Bharti Gupta Ramola vs Commissioner Of Income Tax
2012 Latest Caselaw 2360 Del

*               IN THE HIGH COURT OF DELHI AT NEW DELHI


+               INCOME TAX APPEAL NO. 1234/2011


                           Reserved on: 27th March, 2012
%                          Date of Decision: 12th April, 2012


        BHARTI GUPTA RAMOLA              ...Appellant
                         Through Mr. Prakash Kumar,
                         Advocate.


                             VERSUS

        COMMISSIONER OF INCOME TAX       .....Respondent

Through Ms. Suruchi Aggarwal, Sr. Standing Counsel.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR

SANJIV KHANNA, J.:

Bharti Gupta Ramola has preferred this appeal, which

relates to assessment year 2006-07 against the order dated

31st May, 2011 passed by the Income Tax Appellate Tribunal

(tribunal, for short) in ITA No. 5561/Del/2010. By order dated

29th November, 2011, the following substantial question of law

was admitted:

"Whether the Income Tax Appellate Tribunal was right in holding that the assessee had not held the shares/mutual fund instruments for not more than 12 months preceding the date of transfer?"

2. The facts are undisputed. The appellant is an individual

and had income from salary and other sources. The appellant

had made investments and had also earned income as long

term and short term capital gains on mutual fund instruments

and securities.

3. During the financial year 2005-06, the appellant had

sold two mutual fund instruments on 29th September, 2005

and 14th October, 2005 and had shown the income earned as

long term capital gains of Rs.18,31,241/- and Rs.2,72,386/-

respectively. The aforesaid mutual fund instruments/units

were purchased by the appellant assessee on 29th

September, 2004 and 14th October, 2004.

4. In the return of income filed by the appellant on 31st

July, 2006, the appellant treated gain of Rs.18,31,241/- as

exempt under Section 10(38) of the Income Tax Act, 1961

(Act, for short) as STT was paid. The gain of Rs.2,72,386/-

was also treated as long term capital gain and claimed to be

exempt under Section 54EC of the Act. The Assessing

Officer in the assessment order treated the two gains as short

term capital gains on the ground that the instruments had not

been held for a period of more than 12 months immediately

preceding the date of transfer.

5. In the first appeal, the assessee succeeded and it was

held that the instruments were held for 12 months and the

gains were, therefore, not short term capital gains. Revenue

preferred an appeal and by the impugned order has

succeeded before the tribunal. The findings of the Assessing

Officer has been restored.

6. In order to appreciate the controversy and to answer the

substantial question of law mentioned above, we are required

to examine and interpret Section 2(29A) and Section 2(42A)

of the Act, which read as under:

"2. Definitions.--In this Act, unless the context otherwise requires,-- (29A) "long-term capital asset" means a capital asset which is not a short-term capital asset ;

xxx (42A) "short-term capital asset" means a capital asset held by an assessee for not

more than thirty-six months immediately preceding the date of its transfer:

Provided that in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or a unit of a Mutual Fund specified under clause (23D) of section 10 or a zero coupon bond, the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted:"

7. The contention of the Revenue, which has been

accepted and forms edifice of the reasoning given by the

tribunal, is that the asset must be held for a period of more

than 36 months or 12 months plus one day i.e. the date when

the transfer is made. The date on which the transfer is made

has to be excluded. The aforesaid submission is made on the

basis of the language of Section 2(42A) and the words "more

than" used therein along with the expression "immediately

preceding the date of transfer".

8. Having heard and deliberated upon the issue, we feel

that the stand of the appellant assessee should be accepted.

A careful examination of the aforesaid Section would reveal

that the date of transfer or sale is treated as a cut off point, to

apply the test. The expression "immediately preceding the

date of transfer" is a cut off point for determining and deciding

the period during which the asset was held by an assessee.

The said expression does not and should not be interpreted to

mean that the date of transfer itself should be added or

excluded.

