# OJ 1 S.C.R. 768 COMMISSIONER OF INCOME TAX, DELHI v. M/S. KELVINATOR OF INDIA LIMITED

- **Citation:** [2010] 1 S.C.R. 768
- **Court:** Supreme Court of India
- **Decided:** 2010-01-18
- **Case number:** Civil Appeal Nos. 2009-2011 of 2003
- **Bench:** S.H. Kapadia, Aftab Alam, Swatanter Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/oj-1-s-c-r-768-commissioner-of-income-tax-delhi-v-m-s-kelvinator-of-india-26526
- **Pages:** 6

## Headnote

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.
F
Dismissing the appeals, the Court
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 reassessment has to be based on fulfillment of certain preH
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-CH; 773-A-E]

## Text

A
B
[201 OJ 1 S.C.R. 768
COMMISSIONER OF INCOME TAX, DELHI
v.
M/S. KELVINATOR OF INDIA LIMITED
(Civil Appeal Nos. 2009-2011 of 2003)
JANUARY 18, 2010
[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.
F
Dismissing the appeals, the Court
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 reassessment has to be based on fulfillment of certain preH
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-CH; 773-A-E]
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
2009-2011 of 2003.
F
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
B
Appellant.
Kavita Jha, Bhargava V. Desai, Rahul Gupta, Nikhil
Sharma for the Respondent.
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:
E
F
G
H
"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
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:
"Income escaping assessment.
147. If the Assessing Officer has reason to believe that any
income chargeable to tax has escaped assessment for
F
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)."
8
6. 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
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.