Revenue contending that sale took place on 24.02.05 and thereby the investment made u/s. 54EC on 30.08.2005 is beyond the prescribed period of six month. Once the board of directors approve the transfer, then only the process of transfer of shares can be said to be completed in case of a private limited company. The Annual Return filed before the ROC disclosed that the date of registration of transfer was 28th February 2005, confirmed by purchaser. Board resolution approving transfer of shares was passed on 25th February 2005.
Just because stamping was done on 24th February 2005 of blank forms, it cannot be concluded that there is transfer on 24th February 2005. Thus, investment made on 30th August 2005, was within a period of six months as contemplated under the Act. Further, we are of the opinion that six months period should be reckoned from the end of the month in which the transfer takes place
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No. 5501/Mum./2009 – (Assessment Year: 2005- 06)
Mr. Yahya E. Dhariwala
Dy. Commissioner of Income Tax
Date of Order- 25.11.2011
PER J. SUDHAKAR REDDY, A.M.
This appeal filed by the assessee, is directed against the impugned order dated 127th July 2009, passed by the Commissioner (Appeals)-XV, Mumbai, for assessment year 2005-06.
2. Brief facts of the case are that the assessee is an individual carrying on business of a scrap dealer. During the relevant assessment year, the assessee sold equity shares of two private limited companies namely M/s. Supreme Nonwovens Pvt. Ltd. and M/s. Bhilad Textile Industries Pvt. Ltd., for the consideration of 1,35,00,000 and 86,25,000 respectively. The assessee chose to invest the entire sale consideration in the bonds specified under section 54EC of the Income Tax Act, 1961 (for short “the Act”). The assessee invested 12,50,000 in SIDBI bonds and 1,97,50,000 in REC bonds. Out of 1,97,50,000 invested in REC bonds, 45,00,000 was invested on 30th August 2005. The assessee filed the return of income claiming deduction under section 54EC. The Assessing Officer came to a conclusion that the date of sale of shares was 24th February 2005. The assessee’s claim is that the date of transfer of shares is 28th February 2005. On the ground that investment of 45,00,000, was not made in eligible / specified bonds within a period of six months from 24th February 2005, the Assessing Officer denied proportionate deduction claimed under section 54EC.
3. The original return of income was processed under section 143(1) on 15th January 2006. Thereafter, the assessee received a notice under section 154 of the Act in the month of July 2006, proposing enhancement of assessment by restricting exemption under section 54EC to the extent of 45,00,000. The assessee filed reply disputing the proposed rectification under section 154. Thereafter, notice dated 26th February 2008, was served under section 148 of Act, reopening the assessment under section 147. The assessee replied by submitting that the return of income filed on 31st December 2005, may be taken as the return of income filed incompliance to notice under section 148. Thereafter, the Assessing Officer passed an order dated 3rd November 2008, under section 143(3)(ii) r/w section 147 of the Act, wherein he disallowed the claim under section 54EC to the tune of 45,00,000 on the ground that the sale of shares have taken place on 24th December 2005, and whereas investments in REC bonds to the extent of 45,00,000, was made on 30th August 2005, which is beyond the period of six months from the date of sale.
4. Aggrieved, the assessee carried the matter before the first appellate authority, without any success. The Commissioner (Appeals) held that the Assessing Officer detected that the payment of stamp duty was on 24th February 2005, and that the share transfer form was sold on 24th April 2005. He held that extinguishment of right in shares was on/or before 24th February 2005, as value / price of shares increase / decrease at every moment in every day. He further went to observe that stamp duty may change every day in respect of price of shares. He rejected the contention of the assessee that the share transfer had taken place on 28th February 2005, based on documents filed with the Registrar of Companies. Aggrieved, the assessee is in appeal before the Tribunal on the following ground:-
“1. The Ld. Commissioner of Income Tax(Appeals) [hereinafter referred to as “CIT(A) “] has erred in passing the order dated 27.07.2009 upholding the action of the Ld. Assessing Officer in disallowing the claim made under section 54EC of the Act uy holding that the shares were transferred by the Appellant on 24.02.2005 and thereby the investment made on 30.08.2005 is beyond the prescribed period of six month, without appreciating the facts and circumstance of the case.
2. The Ld. CIT(A) failed to appreciate that the Appellant had transferred the shares alongwith other Dhariwala group members on 28.02.2005 and the same is also reflected in the companies record submitted to the Registrar of Companies. Therefore, the investment made on 30.08.2005 is within the period of six months as prescribed under the provisions of section 54EC of the Act.
3. The Ld. CIT(A) failed to appreciate that the shares in question are the shares of a Pvt. Ltd. Company and the shares of a Pvt. Ltd. Company can be transferred only after the approval of the Board of Directors in the Board of Directors meeting. In the case of the Appellant the Board of Directors has approved the transfer of shares in the Board of Directors meeting held on 28.02.2005 and hence, the investment made on 30.08.2005 is within the prescribed period of 6 months as per the provisions of section 54EC of the Act.”
5. Before us, learned Counsel, Mr. K. Gopal, on behalf of the assessee, submitted that the Assessing Officer wrongly took the date of stamping of share transfer form, as the date of transfer. He submitted that stamping of share transfer form takes place much before the date of actual execution of transfer. He submitted that the shares were of a private limited company and the question of variation in the market rate on a day-to-day basis, does not arise. He pointed out that in the case of private limited company, share transfer takes place only when the board of directors approve the transfer. The purchaser confirmed that the date of transfer is 28th February 2005. He submitted that from the records filed with the Registrar of Companies in the form of annual return, it is clear that the date of transfer was only 28th February 2005 and not 24th February 2005, as alleged. He submitted that, in any event, section 54EC requires that the investment should be made in a specified assets at any time within a period of six months after the date of such transfer and that the assessee had complied with this condition. On a query from the bench, learned Counsel relied on the following case laws for the expression “month” used in the section.
