D E F G H ##### .. _Bar_ _of linlitation under section_ 153(1)(a)(iii) _of the_ _lnco111e_ _Tax Act,_ 1961···_When_ _the_ as~ssment _proceeding_ _remained_ _during_ _the_ _entire_ _per!od_ _by_ _successiv·e_ _orders_ _of_ _the Court, the fresh_ _assessn1ent_ _order cannot be faulted_ _011_ _grounds_ _of_ _limitation._ _Powers_ _of High Court to_ _make the order a_ _ftehll_ a,~sessnient _und,::r_ _certiorari_ _;urisdiction under Art._ 226 _of the Constitution._ The appellant, a banking compooy incorporated in the United Kingdom, carries on banking business in India and is assessed under the Income Ta-x Art, 1961. The appellant filed a return of it~ income for the assessment year 1972-73. During the assessment proceedings the1 Income Tax Officer issued a notice under •cction 142 (I) of the Income Ta,x Act requiring the appellant to produce certain account books and documents. The appellant applied against the notice to thei High Court of Calcutta under Article 226 'of tho 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 judgn1ent dated May 8 and 12, 1978, and the impugned notice under section 142(1) aruf the consequent assessment order were quashed. But while' doing so;· 'the Division Bench also directed the Incon1e Tax Officer to make a fresh··iissessn1ent. 1\ggrieved by that direction, the appellant applied for, and o1:¢ajned special lea\'e to appeal to this Court.,,,.· Dismissing the appeal, the Court HELD : 1. The Hight Court was competent to make the order dircctiilg 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-EJ The facts of the case ma..ke it clear that the assessment proceedings ren1ained 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 1he period of limitation for rhe purposes of section 153 the period during which the assessment is st&•yed 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 111aking the assessn1ent, the Income 1·ax Offic~r would be entitled to exclude the entire period from March 17, 1975, on which date there were fourteen: days still left \Vithin the norm:i,l ###### -· A B c D E F G a 766 SUPREME COURT REPORTS [1980] 2 S.C.R. operation of the rule of limitation. TheJ assessment order wa:! made on the very first day after the period of stay expired; it could not be faulted on the ground of li1nitation. [769 B-D] 2. The character of an assessment proceeding of which the impugned notice a·;id the assessment order formed part, being quasi-judicial, the "certiorari'' jurisdiction of the I-Iigh 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 \vith the need for fresh consideration and disposal by a fresh order. Ordinarily the High Court does not substitute its own ord~r for the order quoohed by it. It is, of course, a different case where' the adjudication by the High Court establfahes a comPiete \Vant of jurisdiction in the inferior court or tribunal to entertain or to take the proceeding a.t all. Jn 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 tht offending order, does not substitute its own order it has pD\Ver nonetheless to pass such further orders as the ju!:itice of the case requires. [769 F-H, 770 A] 3. When passing such orders the High Court draws on its inherent power to ma·ke all such orders as a"rc necessary for doing con1plete justice between the parties. The interests of justice require that any undeserved or unfair advantage gained by a party invoking the jurisdiction of the cou1t, 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 pern1itted 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 un_reasonable and invalid and he was prevented by gufficient cause from complying \.vith 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 1nade by the High Court directing a fresh ftSSCiin1ent, 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 circumstamce of his filing a writ petition. It will b'e noted that the defect comp1ained of by the appe1Iant in the notice was a procedural lapse at best and one that could be readily corrected by serving an appropria·!e notice. It v,:as not a defect affecting the fundamental jurisdiction of the Income Tax Officer to make the assessment. The Jiigh Court \Vas plainly right' in making the directioa. which it did. [770 C·G] _DircllC•r_ _of_ _Inspection_ _of_ _Inco1ne_ _Tax_ _(Investigation)_ _/\lew Delhi and_ _Anr._ v. _Poora11_ _Mall_ _and_ _Sons_ _anJ Anr._ (1974) 96 !TR 390@ 395; followed. ...### • I ,£_ ___.,,;(_ "- _)_ GRINDLAYS BANK _v._ l.T.O. _(Pathak,_ J.) 7 6 7 _{_ _Cachar_ _PlywoCld_ _Ltd._ v. _Income Tax_ _OfficPr,_ _'A'_ _Ward, Karin1ganj Dist._ A _-Cachar and Anr:,_ (1978) !14 !TR (Cal.); approved. Rajind~r _1Vath_ _etc._ v. _The_ _Co1nn1issio11er_ _of Inco1ne Tax, Delhi,_ [1980]1 SCR 272; distinguished. _Pickles_ v. _Fa/sham,_ 9 Tax Cases, 261, 288; _Anisminic Ltd._ v. _The Foreign_ _Co1npe1Uation_ Co1n~ni~.tion _&_ _Anr._ [1969] 1 All E.L.R. 208; _Bath and West_ B _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 C 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 Appelfant. _S._ _T._ _Desai,_ _B. B._ _Ahuja_ and _Miss_ _A._ _Subhashini_ for the Respon- D 4lents 1-2. The Judgment of the·Court was delivered by ..,, ' ###### • 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 assessme1>; proceeding, the Income-tax Officer issued a 11otice und·~r s. 142(1) cl 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 Jud~ of the High Court did not accept the wide construction which the appellant -1;ought 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 a:oi;ei;sment 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 PATHAK, J : This appeal by special leave is directed against the judgment of the High Court at ca:cutta dated May 8 and 12, 1978 in ~o far as it direc'.s the Income-tax Officer to make a fresh assessment E _i"n_ respect of the appellant. F G