CA Vinamar Gupta

CA Vinamar GuptaThe word “month” has been mentioned in the Income tax law in number of provisions. However the term has not been defined in the Income tax law. Interpretation of the term poses number of issues especially in the interest calculation. However to understand the controversy around it, we shall have to start the journey from genesis as under:

I would also like to clarify to our readers what Lunar Month is all about- A lunar month is the amount of time it takes for the Moon to pass through each of its phases (new moon, half, full moon), and then return back to its original position. It takes 29 days, 12 hours, 44 minutes and 3 seconds for the Moon to complete one lunar month. So in simple words we may take it as a 30 day Month.

1. Allahabad High Court in Laxmi Rattan Cotton Mills Co. Ltd. (1974) 97 ITR 285

(a) There was once penalty section 271(1)(a) which levied penalty @ 2% of tax for every month during which the default continued.

(b) The word month though not defined in Income Tax Act is defined in General Clauses Act as a month reckoned according to the English calendar month.

(c) This definition, however, in view of the opening part of s. 3 of the General Clauses Act, can be read into a statute provided there is nothing repugnant in the subject or context of the statute. It as such has to be seen whether the meaning given in the General Clauses Act to the word “month” is repugnant to the context.

(d) It was held by High Court that S. 271(1)(a) was enacted for the purpose of imposing a penalty on an assessee who had not filed his return during the prescribed time, and was enacted to serve as a deterrent for such lapses. If the meaning ascribed to this word in the General Clauses Act is adopted, it may in some cases lead to a defaulting assessee escaping penalty altogether, in spite of default.

(e) To take an illustration : Let us assume that time is given to an assessee up to the 30th of January in a particular year for filing a return and he defaults. He, thereafter, files his return on the 27th February. If the word “month” occurring in the section is taken to mean a full calendar month, the assessee in such a case would not be liable for any amount of penalty. Such a result is not contemplated by the language of the sub-section, for the sub-section in clear and unambiguous terms makes every assessee liable for penalty during the period of default.

(f) The Court held that In the circumstances, it is not appropriate to import the meaning of the word “month” given in the General Clauses Act in the sub-section, for it does not fit in with the context and scheme of the section, and results in some cases in setting at naught the purpose of the enactment.

(g) It was further held by High Court that Under such circumstances the word month should be assigned meaning as it is normally understood to mean “a lunar month” i.e., a period of thirty days. High Court relied upon number of English case laws like Simpson vs. Margitson (1847) 11 QB 23, Ryalls vs. R. (1848) 11 QB 781 Rogers vs. Kingston-upon-Hull Dock Co. (1864) 4 New Rep 494, Schiller vs. Peterson & Co. Ltd. (1924) 1 Ch 394 (CA), Phips (P.) & Co. (Northampton and Towcester Breweries) Ltd. vs. Rogers (1925) 1 KB 14 (CA) and South British Fire & Marine Insurance Co. vs. Brojo Nath Shaha (1909) ILR 36 Cal 516 (FB)

2. However High Court of Madras in Kadri Mills Coimbtore Limited (1977) 106 ITR 846 differed from Allahabad High Court decision in Laxmi Rattan Cotton Mills. (supra)

Madras High Court found nothing repugnant in the context of section 271(1)(a) and strongly relied on Calcutta High Court in South British Fire & Marine Insurance Co. vs. Brojo Nath Shaha (1909) ILR 36 Cal 516 (FB ) which was rendered under Insurance law and held that month should be taken as calendar month.

(a) It was held that since in India, there are different calenders like Georgian calendar, Samvat etc. , the definition in General Clauses Act shall remove ambiguity in defining month under different Central Laws

(b) Madras High interestingly mentioned that Allahabad High Court in Laxmi Rattan Cotton Mills (supra) has even failed to take note of the fact that there is difference in the meaning attributable to the word “month” even in England, depending upon whether the word occurs in a deed or in a statute. Till 1850, the word “month” in a statute in England meant only a lunar month and after 1850, the word “month” meant a calendar month, while the same word in a deed meant lunar month till 1925 and only thereafter a calendar month. Consequently, it is not correct to rely upon English decisions construing the word “month” occurring in deeds for the purpose of construing the word “month” occurring in statutes. Further, even under the English law, the lunar month meant only 28 days and not 30 days

( c) Even if this escape or non-escape is taken to be the criterion for construing the word “month”, yet on the interpretation of the learned judges themselves, there is scope for escape. A month reckoned according to the British calendar will be equal to 30 days in some cases and more than 30 days in some other cases and less than 30 days in some other cases.

When the default commences on any day in the months of January March, May, July, August, October and December the month will be 31 days ; if the default commences on any day in April, June, September and November, the month will be 30 days; and if the default commences on any day in February, the month will be, 28 or 29 days according as the year is an ordinary year or a leap year.

(d) Let us also take an illustration. Suppose an assessee has time to file the return till February 15, 1975, but actually filed it on March 16, 1975.

If the month is reckoned according to the British calendar, the default commenced on February 16, 1975, and one month of default expired on March 15, 1975, and, therefore, the assessee is liable to penalty. On the other hand, if the construction of Allahabad High Court is adopted, 30 days of default would be completed only on March 17, 1975, and the assessee having filed the return on March 16, 1975, would escape liability to penalty. Therefore, this test of escape or non-escape from penalty to such a limited extent, cannot constitute a safe and sound basis for holding that there is something in the subject or context of s. 271(1)(a) of the IT Act repugnant to the definition of the word “month” contained in s. 3(35) of the General Clause Act, 1897, so as to exclude its application.

