Capital gains- meaning and counting of month General- tax payers must avoid last moment action to avoid doubt,contingencies and un-certainities.

[CA DEV KUMAR KOTHARI]

References and links:

Links for some of provisions of the Income-tax Act, 1961, in which the words like

 ‘days’  ‘month’ and ‘year’  are used:

S.2 (42A) – period of holding for short-term capital asset – expression used is … not more than … months.

Depending on this meaning other relevant meanings are derived as provided in  2 (29A), 2(29B)  and S. 2(42B) .

S.32  (in second proviso ) – for a period of less than 180 days.

54, 54B,  54D, 54F -             …. Year   before or years  after

54E, 54EA, 54EB , 54EC,– at any time  within a period of six months….

54ED – within a period of six months….

S.220 - … percent for every month or part of month

S.234A, 234B, -  … percent - for every month or part of a month.

S. 234C – one percent per month for a period of three months…

S.234D -  for every month or part of a month.

S. 254(2A) – four years from the end of … ; proviso – for a period not exceeding 180 days.

S.249 (2) – the appeal shall be presented  within thirty days from …

S.253(3)-  appeal shall be filed .. within sixty days of the date on which … 

Recent judgments:

Alkaben B. Patel  v. Income-tax Officer, Ward -14(2), Ahmedabad 2014 (3) TMI 842 - ITAT AHMEDABAD

Earlier judgments of ITAT in which different views were taken:

Hon'ble ITAT 'G' Bench; Kumarpal Amrutlal Doshi v. The DCIT (Appeal)- 2011 (2) TMI 26 - ITAT, MUMBAI 33, Navi Mumbai, in A.Y. 2006-07 in ITA No, 1523Mum/2010, order dated 09.02.2011.

Hon'ble ITAT 'C' Bench, Ahmadabad; Shri Aspi Ginwala, Shree Ram Engg. & Mfg Industries v. ACIT, Circle-5, Baroda in ITA No. 3226/Ahd/2011 and the case of Shri Rustam Ginwala, Shree Ram Engg. & Mfg W Industries v. ACIT, Circle-5, Baroda in ITA No. 3227/Ahd/2011 in A.Y. 2008-09. - 2012 (4) TMI 195 - ITAT AHMEDABAD

Hon'ble ITAT Amritsar Bench; S. Lakha Singh Bahra Charitable Trust vide order dated 15,06.2011 reported in 2012 (6) TMI 376 - ITAT AMRITSAR

Other judgments referred  and relied on by parties and considered by Special bench:

Dhanraj Singh Choudhary v. Nathulal Vishwakarma order dated 08.12.2011 reported in 2014 (4) TMI 979 - Supreme Court of India

Hon'ble High Court of Bombay; Hindustan Unilever Ltd. Deputy Commissioner of Income-tax 1(1), Mumbai in W.P. No. 85 of 2009 vide order dated April 1, 2010 reported in 2010 (4) TMI 206 - BOMBAY HIGH COURT

Chironjilal Sharma HUF v. UOI, 2013 (12) TMI 71 - SUPREME COURT (an unreported decision), the relevant extract of the order placed in the compilation, the Hon'ble Supreme Court has directed that the "interest was to be paid within 2 month from today". In an identical fashion, the Hon'ble Bombay High Court in case of Jethmal Faujimal Soni.

ITAT in W.P. No. 1744 of 2010 in order dated April 12, 2010 reported in Jethmal Faujimal Soni Versus Income-tax Appellate Tribunal  2010 (4) TMI 747 - Bombay High Court  had directed the Tribunal to dispose of the pending appeal within a period of four months from today.

On issue of liberal interpretation:

Bajaj Tempo Ltd. v. CIT, 1992 (4) TMI 4 - SUPREME Court

CIT v. Gwalior Rayan Silk Manufacturing Company, 1992 (4) TMI 3 - SUPREME Court

CIT v. Vegetable Products Ltd., 1973 (1) TMI 1 - SUPREME Court

CBDT has also taken due cognizance of such incentive provisions, therefore, granted relaxation. Such as in CBDT Circular No.794 dated 9th of August, 2000; CBDT Circular No.359 dated 10th of May, 1983 and Circular No.791 dated 2nd of June, 2000.

Certain Tribunals have also accepted the legal aspect of 'liberal interpretation' of statute in respect of provisions of Section 54E or Sections 54EA such as in the case of Mahesh Nemchandra Ganeshwade v. ITO, 2012 (5) TMI 161 - ITAT PUNE, Bhikhulal Chandak (HUF) v. ITO, 126 TTJ 345 (Nagpur), Chanchal Kumar Sirkar v. ITO, 2012 (2) TMI 363 - ITAT KOLKATA.

