Holding

The High Court was competent to direct a fresh assessment because the period of limitation was excluded by the successive court‑ordered stays, and the fresh assessment was not barred by limitation.

Summary

Grindlays Bank, a UK‑incorporated banking company operating in India, filed its income‑tax return for AY 1972‑73. The Income‑Tax Officer issued a notice under s.142(1) demanding documents, which the bank contested before the Calcutta High Court under Art.226. The High Court, after a series of stays, directed the bank to comply and ordered the assessment to be completed on 31‑Mar‑1977; the assessment was made on that date. The Division Bench later quashed the notice and the assessment but directed a fresh assessment, which the bank appealed to the Supreme Court. The Supreme Court held that the period of limitation under s.153 was excluded by the court‑ordered stays, so the fresh assessment was not barred, and that the High Court had inherent power to direct a fresh assessment to achieve complete justice. Consequently, the appeal was dismissed.

Issues considered

The bar of limitation under s.153(1)(a)(iii) of the Income‑Tax Act applied to the assessment order dated 31‑Mar‑1977.
Whether the Calcutta High Court had jurisdiction to direct a fresh assessment after quashing the original assessment.
Whether the period of stay ordered by the court excluded the limitation period under Explanation 1 to s.153.

Legislation cited

Income Tax Act, 1961s. 142(1), s. 146, s. 153(1)(a)(iii), s. 153(3)(i), s. 153(3)(ii)

Subjects

limitation periodincome‑tax assessmentcertiorari jurisdictionArticle 226fresh assessmentprocedural lapseinherent jurisdictionbar of limitation

Judgment

765

GRINDLAYS BANK LIMITED A
v.
THE INCOME TAX OFFICER, 'H' WARD COMPANIES,
DISTRICT-IV, CALCUTTA AND ORS.
January 15, 1980 •
B
[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.
c
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
D
•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
E

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. ,,,.·
F
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 G
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
H
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
766 SUPREME COURT REPORTS [1980] 2 S.C.R.

A 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
B 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
c 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
D
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 advant-
age 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]
...-
E
In the present case, the appellant would not have enjoyed the advantage • I
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
F 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 ftSSCii-
n1ent, he could contend that a fresh assessment proceeding is barred by limita-
G tion. 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]
a
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.
GRINDLAYS BANK v. l.T.O. (Pathak, J.) 76 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

..,, 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.
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
F
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 G
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 H
: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 SUPREME COURT REPORTS (1980] 2 S.C.R.

A 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
B 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_
c 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
0 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 peti-
tion. The writ petition was disposed of by the learned single judge by
his judgment dated August 31, 1976. It is apparent that the assess-
ment 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
F
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--
G 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 assess-
ment 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 amend-
ment 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, A-
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, B·
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
c·
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 E
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 quasi-
judicial, the "certiorari" jurisdiction of the High court under Article G
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 H
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-

•
7 70 SUPREME COURT ftEPORTS (1980] 2 S.C.R.

A tion in the inferior court or tribunal to entertain or to take the proceed- '•
ing 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 substi-
tute 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
:B 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 permit-
ted 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 pro-
test 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 jurisdic-
tion 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
F 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 fnnda-
men!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 parti-
cular 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 dismiss-
ing 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 jurisdic- c·
tion 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
ll'
afresh after giving the aggrieved party a reasonable opportu-
nity 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." E_
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 dis-
posing of the writ petition, to issue a direction to the Income-tax
F
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
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 sub-
section 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
IJ;
(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). '•
Mr. A. P. Mohanti, who appeared for the intervener, supported the·
contention that the High Conrt was not entitled to make an order direc-
ting a fresh assessment, and has referred us to three cases, Pickles v.
:B 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.
.c (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. Appeal dismissed.

•

11) 9TaxCases261.288 .
.2\ [1969) I All Eng. Law Reports 208
(3) [1978] I All Eng. I.aw Reports 305.