(e) Under these circumstances, Madras High Court held that the word “month” occurring in s. 271(1)(a) of the IT Act has to be reckoned according to the British calendar as provided for in s. 3(35) of the General Clauses Act, 1897,

3.  There after Calcutta High Court in BrijLal Lohia 124 ITR 485; of Karnatak High Court in case of B.V. Aswathaiah & Bros. v. ITO [1985] 155 ITR 422; Gujrat High Court in S.L.M. Maneklal Industries Ltd. [2005] 274 ITR 485 followed Madras High Court in Kadri Mills (supra) and held that month be interpreted as calendar month.

4.  Allahabad High Court in Munnalal Shrikishan Mainpuri 167 ITR 415, held that decisions of Laxmi Rattan Cotton Mills (supra) can not be applied to other sections and hence month means calendar month.

5.  Ahemadabad Special Bench in Alkaben B. Patel [2014] 43 taxmann.com 333 (Ahmedabad – Trib.) (SB)

(a) The assessee transferred flat on 10-06-2008 and invested in 54EC Bonds, the assessee paid cheque on 08-12-2008 which got encashed on 17-12-2008. Investment in 54EC Bonds is required to be made in six months. The AO interparated six months as 180 days which means that 08-12-2008 is the 183rd day and hence 54EC bonds investment gets time barred.

(b) ITAT relying upon Allahabad High in Munnalal Shrikishan Mainpuri (supra) and concurring with Madras High Court in Kadri Mills (supra) held that six months means six calendar months and held quoting Mumbai Tribunal in Yahya E. Dhariwala and Aquatech Engineers “six months period should be reckoned from the end of the month in which the transfer takes place”Since the investment was made in December 2008, the benefit of 54EC shall be available.

6. Further Gujarat High Court in Arvind Mills [2011] 16 taxmann.com 291 (Guj.) [13-09-2011] had an occasion to consider the definition of month with reference to section 244A regarding interest on refunds read with Rule 119A.

(a) As per section 244A;”…………………… interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted……”

As per Rule 119A”…………….. where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated…………….”

In other words while calculating the period for grant of interest, if there is any fraction of a month, such fraction shall be ignored and instead, the assessee shall be paid interest for the full month

(b) Here assessee pleaded that month be taken as calendar month and both fractions of month be taken to compute period of refund i.e. interest for the whole of the month of payment of tax as well as the month when the same was adjusted regardless of any period or periods remaining in such months.

( c) High Court adopting the repugnant context theory of Allahabad High Court in Laxmi Rattan Cotton Mills held that meaning under General clauses Act can only be assigned if there is nothing repugnant in the context.

However, the words appearing in sub-section (1) of Section 244A “comprised in a period” and in Rule 119(A) of the Rules, providing that every month or part of a month comprised in a period, fraction of a month shall be deemed to be a full month. Therefore, in order to ascertain for how many months assessee would be entitled to receive interest, the number of months comprised in the period shall have to be found out. In this context, the term ‘month’ , must be given the ordinary sense of the term i.e. 30 days of period and not the British calender month as defined under Section 3(35) of the General Clauses Act.

(d) High Court further held that If the contention of the assessee in the present case is accepted, in a case where the assessee pays tax on 31st January and is granted refund on 1st February of the same year, shall also be entitled to interest for two full months. This would be so because the assessee contends that for the purpose of sub-section (1) of Section 244A the term ‘month’ should be understood as British Calender month and since Rule 119(A) of the Rules provides for ignoring a fraction of month and granting interest for the full month instead, the assessee in the example given above should receive interest for month of January as well as for the month of February. Such interpretation would only lead to anomalous situation and should therefore be avoided.

7. Thereafter Hyderabad Tribunal dealing with reverse situation of calculating Interest on delayed payment of TDS u/s 201(1A) rws 119A has rendered an important decision on the subject which has been vexing the taxpayers ever since CPC has taken the reigns of informing TDS deductors about their pending interest

For example, if payment is made and tax is deducted on 04-04-15 and due date is 07-05-15 and tax is deposited on 01-06-15, interest is calculated by CPC/Income tax department for three months i.e. April, May and June.

However, Hyderabad Tribunal in Navayuga Quazigund Expressway (P.) Ltd [2015] 64 taxmann.com 212 (Hyderabad – Trib.) [MARCH 13, 2015 ] has held that language of section 201(1A) is

“……….he or it shall be liable to pay simple interest, –

(i) At one percent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) At one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid;

Which is analogous to section 244A. Hence the decisions of Arvind Mills (supra) shall also apply here and hence the word month be given its ordinary meaning “lunar month” i.e. 30 days.

The above decisions of Hyderabad might bring much awaited respite to the tax deductors and should be applied immediately by CPC in its interest calculation of TDS.

Conclusion: From the discussion here in above, it is evident that arguments on both sides have gone full circle. Although the contextual use of term “month” has always been the deciding factor, the Courts in various cases have differed in their opinions on whether there is anything in the context that prevents use of General Clauses Act. Nevertheless the proposition that whether the department shall be prompt enough to adopt the decision of Hyderabad Tribunal to mitigate the litigation is yet to see the light of the day. However the adoption of Arvind Mills (supra) and Navayuga Quazigund (supra) might bring revenue parity and reduce litigation.

(Author :CA Vinamar Gupta, 53-E, DayaNand Nagar-II, Lawrence Road, Amritsar, Mob: 9356048001, ca.skumargupta@gmail.com)

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