By TIOL News Service

AHMEDABAD, MARCH 26, 2014: THE issues before the Special Bench are - Whether for the purpose of Section 54EC, the period of investment of six months should be reckoned after the date of transfer or from the end of the British Calendar month in which transfer of capital asset took place; Whether a beneficial provision, through which an incentive is given, can be interpreted liberally and Whether in the absence of any definition of the word ‘month’ in the Act, the definition given by the provisions of General Clauses Act, 1897 shall be applicable. And the verdict goes in favour of the assessee.

Facts of the case

The assessee in individual capacity had sold a flat situated at Lotus Co-operative Society, Usmanpura Ahmedabad for a consideration of Rs.64 lacs. It had computed the Capital Gain at Rs.Nil and declared the same as per the Return of Income. A working of the Capital Gain was admittedly furnished along with the return of income. The basis for “Nil” capital gain was that the gain was stated to be at Rs.56,65,767/- however the assessee had made the investment in NHAI bond of Rs.45 lacs and claimed the deduction u/s.54 EC. Assessee had also made an investment in “capital gain account scheme” of Rs.12 lacs, not in controversy. During assessment, it was noticed by the AO that the investment made in NHAI bonds of Rs.45 lacs for the purpose of claim of deduction u/s.54EC was purchased on 17th of December of 2008 as per the statement of the bank, appearing in the bank pass book. The gain was arising from a Long Term Capital Asset; hence, it was to be assessed under the head “Long Term Capital Gain”. Due to the said reason the assessee was entitled for a deduction if investment was made out of the sale proceeds in a “specified asset” within a period of six months from the date of the transfer of the asset. The AO had referred the provisions of Section 54EC and thereafter discussed that a sale document was registered on 10th of June, 2008; hence, the assessee was required to purchase the NHAI bond within six months from the said date of registration, i.e., 10th June, 2008. However, the assessee had purchased the NHAI bond on 17th of December, 2008. A show cause was issued as to why the claim of exemption be not disallowed in respect of the investment made in NHAI bond in the light of the provisions of Section 54EC being not invested within six months. The assessee had informed that the sale consideration was deposited in a capital gain account out of which the investment was made in the specified asset to claim the benefit of the provisions u/s.54EC. It was also explained that the last date of expiry of six months from the date of transfer of the Long Term Capital Asset was 10th of December, 2008 however the assessee had allegedly tendered a cheque on 8th December, 2008. According to assessee since the application for the purchase of those bonds was tendered in the bank on 8th December, 2008, which was within the period of six months from the date of the transfer of the Long Term Capital Asset, therefore, the assessee was eligible for the deduction u/s.54EC. According to the assessee the cheque was cleared on 17th of December, 2008. It was also contended that up to the end of the month of December 2008 the said investment was eligible for the deduction. The AO was not convinced and held that the assessee was required to invest the capital gain in the specified asset within a period of six months from the date of the transfer and that requirement was not complied with by the assessee; hence, not eligible for the deduction u/s. 54EC. Accordingly an addition of Rs.45 lacs was made in the hands of the assessee.

On appeal before CIT(A), it was reiterated that the due date of six months, as alleged by the AO, was 10th of December 2008, however, the assessee had claimed to had tendered the cheque along with an application for issue of NHAI bond to the bank on 8.12.2008. That cheque was cleared on 17th of December, 2008. It was thus pleaded that on account of the fact that the assessee had submitted the application before the last day of the expiry of six months from the date of the transfer of the capital asset, hence entitled for the deduction u/s.54EC. CIT(A) was of the view that the assessee was unable to establish that the impugned application for investment in NHAI bond was actually tendered on 8th of December, 2008. According to him, the seal/stamp and the date was not clear on the said application. In his opinion since the said cheque of Rs.45 lacs was encashed on 17th December, 2008 hence that was the date of the investment. The investment was made after the expiry of six months from the date the transfer of the capital asset, which had expired on 10.12.2008, therefore, not entitled for the claim of deduction u/s. 54EC. On that ground CIT(A) had affirmed the addition.

Before the Special bench Tribunal, the assessee's representative had submitted a copy of the General Clause Act, 1897 and referred Section 3 clause(35) of Definitions. He had also placed reliance on a CBDT Circular No.791 of 2nd of June, 2000 for the legal proposition that while interpreting the beneficial provision a liberal interpretation was to be adopted, as recommended in the said circular. In view of the said Circular for the purpose of claim of deduction on sale or transfer of stock in trade, the Board had decided that the period of six months for making investment in specified assets for the purpose of deduction u/s.54EA, 54EB and 54EC should be taken from the date when such stock in trade is sold or otherwise transferred as per Section 54(i). Likewise a liberal interpretation was made in respect of one more provision of IT Act by CBDT in a Circular no.359 dated 10.05.1983 wherein it was felt by the Board, while considering the provisions of Section 54E, that exemption for Long Term Capital Gain is available if the consideration is invested in a specified asset. A technical interpretation of Section 54E therefore could mean, as per Board, was that the exemption from tax on capital gain would be available if part of the consideration was invested prior to the date of the execution of the sale deed. As per the board, the investment could be regarded as having been made within a period of six months after the date of transfer.