9. The first part of Section 2(42A) stipulates that if an asset

is held for 36/12 months, it will be a long term capital asset.

The term "month" has not been defined in the Act and,

therefore, we have to fall back and can rely upon the word

"calendar month" as defined in the General Clauses Act,

1897. Section 3(35) of the said Act defines a "month" to mean

a month reckoned according to the British calendar. In normal

course, therefore, period of 12 calendar months would begin

on the specified day when the asset was transferred and the

assessee became the holder of the asset and end one day

before in the relevant calendar month, next year. Thus, if an

assessee acquires an asset on 2nd January in a preceding

year, the period of 12 months would be complete on 1st

January, next year and not on 2nd January. This position is

true and will apply to all cases, except when an asset is

transferred/purchased on 1st January. In such cases, the

period of one year or 12 months would expire and would be

complete on 31st December in the same year. The expression

used in Section 2(42A) is "for not more than 12 months". In

other words, to qualify as a short term capital asset, the

capital asset should be held by the assessee for 12 or 36

months, but the moment the said time limit is crossed or is

exceeded and the assessee continues to be the holder/owner

of the said asset, the same is to be treated as a long term

capital asset.

10. We are conscious that in some decisions the expression

"not less than" has been interpreted to mean a clear period,

excluding the date of service (see Chambers versus Smith,

67 Revised Reports 231, In re Railways Sleepers Supply

Company, [1885] 29 Ch.D. 204 (3), Mcqueen versus Jackson,

1903 (2) KB 163, etc.). However, the said cases were where the

legislature had fixed time limit, which should not be less than the

prescribed days for complying with the requirements of law or to

furnish reply. In such circumstances, it has been held that in

computation of time, fraction of a day should not be

reckoned (see In re Hector Whalling Limited, 1935 All

England Reporter, 302 (1936 Ch. 208). Even under the Income

Tax Act, 1922, the stipulation not less than 30 days in Section

22(2) was interpreted in Commissioner of Income Tax Versus

Ekbal and Company, AIR 1945 Bom 316 to mean 30 clear

days. This expression was distinguished from the expression

within 30 days, which means within two points of time. Similar

views have been expressed in N.V.R. Nagappa Chettiar and

Another versus Madras Race Club, AIR 1951 Mad 831,

Anokhmal Bhurelal versus Chief Panchayat Officer

Rajasthan, Jaipur, AIR 1957 Raj 388, Smt. Haradevi versus

State of Andhra Pradesh and Another, AIR 1957 AP 229.

11. In T.M. Lall versus Gopal Singh and Another, AIR 1963

P&H 378, Rule 4 of the All India Bar Council (First Constitution)

Rules, 1961 had came up for consideration. In the said rule, the

expressions "not less than" and "not more than" were used.

Because of the use of the said words, it was held that the

provision referred to complete or entire days intervening

between the two terminal days. Accordingly, fraction of day

should not be taken into consideration.

12. However, in English language many words have

different meanings and a word can be used in more than one

sense. Every dictionary gives several meanings to each

word. We cannot mechanically apply every meaning given in

the dictionary and have to choose an appropriate meaning

that the word may carry in the context in which it is used in the

legislation. It is the context which determines the meaning of

the word (See P.V. Indiresan (2) versus Union of India,

(2011) 8 SCC 441).

13. It is appropriate to refer to the decision of the Supreme

Court in Commissioner of Income Tax versus Braithwaite

and Company Limited, (1993) 201 ITR 343. In the said

case, the assessee had obtained a term loan of Rs.50 lacs

from a bank vide agreement dated 1st August, 1964. The loan

was to be paid in five installments ending on 31st July, 1971.

Question arose whether the repayment as stipulated under

the agreement was during a period of "not less than" seven

years as per the proviso to Rule 1(b) of the second schedule

of the Companies (Profits) Surtax Tax Act, 1964. Reversing

the judgment of the High Court and accepting the stand of the

assessee, it was held that a fraction of a day would be

counted to determine and decide whether the loan was for a

period of "less than seven years" or "more than seven years".

