Commnr. of
Income Tax, Delhi Vs. M/S. Kelvinator of India Ltd. [2010] INSC 53 (18 January
2010)
Judgment
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:
- 2 -
"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 - 3
- 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 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 - 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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