Editor’s Note: The Supreme Court has decided only that the Income Tax Department may reopen the file. The case now goes back to the Assessing Officer, who will decide it on the merits for the first time. Three questions of law and fact will be adjudicated there:
Whether the ₹255 crore was a genuine price for the shares, or whether part of it was something else and taxable as income from other sources.Whether the Section 54F exemption survives, given the two-year window for buying the house, the proportionate nature of the relief, and the holding period of the shares.The quantum: the tax, seventeen years of interest, and whether the disclosure was full enough to rule out a penalty for concealment.
Whatever the Assessing Officer decides will be open to the entire appellate ladder (the Commissioner (Appeals), the Income Tax Appellate Tribunal (ITAT), the High Court and the Supreme Court), to revisional jurisdiction within the department, and to writ jurisdiction on any fresh question of law. Readers should not expect a final adjudication anytime soon.
On 28 October 2026, a Bench of Justices J.B. Pardiwala and K. Vinod Chandran dismissed four appeals filed by Chetan and Nitin Sabharwal, the sons of the late Chief Justice of India Y.K. Sabharwal, and allowed the Income Tax Department to reopen their assessments for 2008-09 and 2009-10. Nineteen years after the deal and eleven after the reopening notices of March 2015, the taxman has been told he may now begin.
Most newspapers ran the obvious headline: tax probe against ex-CJI’s sons. What the judgment settles, with some force, is a question every assessee in the country should care about: when has the taxman already made up his mind, and when has he merely glanced at the file?
In October 2007, the two brothers and two other shareholders agreed to sell their holdings in two private companies, Pawan Impex Pvt Ltd and SVIIT Software Pvt Ltd, to GYS Real Estate Pvt Ltd, for ₹195 crore and ₹60 crore respectively. The aggregate was ₹255 crore, and each of the four sellers was entitled to a quarter. Justice Sabharwal was then nine months out of office, having served as the 36th Chief Justice from November 2005 to January 2007.
In April 2010, the brothers jointly bought an undivided half share in a residential bungalow on Sikandra Road, in the heart of Lutyens’ Delhi, for ₹61 crore. They claimed that the purchase was an investment of their sale proceeds in a residential house, and that the capital gains on the shares were therefore exempt under Section 54F of the Income-tax Act, 1961, the provision that forgives the tax on a long-term gain if the money goes into a home.
The returns travelled two different roads. Chetan’s were taken up for scrutiny and assessed after examination. Nitin’s were simply processed, accepted by intimation without any officer forming a view on them at all. (An intimation, for the uninitiated, is the department’s computer confirming that the arithmetic adds up; it is not an assessment in any meaningful sense.)
Then came the Director General (Investigation). His report concluded, prima facie, that the share prices were substantially higher than anything the companies’ land and buildings could justify, and traced a substantial part of the proceeds into the Sikandra Road purchase. On 31 March 2015, the last day on which the six-year window for the earlier year could be opened, the Assessing Officer issued reopening notices. The Delhi High Court upheld them. The Supreme Court stayed proceedings in August and September 2019, and has now lifted the stay by dismissing the appeals.
The brothers maintain that the share transactions were fully disclosed to the tax authorities, and that the capital gains were duly offered for tax in the relevant year. Justice Sabharwal, who passed away in 2015, denied in his lifetime every insinuation made about his sons’ business. No court has yet found otherwise.
A Change of Opinion, or an Opinion Never Formed?
The brothers’ principal shield was the doctrine of “change of opinion”, an old and honourable one. The Supreme Court laid it down firmly in CIT v. Kelvinator of India Ltd (2010): the power to reassess is not a power to review. An Assessing Officer who has examined a matter and accepted it cannot, on a second reading of the same papers, discover that he was wrong and reopen the file. If he could, no assessment would ever be final, and every taxpayer would live under a permanent sword.
The Bench left that principle intact and drew its boundary in three moves.
It held, first, that “reason to believe” means cause or justification, and that the officer need not conclusively establish escaped income before initiating proceedings. A Director General’s report that arrived after the original assessments was new and tangible material, which is precisely what Kelvinator demands. The Court also rejected the argument that an overvaluation of shares, as distinct from an undervaluation, could never lead to income escaping assessment.
