GRINDLAYS BANK LIMITED vs. THE INCOME TAX OFFICER, H WARD COMPANIES, DISTRICT-IV, CALCUTTA AND ORS.

CIVIL APPEAL No. 2009/1978Supreme Court[1980] 2 S.C.R. 76515 January 1980Bench: 2 JudgesAuthor: N.L. UNTWALIA, R.S. PATHAK8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the High Court was competent to direct a fresh assessment. The Court reasoned that the assessment proceedings were effectively stayed by court orders from March 17, 1975, to March 31, 1977. Under Explanation 1 to Section 153, the period of such stays must be excluded when computing the limitation period for making an assessment. Therefore, the assessment order dated March 31, 1977, was not barred by limitation. The Court further held that while exercising its certiorari jurisdiction under Article 226, the High Court has the inherent power to pass such further orders as are necessary to do complete justice between the parties. The bank's challenge to the notice was considered a procedural lapse, not a fundamental jurisdictional defect. Allowing the bank to gain an advantage of limitation by filing a writ petition would be an unfair advantage. The High Court's direction for a fresh assessment was necessary to neutralize this advantage and ensure justice. The Court distinguished the cited cases where fresh assessments were not permitted due to expired time limits or nullity of orders.

What were the facts?

Grindlays Bank Limited, a UK-incorporated banking company assessed in India, filed its return for assessment year 1972-73. The Income Tax Officer (ITO) issued a notice under Section 142(1) of the Income Tax Act, 1961. The bank challenged this notice before the Calcutta High Court under Article 226 of the Constitution. A single judge directed compliance with the notice. The bank appealed, and meanwhile, the ITO passed an assessment order on March 31, 1977. The Division Bench of the High Court allowed the appeal on May 8/12, 1978, quashing the notice and the assessment order. However, the Division Bench also directed the ITO to make a fresh assessment. The bank appealed this direction to the Supreme Court.

What were the issues?

1. Whether the High Court had the power to direct a fresh assessment, considering the bar of limitation under Section 153(1)(a)(iii) of the Income Tax Act, 1961, when assessment proceedings remained pending due to successive court orders? Assessee's contention: The bank argued that the direction for a fresh assessment was barred by limitation. They contended that the High Court, in quashing the assessment order, should not have directed a fresh assessment, as this would allow the revenue to bypass the limitation period. They relied on cases where courts declined to remand or direct fresh assessments due to expired time limits. Revenue's contention: The revenue contended that the assessment proceedings were stayed by court orders, and the period of the stay should be excluded from the computation of limitation as per Explanation 1 to Section 153. They argued that the High Court had the power to direct a fresh assessment in the interests of justice to prevent the assessee from gaining an unfair advantage due to the litigation initiated by them. They cited Director of Inspection of Income Tax v. Pooran Mall & Sons and Cachar Plywood Ltd. v. Income Tax Officer.

Which sections of the Income-tax Act were involved?

Section 142(1),Section 153(1)(a)(iii),Section 153(3)(i)

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.. -· 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.] • 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 ;uri iction 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

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