H 768 SUPREME COURT REPORTS (1980] 2 S.C.R. A consequent assessment order were quashed. But while doing so, theDivision 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. B c 0 F G ## " 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 he assessed had accrued to the appellant, and the High Court was -""" not competent to deprive the appellant of that accrued right. '1 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 orderin respect of that assessment year could be made after two years from the end of that assessment year. The end of the assessment year i<l 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 lncomt>-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 s'.ayed throughout the period from March 17, 1975 to August 31, 1976 by vi.rtue 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. Oi1 Seprember 22, 1976, he amended his judgment inasmuch as it now required that "the assess-men! 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 Ofticer could continue with the assessment proceedings he was restrained by the Court from making 1he assessment order before, and i'n fact could mak2 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 amend- _{_ GRJNDLAYS BANK _v._ I.T.0. _(Pathak,_ _!.)_ 769 ment, it must be deemed '.o have taken effect as from August 31, 1976, the date of the original judgment. In the appeal filed thereafter by the appeJant, 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 o'n 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 dared 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 t11ern were fourteen days still left wirhin 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 ~ound 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 tJ-.e order direc"ing a fresh assessment. The next point is whether the High court possessed any power to make the m<ler directing a fresh assessment. The principal relief sougl1t in the writ petition was the quashi11g 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 proeeeding, of which the impugned notice and the assessment order formed part, being quasijudicial, the "certiorari" jurisdiction of the High court under Article 226 was attracted. Ordinarily, where the High court exercises such jurisdic'ion it merely quashes the offending order and the consequential legal effect is that hut for the offending order the remainfog 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 jurisdic A B· c· E G H **A** **:B** **F** 7 70 SUPREME COURT ftEPORTS (1980] 2 S.C.R. tion 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 tho **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 onlers as are necessary for doing complete justice between the parties. The interests of justice require that any undeserved or unfair ad1·anbgc ga;ned 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 n<lt 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 Inco;nc-tax Act, he had permitted the assessment proceeding to go 011 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 shoulrl 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 constituti,onal jurisdiction of the High Court under Article 226. If 110 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 fnndamen!al jurisdiction of the Income-tax Officer to make the assessment. In our opinion, the High Court was plainly right in making the dire<:tion which it did. The observations of this court in _Director of Inspec-_ _tion_ _of Income-tax (Investigation), New Delhi and Another_ v. _Pooran_ _Mall_ _&_ _Sons and another(')_ are relevant. It said : "The court in exercising its powers under article 226 has io mould the remedy to suit the facts of a case. If in a particular case a court takes the view that the Income-tax ~~(I)~~ ~~[1974]~~ ~~96~~ l.T.R. 390 at 395. ' # _(_ GRINDLAYS BANK _v._ r.r.o. _(Pathak,_ _!.)_ 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 tl10ugh it may be satisfied that on the material before him the conclusion arrived at by the Income-tax Officer was c<>rrect 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 wheu lhc order sought to be quasl1ed is one made without jurisdiction in which case there can be no room for the same authority lo 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 fs 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 tl1e case." The point was considered by the Calcutta High court in _Cachar pl)'-_ _wood Ltd._ v. _Income-Tax Officer,_ _"A"_ _Ward,_ _Karimganj, Dist., Cachar_ & _Ano!her(')_ and the High court, after considering the provisions of s. 153 of the fncome-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 I1as been drawn to a recent decision of this Court in c· ll' E_ F IJ; _Rajinder Nath etc._ v. _The Commissioner_ _of_ _lncome-tax, Delhi(')_ (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. Jn 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 (1) [1978) 114 l.T.R. 379. (2) [1980) _1_ S.C.R. 272. 772 SUPREME COURT RHORTS [1980] 2 S.C.R. --A the writ petition, the appellant can obtain no assistance from _Rajinder_ _Nath_ (supra). ' ' • :B .c Mr. A. P. Mohanti, who appeared for the intervener, supported the· contention that the High Conrt was not entitled to make an order directing a fresh assessment, and has referred us to three cases, _Pickles_ v. _Falsham,C), Anisminic Ltd._ v. _The Foreign Compensation Commis-_ _sion and Another('),_ and _Bath and West Countries Property_ _Trust_ _Ltd._ v. _Thomas (Inspector_ _of_ _Taxes)(')._ 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 juris,E diction to make the order, and it acted in the sound exercise of its judicial discretion in making it. The appeal is dismissed with cost1. V.D.K. 11) ~~**9TaxCas**~~ **es261.288 .** _. 2\_ [1969) I All Eng. Law Reports 208 (3) [1978] I All Eng. I.aw Reports 305. _Appeal dismissed._