 In certain other context few Hon'ble High Courts have also taken a view that a month is to be reckoned according "british calendar":

 CIT v. SLM Maniklal Industries, 2005 (1) TMI 46 - GUJARAT High Court  the issue of interpretation of the term "month" is no longer res integra because in the case of CIT v. Kadri Mills (Caimbatore Ltd.), 1976 (8) TMI 50 - MADRAS High Court it was laid down that the month to be reckoned according to British calendar.

The issue before the Hon'ble Court was that whether the Tribunal was right in law and on facts in canceling the penalty levied u/s. 271(1)(a), observing that month meant calendar month and not the lunar month of 28 or 30 days.

CIT v. Kadri Mills (Caimbatore Ltd.), 1976 (8) TMI 50 - MADRAS High Court

Commissioner Of Income-Tax, West Bengal II Versus Brijlal Lohia And Mahabir Prosad Khemka 1980 (5) TMI 28 - CALCUTTA High Court has also been generally cited wherein it was held that the words "however considering month during which the default continued" as appeared in Section 271(1)(a) refer only to a month during the whole of which the default continued and not to a month during which only part of which default continued.

 Harnand Rai Ramanand 1985 (7) TMI 67 - RAJASTHAN High Court

 B.V.Aswathaiah & Brothers 1985 (7) TMI 90 - KARNATAKA High Court

Tamal Lahiri v. Kumar P. N. Tagore, 1978 (9) TMI 168 - Supreme Court of India while interpreting Section 533 of Bangalore Municipal Act, 1932 that the expression ‘six months’ in the said section means six calendar months and not 180 days.

‘days’  ‘month’ and ‘year’ :

On a reading of the illustrative provisions referred above we find that in different provisions three expressions have been used for measurement of limitations in terms of months. Thank god, so far concept of hours, minutes and seconds have not been introduced, perhaps  for the sake of simplicity. The three expressions of days, months and years are sufficient to create complexities and litigation.   

In relation to provisions of ‘capital gains’ we find use of all three expressions ‘days’  ‘month’ and ‘year’ for different purposes. So far definition of ‘short-term capital asset’ and consequentially definition of ‘long-term capital asset’ are concerned, we find that in meaning of short-term capital asset vide  section 2(42A)  words used are  ‘held for not more than ….. months immediately preceding the date of transfer.

In the context of capital gains we need to consider meaning of month in several situations. For the purpose period of holding of a capital asset which determines character of capital asset as short –term or long term capital asset. In some provisions we need to consider the period within which a new investment can be made or period within which an asset cannot be transferred. In some provisions prescribed period is in terms of ‘month’, in some provisions it is ‘year’.

As per definition of ‘long-term capital asset’ in S.2 (29A)  a capital asset which is not ‘short- term capital asset’ is considered as ‘long-term capital asset’. The meanings of ‘short- term capital gains’  (as per S.2 (42B) and ‘long-term capital gains’  as per S. 2 (29B) are also derived meanings from the meaning of not ‘short- term capital asset’ and ‘long-term capital asset’

And therefore if such an asset is held for more than twelve months, then it will be a long-term capital asset.

On reading of  section 2 (42A) read with proviso, we find that in context of shares and units a capital asset will be considered as short-term capital asset if it is ‘not held  for not more than twelve months’ immediately preceding the date of its transfer. In case of most of general assets the period prescribed is  more than thirty six months.

When we consider the expression ‘for more than twelve (or thirty six  months) a possible view is that  every month during which capital asset was held, irrespective of days of holding period in any month,  is required to be  counted.

This view also find support for the reasons that in many provisions a part of any month is  also considered as equal to  a month. Therefore, even if one day of any month is covered, the consequence is that as if it is for full month.

The provision of treating an asset as ‘long-term capital asset’ is a beneficial provision therefore, it need to be interpreted liberally and to service purpose.

Counting on fingers:

Normally when we consider the number of months in which or during which a capital asset is held the first and most popular method is to count on fingers. If we count months on our fingers, naturally the month in which a capital asset is acquired and the month in which the capital asset is transferred, both are to be considered, irrespective on days for which the asset is held in those months.

In this context the word ‘month’ has to be reckoned  with British Calendar Month and will include even a part of month. Thus if an asset was  acquired and first held  on 31^st January 2011 then the month of January 2011  will be counted as the first month in which or during which the capital asset is held. Now suppose the capital asset is transferred on 2^nd  December 2013, then the month of December 2013 will also be counted because the capital asset was held during December 2013 also. Therefore, on a finger counting of months during which or in which the capital asset was held we can say that the asset was held during 36 month or for thirty six month. However, this is likely to be disputed by tax authorities and can cause litigation.

