REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.2009-2011 OF 2003

Commissioner of Income Tax, Delhi          ...Appellant(s)

Versus

M/s. Kelvinator of India Limited          ...Respondent(s)

With Civil Appeal No.2520 of 2008

J U D G E M E N T

S.H. KAPADIA,J.

Heard learned counsel on both sides.

A short question which arises for determination in  

this batch of civil appeals is, whether the concept of  

“change of opinion” stands obliterated with effect from 1st  

April, 1989, i.e., after substitution of Section 147 of  

the Income Tax Act, 1961 by Direct Tax Laws (Amendment)  

Act, 1987?

To answer the above question, we need to note the  

changes undergone by Section 147 of the Income Tax Act,  

1961 [for short, “the Act”].  Prior to Direct Tax Laws  

(Amendment)  Act, 1987, Section 147 reads as under:

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“Income escaping assessment.

147.  If--

[a]  the  Income-tax  Officer  has  reason  to  believe that, by reason of the omission or  failure on the part of an assessee to make a  return under section 139 for any assessment  year  to  the  Income-tax  Officer  or  to  disclose fully and truly all material facts  necessary for his assessment for that year,  income  chargeable  to  tax  has  escaped  assessment for that year, or

[b] notwithstanding that there has been no  omission or failure as mentioned in clause  (a) on the part of the assessee, the Income- tax  Officer  has  in  consequence  of  information  in  his  possession  reason  to  believe that income chargeable to tax has  escaped assessment for any assessment year,

he may, subject to the provisions of sections 148  to  153,  assess  or  reassess  such  income  or  recompute the loss or the depreciation allowance,  as  the  case  may  be,  for  the  assessment  year  concerned  (hereafter  in  sections  148  to  153  referred to as the relevant assessment year).”

After enactment of Direct Tax Laws (Amendment) Act,  

1987, i.e., prior to 1st April, 1989, Section 147 of the  

Act, reads as under:

“147.  Income  escaping  assessment.--  If  the  Assessing Officer, for reasons to be recorded  by him in writing, is of the opinion that any  income  chargeable  to  tax  has  escaped  assessment for any assessment year, he may,  subject to the provisions of Sections 148 to  153,  assess or reassess such income and also

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any other income chargeable to tax which has  escaped  assessment  and  which  comes  to  his  notice  subsequently  in  the  course  of  the  proceedings under this section, or recompute  the loss or the depreciation allowance or any  other allowance, as the case may be, for the  assessment year concerned (hereafter in this  section and in Sections 148 to 153 referred  to as the relevant assessment year).”

After the Amending Act, 1989, Section 147 reads as  

under:

“Income escaping assessment.

147.   If  the  Assessing  Officer  has  reason  to  believe that  any  income  chargeable  to  tax  has  escaped  assessment  for  any  assessment  year,  he  may, subject to the provisions of sections 148 to  153, assess or reassess such income and also any  other income chargeable to tax which has escaped  assessment  and  which  comes  to  his  notice  subsequently  in  the  course  of  the  proceedings  under this section, or recompute the loss or the  depreciation allowance or any other allowance, as  the  case  may  be,  for  the  assessment  year  concerned  (hereafter  in  this  section  and  in  sections 148 to 153 referred to as the relevant  assessment year).”

On going through the changes, quoted above, made to  

Section 147 of the Act, we find that, prior to Direct Tax  

Laws (Amendment) Act, 1987, re-opening could be done under  

above  two  conditions  and  fulfillment  of  the  said  

conditions alone conferred jurisdiction on the Assessing  

Officer to make a back assessment, but in section 147 of  

the Act [with effect from 1st April, 1989], they are given  

a go-by  and only  one condition  has remained, viz., that

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where  the Assessing  Officer has  reason to  believe that  

income has escaped assessment, confers jurisdiction to re-

open  the  assessment.   Therefore,  post-1st April,  1989,  

power to re-open is much wider.  However, one needs to  

give a schematic interpretation to the words “reason to  

believe” failing which, we are afraid, Section 147 would  

give arbitrary powers to the Assessing Officer to re-open  

assessments  on  the  basis  of  “mere  change  of  opinion”,  

which cannot be  per se reason to re-open.  We must also  

keep in mind the conceptual difference between power to  

review and power to re-assess.  The Assessing Officer has  

no power to review; he has the power to re-assess.  But  

re-assessment has to be based on fulfillment of certain  

pre-condition and if the concept of “change of opinion” is  

removed, as contended on behalf of the Department, then,  

in  the garb  of re-opening  the assessment,  review would  

take place.  One must treat the concept of “change of  

opinion” as an in-built test to check abuse of power by  

the  Assessing  Officer.   Hence,  after  1st April,  1989,  

Assessing Officer has power to re-open, provided there is  

“tangible material” to come to the conclusion that there  

is  escapement of  income from  assessment.  Reasons must  

have a live link with the formation of the belief.  Our  

view gets support from the changes made to Section 147 of  

the Act, as quoted hereinabove.  Under the Direct Tax Laws  

(Amendment)  Act,  1987,  Parliament  not  only  deleted  the  

words  “reason  to  believe”  but  also  inserted  the  word  

“opinion” in Section 147 of the Act.  However, on receipt  

of representations from  the Companies against omission of  

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the  words  “reason  to  believe”,  Parliament  re-introduced  

the said expression and deleted the word “opinion” on the  

ground  that  it  would  vest  arbitrary  powers  in  the  

Assessing  Officer.   We  quote  hereinbelow  the  relevant  

portion of Circular No.549 dated 31st October, 1989, which  

reads as follows:

“7.2 Amendment made by the Amending Act, 1989,  to  reintroduce  the  expression  `reason  to  believe'  in  Section  147.--A  number  of  representations  were  received  against  the  omission of the words `reason to believe' from  Section  147  and  their  substitution  by  the  `opinion' of the Assessing Officer.  It was  pointed  out  that  the  meaning  of  the  expression,  `reason  to  believe'  had  been  explained in a number of court rulings in the  past  and was  well settled  and its  omission  from section 147  would give arbitrary powers  to  the  Assessing  Officer to  reopen  past  assessments  on mere  change of  opinion.  To  allay these fears, the Amending Act, 1989, has  again amended section 147 to reintroduce the  expression `has reason to believe' in place of  the words `for reasons to be recorded by him  in  writing,  is  of  the  opinion'.   Other  provisions of the new section 147, however,  remain the same.”

For the afore-stated reasons, we see no merit in  

these  civil  appeals  filed  by  the  Department,  hence,  

dismissed with no order as to costs.

......................J.            [S.H. KAPADIA]

......................J.            [AFTAB ALAM]

......................J.            [SWATANTER KUMAR]

New Delhi, January 18, 2010.