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Commnr. Of Income Tax, Delhi vs M/S. Kelvinator Of India Ltd

Supreme Court18 January 2010Swatanter Kumar · Aftab Alam · S.H. Kapadia

Ratio decidendi

The rule this decision rests on

The power to re-open an assessment under Section 147 of the Income Tax Act, 1961, after 1st April 1989, is triggered by the Assessing Officer having "reason to believe" that income has escaped assessment, and this "reason to believe" must be based on tangible material with a live link to the formation of the belief; mere change of opinion is not a sufficient basis for re-opening, as the concept of change of opinion operates as an in-built check against arbitrary exercise of the re-assessment power.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

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 inthis batch of civil appeals is, whether the concept of"change of opinion" stands obliterated with effect from 1stApril, 1989, i.e., after substitution of Section 147 ofthe Income Tax Act, 1961 by Direct Tax Laws (Amendment)Act, 1987?
To answer the above question, we need to note thechanges 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:
...2/-
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"Income escaping assessment.
147. If--
[a] the Income-tax Officer has reason tobelieve that, by reason of the omission orfailure on the part of an assessee to make areturn under section 139 for any assessmentyear to the Income-tax Officer or todisclose fully and truly all material factsnecessary for his assessment for that year,income chargeable to tax has escapedassessment for that year, or
[b] notwithstanding that there has been noomission or failure as mentioned in clause
(a) on the part of the assessee, the Income-
tax Officer has in consequence ofinformation in his possession reason tobelieve that income chargeable to tax hasescaped assessment for any assessment year,
he may, subject to the provisions of sections 148to 153, assess or reassess such income orrecompute the loss or the depreciation allowance,as the case may be, for the assessment yearconcerned (hereafter in sections 148 to 153referred 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 theAct, reads as under:
"147. Income escaping assessment.-- If theAssessing Officer, for reasons to be recordedby him in writing, is of the opinion that anyincome chargeable to tax has escapedassessment for any assessment year, he may,subject to the provisions of Sections 148 to153, assess or reassess such income and also...3/-
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any other income chargeable to tax which hasescaped assessment and which comes to hisnotice subsequently in the course of theproceedings under this section, or recomputethe loss or the depreciation allowance or anyother allowance, as the case may be, for theassessment year concerned (hereafter in thissection and in Sections 148 to 153 referredto as the relevant assessment year)."
After the Amending Act, 1989, Section 147 reads asunder:
"Income escaping assessment.
147. If the Assessing Officer has reason tobelieve that any income chargeable to tax hasescaped assessment for any assessment year, hemay, subject to the provisions of sections 148 to153, assess or reassess such income and also anyother income chargeable to tax which has escapedassessment and which comes to his noticesubsequently in the course of the proceedingsunder this section, or recompute the loss or thedepreciation allowance or any other allowance, asthe case may be, for the assessment yearconcerned (hereafter in this section and insections 148 to 153 referred to as the relevantassessment 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 ...4/-

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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 ...5/-

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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.

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