• CIT v/s Brijlal Lohia and Mahabir Prasad Khemka,  124 ITR 0485 (Cal.); and
• CIT v/s Kadri Mills (Coimbatore) Ltd.  106 ITR 0846 (Mad).
6. He submitted that the word “month” has to be reckoned according to British calendar in terms of section 3(35) of the General Clauses Act, 1897.
7. Learned Departmental Representative, Mr. A.K. Naik, on behalf of the Revenue, submitted that the date 24th February 2005 or 28th February 2005, does not make a difference for the reason that the assessee had, admittedly, invested only on 30th August 2005, which according to the learned Departmental Representative, is beyond the period of six months prescribed under the Act. He relied on the order of the Commissioner (Appeals) and submitted that the transfer of shares has taken on 24th February 2005.
8. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case laws cited before us, we hold as follows:-
9. The shares that were transferred were of a private limited company. Under the Companies Act, 1956, according to the provisions as contained in section 3(1)(iii), a private limited company is a company which restricts the right to transfer its shares. Once the board of directors approve the transfer, then only the process of transfer of shares can be said to be completed in case of a private limited company. The assessee’s Annual Return filed before the Registrar of Companies disclosed that the date of registration of transfer was 28th February 2005. The purchaser confirms that the date of transfer is 28th February 2005. Board resolution approving transfer of shares was passed on 25th February 2005. Just because stamping was done on 24th February 2005 of blank forms, it cannot be concluded that there is transfer on 24th February 2005. Thus, we conclude that the date of transfer is 28th February 2005. Hence, the investment made on 30th August 2005, was within a period of six months as contemplated under the Act.
10. Even if the date of transfer is to be taken as 24th February 2005, the wording used in the section is “At any time within a period of six months after the date of such transfer”. Under the General Clauses Act, 1897, month is defined as follows:-
“Month” shall mean the month reckoned according to the British Calendar.
11. The Hon’ble Madras High Court in Kadri Mills (Coimbatore) Ltd. (supra) held that the definition under the General Clauses Act, 1897, will apply to the term “month” occurring in the Income Tax Act, 1961, as there is nothing in the context to exclude the invocation of this definition. The Hon’ble Calcutta High Court in Brijlal Lohia and Mahabir Prasad Khemka (supra), held that as month is not defined under the Income Tax Act, 1961, the expression used under the General Clauses Act, 1897, should be applied.
12. In the Income Tax Act, 1961, the term “month” has been used in certain sections and wherever the legislature wanted to specify the number of days, it was stated as such in those sections. For e.g., in section 143(2)(ii) of the Act, the proviso to this section reads as follows:-
“Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.“
13. In this proviso, the expression “six months” is used as in case of section 54EC. This can be compared with many other sections in the Act, wherein the period has been described in a number of days. For e.g.,
“1. Section 6: Residence in India
Section 6(1) while providing the time limit to determine residation status was the language –
1(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or
(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.
[Explanation.—In the case of an individual,—
(a) being a citizen of India, who leaves India in any previous year [as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of sub-clause
(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of, who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and [eighty-two] days” had been substituted.]
2. Section 10: Incomes not included in total income
Section 1O(6)(vi)was the words “— period of ninety days in such provisions year” while laying the conditions
(vi)(b) his stay in India does not exceed in the aggregate a period of ninety days in; such previous year
(viii) any income chargeable under the head “Salaries” received by or due to any such individual being a non-resident as remuneration for services rendered in connection with his employment on a foreign ship where his total stay in India does not exceed in the aggregate a period of ninety days in the previous year
3. Section 54(E) Capital gain on transfer of capital assets not to be charged in certain cases.
(1B) Where on the fulfillment of the conditions specified in subsection (1A), the cost of the new asset referred to in that subsection is taken into account for the purposes of sub-section (1), the assessee shall, within a period of ninety days from the expiry of the period of three years reckoned from the date of such deposit, furnish to the [Assessing] Officer a certificate from the officer referred to in clause (b) of subsection (1A) to the effect that the assessee has not taken any loan or advance on the security of such deposit during the said period of three years.
4. Section 92(D) : Maintenance and keeping of information and document by persons entering into an international transaction.
(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard
Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days.
5. Sec on 142 : Inquiry before assessment.
(2c) Every report under sub-section (2A) shall be furnished by the assessee to the [Assessing] Officer within such period as may be specified by [Assessing] Officer:
Provided that the [Assessing] Officer may, [suo motu, or] on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee.
Section 153: Time-limit for completion of assessment under
(B)(viii) the period commencing from the date on which a reference for exchange of information is made by an authority competent under an agreement referred to in or and ending with the date on which the information so requested is received by the Commissioner or a period of six months, whichever is less,]
8 Mr. Yahya E. Dhariwala
ITA no. 5501/Mum./2009
Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in clause (a) or clause (b) of this [sub-section] available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.”
14. In view of the above discussion and from the language in section 54EC, we are of the opinion that six months period should be reckoned from the end of the month in which the transfer takes place. As the investment has been made on 30th August 2005, we hold that the assessee has invested a part of the capital gain within a period of six months after the date of transfer of the long term asset in question in specified assets. We order accordingly. The grounds raised by the assessee are allowed.
15. In the result, assessee’s appeal is allowed.
Order pronounced in the open Court on 25th November 2011