INCOME-TAX OFFICER AND ANR, BOMBAY V. THE SIMPLEX MILLS LTD., BOMBAY INSC 316

NAME OF CASE INCOME-TAX OFFICER AND ANR, BOMBAY V. THE SIMPLEX MILLS LTD”

FACTS The respondent had paid tax in advance for the year 1952-53. Later, when the tax assessment was completed on August 30, 1952, it turned out that part of the advance payment was refundable. At that time, the government had a rule in place that required it to pay interest on any advance tax paid. Based on this rule, the respondent was paid ₹14,720 in September 1952. However, in May 1953, the government changed the rule, which applied retroactively from April 1, 1952. Under the new rule, the amount the respondent should have received was ₹9,404, meaning the earlier payment was too high by ₹5,316. On March 18, 1957, the tax authorities issued a notice stating that the respondent's income for the year ending March 31, 1953, had been under-assessed and that excessive relief had been given. Despite the respondent's objections, the reassessment was carried out on July 30, 1957. The reassessment was based on the fact that the respondent had received more interest than allowed under the new rules, and the tax authorities decided to recover the excess amount that had been granted in the original assessment.

ISSUE Was the reopening of the income tax assessment by the Income-Tax Officer valid, considering the retrospective amendment to the rules and procedural requirements?

DECISION The Supreme Court supported the decision of the Bombay High Court, which had ruled to cancel the reassessment order and the demand notice issued by the tax authorities. The case emphasized that when tax authorities attempt to revise or reopen previous assessments, they must follow the proper legal procedures and provide valid reasons for doing so. Even when there are retrospective changes in the law, these procedural requirements cannot be overlooked. The ruling underscored that the authorities must justify their actions clearly and ensure that any reassessment is carried out in accordance with the established legal framework.

RATIONLE The Supreme Court gave it’s reasoning as if earlier assessments have missed income, profits, or gains, under-assessed them, applied a rate that’s too low, granted excessive relief, or computed excessive loss or depreciation, they can be reopened. However, none of these conditions apply in this case. While the notice mentioned all these grounds, only two—under-assessed income and excessive relief—were argued. Importantly, the order from July 30, 1957, focused solely on excessive relief and didn’t claim under-assessment of income.