On the other hand, the Revenue's representative had stated that the Income Tax Act and the Income Tax Rules had used two types of phraseology in respect of the computation of period for the purpose of prescribing a limitation. The first type of wordings used were "not exceeding 6 months from the date on which application is made" or "any time within a period of 6 months after the date of such transfer". According to D.R. these words were used in Section 54EC and Section 281B as well as in IT Rule 10K(2), Rule 11AA(6). The second type of wordings used were "6 months/4 months/1 month from the end of the month" in which a particular order is made/received/application was received. This wording was found in Section 275 and Section 154(8) as well as in IT Rule 6DDA(5). According to D.R. the wordings were unambiguous and the intention of the legislation was apparent that wherever the end of the month was to be calculated then the intention was made clear in the statute itself. Otherwise as per the language, a particular date was to be taken into account for the purpose of calculation of days/months. He had therefore pleaded that in a situation when the intention of the legislation was clear then there was no necessity to take the help of "General Clauses Act, 1897". DR had also pleaded that the limitation of period for an investment had been prescribed as "at any time within a period of 6 months from the date of such transfer". In ordinary sense, a ‘month’ is a period from a specified date in a month to the date numerically corresponding to the date in the following months, less one. It had given example that if a particular date is 10th June, 2008, one month shall be up to 9th July, 2008. Therefore, the term "month" had been used in Section 54EC in ordinary sense and the same should not exceed more than 30 days. He had thus pleaded that the wordings of the Section should not be replaced by any wordings. Therefore, in the said example, one month cannot be extended up to 31st July, 2008. If that would have been the intention of the legislation then certainly these words ought to have been prescribed in the provisions of Section 54EC. DR had placed reliance on a decision of Dhanraj Singh Choudhary v. Nathulal Vishwakarma order dated 08.12.2011 reported in 16 taxmann.com 249 (SC), in which it was observed that 3 months were to be taken from that day when the order was pronounced because the wordings were "for a period of 3 months effective from today". Likewise, in the case of Chironjilal Sharma HUF vs. UOI, (an unreported decision), the relevant extract of the order placed in the compilation, the SC had directed that the "interest was to be paid within 2 month from today". In an identical fashion, the Bombay HC in case of Jethmal Faujimal Soniv. ITAT in W.P. No. 1744 of 2010 in order dated April 12, 2010 (2010-TIOL-258-HC-MUM-IT) had directed the Tribunal to dispose of the pending appeal within a period of four months from today. Revenue’s line of reasoning was that in the referred cases, ‘a month’ was understood as per the ordinary sense i.e. the month was a period from a specified date in a month to the date numerically corresponding date in the following month.

Held that,

++ the term ‘month’ is not defined in The Income Tax Act, therefore seeking the help of an another statute ; hence, examined the term “month” as per General Clauses Act, 1897 which says- “Section 3 defines - (35) “month” shall mean a month reckoned according to the British calendar. It may not be out of place to mention that in Section 54E, 54EA and 54EB, the phrase is identical, i.e., “within a period of six months after the date of such transfer”. We have been informed that this phrase otherwise is not used by the legislator in any other provisions of IT Act, 1961 or IT Rule, 1982. Which means a specific period is prescribed for the purpose of investment in certain specified assets in respect of computation of capital gain. Meaning thereby, an incentive is prescribed by the statute to a tax payer, who has earned Long Term Capital Gain, to get relief if invest the gain in any of the specified asset. But the investment has to be made at any time within a period of six months after the date of such transfer. Being a beneficial provision through which an incentive is given, an argument has been raised, that such provision should be interpreted liberally. For this legal proposition of liberal interpretation decisions cited are namely, Bajaj Tempo Ltd. Vs. CIT (2002-TIOL-763-SC-IT), CIT Vs. Gwalior Rayan Silk Manufacturing Company, 196 ITR 149 (SC) and CIT Vs, Vegetable Products Ltd., 88 ITR 192 (SC) = (2002-TIOL-574-SC-IT-LB) . Even it has also been argued that the highest Revenue Authority, i.e., 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 Vs. ITO (2012-TIOL-408-ITAT-PUNE), Bhikhulal Chandak (HUF) Vs. ITO, 126 TTJ 345 (Nagpur), Chanchal Kumar Sirkar Vs. ITO (2012-TIOL-268-ITAT-KOL). We are in agreement with this legal proposition being laid down by the courts but to resolve this controversy we feel that a little more deliberation is required instead of deciding only on the basis of this thumb-rule;