Month on date-to date basis:

If we consider a month on date to date basis, then holding period of three years or thirty six month will be complete only on 31^st January 2014 and to be eligible for treatment as long-term capital asset ( with more than three years prescribed period of holding) the capital asset should  be transferred only on or after 2^nd  February 2014 to play safe. If it is transferred on 1^st February, then the AO may take view that it was  held exactly for three years / thirty six month and was transferred before one day more than three years period lapsed.  This sort of disputes are taking place.  

Recent case in context of S. 54EC:

In case of Alkaben B. Patel (supra.) decided by Special Bench of ITAT Ahmadabad, matter relating to meaning of months for the purpose of time limit for  reinvestment of capital gains to avail  exemption vide section 54EC was considered. After taking note of several provisions of the Income-tax Act , and the General Clauses Act, the Tribunal held that month shall  be reckoned with reference to British calendar month and will include even part of the month. 

The Tribunal observed that  in the absence of any definition of the word 'month' in the Act, the definition of the General Clauses Act,1897 will be applicable. Legislature in its wisdom has chosen to use the word 'month'. This was done keeping in view the definition in section 3(35) of the General Clauses Act, 1897. Therefore, the Special Bench of Tribunal rejected the plea of Revenue's that 'month' should be understood in the ordinary sense- i.e. the month is a period from a specified date in a month to the date numerically corresponding date in the following month. Besides this tribunal also considered that the provision of S.54EC is a beneficial provision and therefore, it need to be interpreted in a manner that serves the purpose. The matter for consideration was also about date of submission of application for investment u/s 54EC.

In this case the Ld. CIT(A)  had  considered and held  the last date for investment U/s 54EC was 10.12.2008 (by taking a month from particular date in a month in which transfer of original asset took place) to the same date in next month to count a month) whereas assessee claimed that it should be  31.12.2008 as the 'month' would mean that the "full month" which reckoned from the end of the month in which transfer took  place. Therefore, as per assessee the month in which transfer took place was to be excluded and subsequent  full six months were available for making investments in S.54EC eligible securities.  

Several cases under different laws were referred in relation to counting of period of limitations. The readers may refer to the same.

On consideration of all aspects the Tribunal held and directed to consider the last date for making investment U/s 54EC as 31.12.2008 in place of 10.12.2008 and allowed deduction.

Tribunal also held that in this case  there in no attempt to supply casus-omissus  but replicated as per the language used. Therefore, as per Tribunal the view taken is as per language used and there is no need to apply rules of interpretation, and there is no supply of words.

Some important observations from the judgment of Tribunal are analyzed below:

1. the logical conclusion is that in the absence of any definition of the word ' month' in The Act, the definition of General Clauses Act 1897 (GCA)  shall be applicable
2.  by adopting the meaning as per  GCA ,  there is no attempt  to interpret the language of Sec. 54EC ,
3. There is no case of a liberal or literal interpretation.
4. the Legislature has in its wisdom has chosen to use the word ' month'. This was done by keeping in mind the definition as prescribed in General Clauses Act 1857.
5. Tribunal held that we have also read the word 'month' within the recognized ways of interpretation, rather we have also seen both; the conventional as well as lexicon meaning. Here there in no attempt to supply casus-omissus but replicated as per the language used.
6.   there is no dispute about the investment which had actually been made by the assessee.
7. The said investment had been made in the month of December, 2008. However, alleged to be few days late from the date of transfer in the month of June, 2008.
8. It is not the case of the Revenue that the appellant had altogether fudged the dates.
9. Once the purpose of the introduction of the section was served by making the investment in the specified assets then that purpose has to be kept in mind while granting incentive
10.   Therefore the Tribunal  held that the investment in question qualifies for the deduction U/s 54EC. Resultantly assessee's grounds were allowed.
11.  The question referred to the Special bench of Tribunal was accordingly  is answered in favour of the assessee.

Care required by assesses and learning from the case:

Though the judgment of the Special Bench of Tribunal is very correct and it is simply based on applicable law. However, it is also true that generally we count a month from one date in the original or initial month to the same date in the next month. We consider that from 10^th of January one month will be completed on 9^th of February and the second month will be completed on 9^th of March.

Therefore, one should apply care and precaution and to complete necessary work even like making investment well in advance so that unnecessary litigation does not take place. By making investment just few days prior to last day (as per most safely understood meaning of applicable last date) controversies, contingencies and un-certainties can be avoided.

For caution , for example  do not wait for 30^th September or 31^st March for putting to use   depreciable assets, put to them use say by15- 20^th September or 15- 20^th March so that tax authorities do not have a suspicion which they will have if asset is put to use during last few days of limit. We have seen several judgments on such issues when asset was put to use on the last day or few days earlier, in those cases the tax authorities naturally had doubt and investigated the matter deeply, in some cases wrong doing was also observed.