Nitin’s case was simple. His returns were never assessed; they were processed. Following ACIT v. Rajesh Jhaveri Stock Brokers (2007), the Court held that where no opinion was formed in the first place, none could have changed.
Chetan’s case was harder, and it is the one that will be cited. His returns had been examined, and the officer had looked at the share transactions. Several High Courts have held that once a query is raised and answered, an opinion is deemed to have been formed, even if the assessment order is silent on it. The Bench took a stricter view. The order, it found, reflected no conscious application of mind to the specific questions of the valuation of the shares, the routing of the proceeds into Sikandra Road, and the Section 54F claim. An officer who looks at a document without deciding anything about it has formed no opinion. He has merely turned a page.
For the ordinary assessee, this changes the advice a chartered accountant must give. Disclosure in the return, or even a full reply to a scrutiny questionnaire, no longer protects a claim by itself. What protects it is a reasoned finding in the assessment order on that very point, and a taxpayer whose order is silent should assume the point remains open for six years.
The Meter That Never Stopped Running
Take the three questions in the Editor’s Note in turn.
The first is whether the premium is a price at all. The department’s theory, stripped of jargon, is that a buyer paid far more for these shares than the companies’ land and buildings were worth. If the excess is not the value of the shares, it may be taxed as income from other sources, at the full slab rate, instead of as a concessional capital gain. It would also fall entirely outside Section 54F, which shelters only genuine capital gains.
The second is whether Section 54F survives on its own terms. Even taking the brothers’ case at its highest, the exemption carries conditions. The house must be bought within two years after the transfer, and October 2007 to April 2010 is two and a half. The claim holds only if the transfers were legally completed in the following year, which may explain why two years were reopened. The exemption is also proportionate: it shields only that fraction of the gain which the investment bears to the net consideration. Each brother’s share of the bungalow was roughly ₹30.5 crore against roughly ₹63.75 crore received, so at best about half the gain was exempt. (Unlisted shares then also had to be held for thirty-six months to count as long-term; held for less, the gain was short-term and taxable at slab rates.)
The third is what time costs. Interest for short payment of advance tax and for the return runs at one per cent a month, simple, from the assessment year onwards. Seventeen years of that comes to more than double the tax itself. A finding of concealment or inaccurate particulars would add, under the law then in force, a penalty of between one and three times the tax sought to be evaded.
The first is institutional, and it does the Supreme Court credit. In 2007, when a newspaper raised questions about the business interests of the then-recent Chief Justice’s sons, the judicial establishment answered with contempt proceedings against the journalists. Nineteen years later, a Bench of the same Court has declined to shield the same family from an ordinary tax inquiry. That is how it should be. The sons of a Chief Justice are entitled to the presumption of innocence every citizen enjoys, and to nothing beyond it. The law of reassessment now applies to the family of the highest judge in the land exactly as it applies to a grain merchant in Moga.
The second lesson is less flattering. A transaction of 2007, questioned in 2015, stayed in 2019 and released in 2026, has not yet produced a single finding of fact. The witnesses have aged, the companies’ records have gone into storage, and the former Chief Justice at the centre of the original controversy is no longer alive to answer for his name. The Revenue has collected nothing while the clock ran. The taxpayers have carried an open liability, and an open stigma, for two decades. The public, meanwhile, has read every adjournment as a favour.
Parliament has since shortened the window for reopening: since 2024, three years in ordinary cases, and five years only where ₹50 lakh or more is alleged to have escaped tax, down from the ten years allowed after 2021. The Income-tax Act, 2025 carries that limitation forward. What remains unreformed is the life of a challenge once it reaches the courts. A simple rule would help: a writ or appeal against a reopening notice, which by its nature raises only a question of jurisdiction, should be heard and decided within a year, and any interim stay should lapse with that year. Jurisdiction is a preliminary question, and it should not take longer to answer than the reassessment it guards.
Nineteen years have bought only the right to begin. If the Sabharwal brothers are vindicated on the merits, they will have waited well over two decades to be told so. If they are not, the exchequer will have waited as long to be paid, and the interest, still running every month, will be the largest line in the demand.