++ while dealing with this type of incentive provisions we may like to mention that it is neither a question of “liberal interpretation of statute” or a ‘literal interpretation of statute’, but it is a matter of “purposive construction of statute” or “constructive interpretation of statute”. A true intention of the enactment is required to be considered by a court of law. In the present case, the intention is to attract investment to be used for the development of infrastructure etc. The question as to whether a statute is mandatory or directory, depends upon the intent of the legislator and not upon the language in which it is clothed. The meaning and intention of the legislator is to judged by the language, but these are to be considered not only from phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other. Therefore, we have examined the General Clauses Act, 1897 where the “month” shall mean ‘a month reckoned according to British calendar’. This controversy has earlier been addressed by certain higher forum and then it was decided that the question whether “month” means a “lunar month” or a “calendar month” would depend on intention for the usage of the term “ month”. In British Calendar a month is a unit of period used in a Calendar. It may not be out of context to mention that this system was invented by Mesopotamia. An average length of a month is 29.53 days; but in a calendar year there are 7 months with 31 days, 4 months having 30 days and one month has 28/29 days. It can be possible that under common parlance probably it meant a lunar month but in calculating the specified number of months that had elapsed after occurrence of a specified event then a General Rule is that the period of a month ends on the last day. Therefore, a month ends by the last date of that month. One of the ITAT Bench, Mumbai in the case of Yahya E. Dhariwala, 49 SOT 458 (Mum) has also opined that quote “six months period should be reckoned from the end of the month in which the transfer takes place “unquote. Thereafter in the case of Aquatech Engineers, 36 CCH 167 (Mum Trib.), again it was decided to grant the exemption of investment u/s.54EC if the same has been made by the end of the month;

++ in certain other context few High Courts have also taken a view that a month is to be reckoned according “british calendar”. We have noted that in the case of CIT vs. SLM Maniklal Industries, 274 ITR 485, the Jurisdictional High Court has opined that the issue of interpretation of the term “month” is no longer res integra because in the case of CIT vs. Kadri Mills (Caimbatore Ltd.), 106 ITR 846 (Madras) it was laid down that the month to be reckoned according to British calendar. The issue before the 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. This issue was dealt at some length by Madras High Court in the case of CIT vs. Kadri Mill Caimbatore Ltd., 106 ITR 846 (Mad.). In this case, the observation of the Court was that IT Act, 1961 itself does not define the word “month” however Section 3 of General Clauses Act, 1987 define the word “month” means a month reckoned according to British calendar. In this context a decision of Calcutta High pronounced in the case of Brijlal Lohia & Mahabir Prasad Khemka 124 ITR 485 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. Likewise in the case of Harnand Rai Ramanand 159 ITR 988 (Raj.), and B.V.Aswathaiah & Brothers 155 ITR 422( Kar.) it was held that a month is a British calendar month;

++ the subtle question is that whether the word “month” refers in this section a period of 30 days or it refers to the months only. Section 54EC, if we read again prescribes that an investment is required to be made within a period of six months. Whether the intention of the legislator was to compute six calendar months or to compute 180 days. To resolve this controversy, we are guided by a decision of Allahabad High Court pronounced in the case of Munnalal Shri Kishan Mainpuri, 167 ITR 415 where answering the dispute in respect of law of limitation the Court has clearly held that there is nothing in the context of section 256(2) to warrant the conclusion that the word ‘month’ in it refers to a period of 30 days, therefore, refers to six months in Section 256(2) is to six calendar months and not 180 days. Rather, in this cited decision an interesting observation of the court was that while comparing the precedents the contextual setting is to be examined and if entirely distinct and different then do not warrant to apply universally. Even in the case of Tamal Lahiri Vs. Kumar P. N. Tagore, 1978 AIR 1811/1979 SCC (1) 75, it was opined 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. A copy of the judgment is placed before us. The purpose of mentioning this plank of argument is that after scrutinizing few more Sections of The Act it is evident that on some occasion the Legislature had not used the terms “ Month” but used the number of days to prescribe a specific period. For example in Section 254(2A) First Proviso it is prescribed that the Tribunal may pass an order granting stay but for a period not exceeding one hundred and eighty days. This is an important distinction made in this statute while subscribing the limitation/ period. This distinction thus resolves the present controversy by itself;

++ so 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 shall be applicable and by doing so there is no attempt on our part to interpret the language of Sec. 54EC , what to say a liberal or literal interpretation. We hereby hold that 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. Therefore 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 casusomissus but replicated as per the language used. In the present case there is no dispute about the investment which had actually been made by the assessee. 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. It is not the case of the Revenue that the appellant had altogether fudged the dates. 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. We hereby hold that the investment in question qualifies for the deduction U/s 54EC. Resultantly assessee’s grounds are hereby allowed. The question referred is answered in favour of the assessee.

(Also see full text of Decision - 2014-TIOL-156-ITAT-AHM-SB)