It was held as under:

" We are of the view that on a plain reading of the proviso to rule 1(v), Second Schedule to the Act, it is clear that in order to claim the benefit of the said provision, the borrowed money has to be repaid during the period of more than seven years. The only interpretation which can be given to the expression "during a period of not less than seven years" is that the said period should go beyond seven years. The reasoning is simple. The period of seven years would not be complete till the last "minute" or even the last "second" of the said period are counted. In other words, till the last minute of the seven-year period is completed, the period remains less than seven years. In the present case, the agreement was entered into on August 1, 1964. The last instalment was to be paid on July 31, 1971. The seven years were to complete at 12 p.m. (between the night of July 31, 1971, and August 1, 1971).

Even if the loan was paid back at 11.59 p.m. on July 31, 1971, the period would be less than seven years by one minute. It is, therefore, obvious that the period of "not less than seven years" can only mean till after the completion of seven years. We, therefore, hold that the repayment of the borrowed amount during the period of seven years does not mean repayment "during a period of not less than seven years". To claim the benefit under rule 1(v) of the Second Schedule to the Act the repayment of the borrowed money must be during a period which is more than seven years.

We find support in the view taken by us in the following cases. In Ramanasari v. Muthusami Naik [1906] ILR 30 Mad 248, section 18 of the Madras Rent Recovery Act, 1865 (VIII of 1865), required that, in fixing the day of sale, not less than seven days must be allowed "from the time of the public notice and not less than 30 days from the date of distraint". The sale was held on the 13th February, but the notice was published on 6th February. It was held that "not less than" means the same as "clear" and seven whole days must elapse between the day of the notice and the day fixed for sale. In Railway Sleepers Supply Co., In re [1885] LJ 54 Ch 720; [1885] 29 Ch 204, it was held that the expression "not less" than a given number of days means "clear days". It was held that the expression "not less" indicates "a minimum"."

14. Bombay High Court in Ravi versus Collector, Wardah,

(2008) 3 Maharashtra Law Journal 758 had examined the

expression within a period "not more than one month" used in

Maharashtra Municipal Councils, Nagar Panchayats and

Industrial Townships Act, 1965. The said words in question

stipulated and envisaged that an application should be filed

within a period of not more than one month "from" the date of

notification of the election result. In view of the word "from", it

was held that the first date had to be excluded in view of

Section 10 of the Bombay General Clauses Act, 1904.

15. In the present case, what is noticeable from the

language of the legislation is that the requirement prescribed

is that the assessee should not hold the asset for more than

36 or 12 months. The moment an asessee exceeds this

period and the holding continues beyond 36/12 months, the

asset is treated as a long term asset and according the gains

are computed. The clause, therefore, refers to the holding

period. We do not think it will be appropriate to exclude or

include any day of the holding for computing the said period.

The date on which the asset is acquired is not to be excluded

because the holding starts from the said date. Neither is the

date of sale/transfer to be excluded. The period of 12/36

months accordingly will have to be computed. Thus, if an

asset is held for 12 months/36 months and is sold the very

next day after the period of 12/36 months is over, the asset

would be treated as a long term capital asset. There is

nothing in the said Section to show and hold that the time

period would not include fraction of a day. The expression

"not more than" clearly in this case would refer and include the

date on which the asset is first held or acquired. Thus, an

asset acquired on the 1st of January would complete 12

months at the end of the said year, i.e., on 31st of December

and if it is sold next year and if the proviso to Section 2(42A)

applies, it would be treated as a long term capital gains.

16. In view of the aforesaid reasoning, the question of law

mentioned above is answered in negative, i.e., in favour of the

appellant-assessee and against the Revenue. The appeal is

allowed. In the facts of the case, there will be no order as to

costs.

-sd-

(SANJIV KHANNA) JUDGE

-sd-

( R.V. EASWAR ) JUDGE

APRIL 12, 2012 VKR