COMMISSIONER OF INCOME TAX, DELHIversusM/S. KELVINATOR OF INDIA LIMITED

                        [201 OJ 1 S.C.R. 768


A           COMMISSIONER OF INCOME TAX, DELHI
                                v.
              M/S. KELVINATOR OF INDIA LIMITED
             (Civil Appeal Nos. 2009-2011 of 2003)
                        JANUARY 18, 2010
B
       [S.H. KAPADIA, AFTAB ALAM AND SWATANTER
                       KUMAR, JJ.]

       Income Tax Act, 1961: s.147 - Power to reassess - The
C word "opinion" inserted in s.147 after the enactment of Direct
  Tax Laws (Amendment) Act, 1987 i.e. prior to 1st April, 1989,
  vested arbitrary powers in the Assessing Officer to reopen past
  assessments on mere change of opinion - The concept of
  "change of opinion" stood obliterated with effect from 1st April,
D 1989, i.e. after substitution of s.147 of the Act by Direct Tax
  Laws (Amendment) Act, 1989- Direct Tax Laws (Amendment)
  Act, 1987 - Circular No.549 dated 31st October, 1989.

      The question which arose for consideration in the
  present appeal is whether the concept of "change of
E 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, 1989.

        Dismissing the appeals, the Court
F
      HELD: Post-1st April, 1989, power to re-open is much
  wider. The words "reason to believe" need to be given a
  schematic interpretation failing which, Section 147 of the
  Income Tax Act, 1961 would give arbitrary powers to the
G Assessing Officer to re-open assessments on the basis
  of "mere change of opinion", which cannot per se be
  reason to re-open. The Assessing Officer has no power
  to review but he has the power to re-assess. But re-
  assessment has to be based on fulfillment of certain pre-
H                                768
     COMMISSIONER OF INCOME TAX, DELHI v.               769
         KELVINATOR OF INDIA LIMITED

 condition and if the concept of "change of opinion" is        A
 removed, as contended on behalf of the Department,
 then, in the garb of re-opening the assessment, review
would take place. 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             B
escapement of income from assessment. Reasons must
have a live link with the formation of the belief. 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.         c
However, on receipt of representations from the
Companies against omission of 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. The      D
Circular No.549 dated 31st October, 1989, stated that the
omission of expression 'reason to believe' from section
147 would give arbitrary powers to the Assessing Officer
to reopen past assessments on mere change of opinion.
The Amending Act, 1989, has again amended section 147          E
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. [Para 6] [772-C-
H; 773-A-E]
                                                               F
    CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
2009-2011 of 2003.

    From the Judgment & Order dated 19.04.2002 of the High
Court of Delhi at New Delhi in l.T.C. No.4 of 2000 and dated   G
15.05.2002 in LT.A. No. 81 of 2000.

                           WITH
C.A. No. 2520 of 2008.
                                                               H
    770       SUPREME COURT REPORTS                   [2010] 1 S.C.R.

A       Arijit Prasad, Kunal Bahri, B.V. Balaram Das for the
    Appellant.

        Kavita Jha, Bhargava V. Desai, Rahul Gupta, Nikhil
    Sharma for the Respondent.
B         The Judgment of the Court was delivered by

          S.H. KAPADIA, J. 1. Heard learned counsel on both sides.
       2. A short question which arises for determination in this
C 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, 1989?

      3. To answer the above question, we need to note the
D 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:

          "Income escaping assessment.
E         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
F          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
G
          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
H
    COMMISSIONER OF INCOME TAX, DELHI v. . 771
 KELVINATOR OF INDIA LIMITED [S.H. KAPADIA, J.]
     assessment for any assessment year, he may, subject to           A
     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)."                                  B

    4. After enactment of Direct Tax Laws (Amen"Sment) Act,
1987, i.e., prior to 1st April, 1989, Section 147 of the Act, reads
as under:

    "147. Income escaping assessment.-- If the Assessing              C
    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, aasess or reassess
    such income and also any other income chargeable to tax           D
    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          E
    and in Sections 148 to 153 referred to as the relevant
    assessment' year)."

    5. After the Amending Act, 1989, Section 147 reads as
under:
                                                                      F
    "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         G
    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                H
    772       SUPREME COURT REPORTS                 [2010) 1 S.C.R.


A         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)."

          6. On going through the changes, quoted above, made to
8
    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
C   April, 1989), they are given a go-by and only one condition has
    remained, viz., that 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
D   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
E   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
F   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
G   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,
H   1987, Parliament not only deleted the words "reason to believe"
    COMMiSSIONER OF INCOME TAX, DELHI v.         773
  KELVINATOR OF INDIA LIMITED [S.H. KAPADIA, J.]

but also inserted the word "opinion" in Section 147 of the Act.       A
However, on receipt of representations from the Companies
against omission of 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              B
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     C
        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   D
       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   E
       '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      F
appeals filed by the Department, hence, dismissed with no
order as to costs.

D.G.                                         Appeals dismissed.