Section 94(7) does not provide time limit of 90 days and it provides time limit

[pawansingla]

Income-tax : Section 94(7) does not provide time limit of 90 days and it provides time limit of three months



    l  Where assessee purchased certain units on 25-11-2003 and sold same on 25-2-2004, three months period as contemplated by section 94(7) would complete on 24-2-2004, therefore, loss arising therefrom could not be disallowed by invoking section 94(7)



[2011] 9 taxmann.com 181 (AHD. - ITAT)

ITAT, AHMEDABAD "B" BENCH

ITO

v.

Ashish Navnitlal Shah

ITA NO. 2843/AHD/2007

MARCH 26, 2010



ORDER

G.D. Agarwal (Vice-President) — This is the Revenue's appeal against order of the Commissioner of Income-tax (Appeals)-XIV, Ahmedabad dated April 27, 2007 for the assessment year 2004-05. The only ground raised in this appeal is as under :

"1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in deleting the addition of Rs. 21,65,988 on account of loss claimed in respect of Tata Mutual Fund (Tata Index Nifty Plan)."

2. At the time of hearing before us, it is submitted by the learned Departmental representative that as per the provisions of section 94(7) of the Income-tax Act, as it stood at the relevant time, if the assessee sold a unit within the period of three months after its purchase, the loss arising therefrom is to be disallowed ; that the assessee purchased the unit on November 25, 2003 and sold the same on February 25, 2004. Thus, the sale was within the period of three months from the date of purchase ; that the Commissioner of Income-tax (Appeals) held that the sale was after 92 days from the date of purchase and therefore it was not within the period of three months, is not the correct view, because, section 94(7) does not pro-vides time limit of 90 days and it provides time limit of three months. Therefore, if the units are sold before the three months from the date of purchase, the loss is to be disallowed. Therefore, she submitted that the order of the Commissioner of Income-tax (Appeals) should be reversed and that of the Assessing Officer should be restored. Learned counsel for the assessee, on the other hand, stated that under the Income-tax Act the word "month" is not defined, but it is interpreted by several courts. The Hon'ble Allahabad High Court in the case of CIT v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97 ITR 285 held that the word "month" is to be taken as a period of 30 days. Similarly, the hon'ble Calcutta High Court has held that the term "month" denotes a period terminating with the day of succeeding month numerically corresponding to the day of its beginning less one ; that the RBI has also clarified in respect of calculation of interest on the securities that each month is to be taken as the period of 30 days. He, therefore, submitted that if a month is taken as 30 days, three months would be 90 days. The assessee has sold the unit after 92 days from its purchase. If the definition of the month is taken as taken by the hon'ble Calcutta High Court, then also three months would be completed on February 24, 2003 while the assessee has sold the unit on February 25, 2003. He, therefore, submitted that either way the conditions prescribed under section 94(7) are not satisfied and the Commissioner of Income-tax (Appeals) rightly deleted the disallowance of the loss.

3. We have carefully considered the arguments of both sides and perused the material placed before us. The Commissioner of Income-tax (Appeals) has discussed the facts and legal issues as under :

"Counsel for the appellant further relied on the following definition of 'month' as interpreted in judicial pronouncements and law lexicon :

   (i)  The word 'month' occurring in section 271(1)(a) must be taken to mean a period of 30 days CIT v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97 ITR 285

  (ii)  The term 'month' refers to span of time between two dates of two continuous months and not a calendar month. Mistty Bhikhalal Bhovan v. Sunni Vora Noormamad Abdul Karim, AIR 1978 Guj. 149

(iii)  The 'month' whether employed in modern statute or contracts and not appearing to have been used in different sense, denotes a period terminating with the day of succeeding month numerically corresponding to the day of its beginning less one. If there be—no corresponding day of succeeding month, it terminates to the last day thereof (36 CAL 516)

(iv)  Counsel also relied on FAQs on the Debt Markets as per the clarification issued by the Bombay Stock Exchange Ltd. and the clarification as per the Reserve Bank of India's Bulletin, wherein it has been opined that 'month is to be taken as having 30 days'."

"25. Q. What are the contentions followed for the calculation of accrued interest ?"

A. The day count convention to be followed for the calculation of accrued interest in case of transactions in G-section is 30/360, i.e., each month is to be taken as having 30 days and each year is to be taken as having 360 days, irrespective of the actual number of days in the month. So, months like January, February, March, May, July, August, October and December are to be taken as having 30 days." (FAQs on the Debt Markets - By BSE Debt Segment, Bombay Stock Exchange Ltd. (BSE)]"

2.3 I have gone through the observations of the Assessing Officer as contained in the assessment order and also considered the submissions made on behalf of the appellant. On a careful consideration of the same, I find favour with the contention of the appellant that the Assessing Officer was not justified in invoking the provisions of section 94(7) on the facts of the case and resultantly disallowing the loss of Rs. 21,65,988 claimed by the appellant in respect of redemption of Units of Tata Mutual Fund (Tata Index Fund Nifty Plan). It is not a matter of dispute that the period of holding of the units between the record date (the date of declaration of dividend) and the date of redemption is 92 days. The question for consideration is whether said period of 92 days should mean 'the period of three months' as referred to in section 94(7). The learned authorised representative has rightly pointed out that as the provisions of section 94(7) stood for the assessment year 2004-05, the loss is required to be ignored only if the units are transferred within the period of three months from the record date. The Assessing Officer himself has allowed the loss in regard to the schemes of J.M. Balanced Fund—Growth Plan and IL and FS Index Fund—Nifty Plan, though the period of holding in these two cases is 92-94 days respectively."

4. After considering the arguments of both sides and facts and circumstances of the case, we entirely agree with the finding of the Commissioner of Income-tax (Appeals). The assessee purchased the unit on November 25, 2003 and the same was sold on February 25, 2004, which was after 92 days from the date of purchase. Even if month to month basis is to be considered then the three months after the date of purchase would complete on February 24, 2004. The units were sold on February 25/2004 which was not within the period of three months from the date of the purchase, i.e., November 25, 2003. In view of the above, we uphold the order of the Commissioner of Income-tax (Appeals) and dismiss the appeal filed by the Revenue.

5. In the result, the Revenue's appeal is dismissed.

6. The order pronounced in the open court on 26th March, 2010.

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