CA Sandeep Kanoi
Hon’ble Delhi HC has held in the case of ‘Bharti Gupta Ramola Vs. CIT’ that For computing holding period of asset both date on which asset is acquired & date on which said asset is sold or transferred are not to be excluded.
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 1 4th October, 2004.
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.
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.
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”.
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.
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.
Held by High Court
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.