Lachhmi Narain Gupta & Sons V. Commissioner of Income Tax, Bathinda

ITA/686/2008

AI Insights

The case involves M/s Lachhmi Narain Gupta & Sons, the appellant, contesting the classification of certain share transactions as speculative by the Income Tax Appellate Tribunal, Amritsar. The appellant argued that losses from these transactions should be treated as short-term capital losses rather than speculative losses, citing specific provisions under Section 43(5) and Section 94(7) of the Income Tax Act, 1961. The Tribunal's decision, which was unfavorable to the appellant, was challenged in the High Court of Punjab and Haryana. The primary legal issues revolved around the interpretation and application of these sections concerning the timing and nature of the transactions in question.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 795610 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 24-10-2013
• Assessment Year: misc
• Other Referred Cases: State of Himachal Pradesh and another v. M/s Himachal Techno Engineers and another, Dodds v. Walker, Bibi Salma Khatoon v. State of Bihar, Mistry Bhikhalal Singh Bhovan v. Sunni Vora Noormamad Abdul Karin and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: GAURAV HOODA
• Assessee Lawyers: KESHAV GUPTA
• Keywords: Assessment Year 2004-05; Income Tax; Short Term Capital Loss; Speculative transaction
• Section: 143(2); 43(5); 260A; 94(7)

Judgement Text

"ITA No.686 of 2008 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.686 of 2008 (O&M) Date of decision: 24.10.2013 M/s Lachhmi Narain Gupta & Sons ...Appellant Versus Commissioner of Income Tax, Bathinda. ...Respondent CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH Present: Mr. Keshav Gupta, Advocate for the appellant. Mr. Gaurav Singh Hooda, Advocate for the respondent. Ajay Kumar Mittal,J. 1. This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 6.6.2008, Annexure A.3, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”) in ITA No.424(ASR)/2007, for the assessment year 2004- 05. It was admitted on 11.11.2008 to consider following substantial questions of law:- “i) Whether in the facts and circumstances of the case, the learned Tribunal has erred in holding that the transaction of shares on line trading is speculative transaction as specified under Section 43(5) and in misconstruing and misapplying the provisions of the proviso (b) and (d) of Section 43(5) of the Income Tax Act, 1961 and in ignoring circular No.3 of 2006 dated 27.2.2006 issued by Central Board of Direct Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 2 Taxes, New Delhi? ii) Whether in the facts and circumstances of the case the learned Tribunal has erred in misapplying the provisions of section 94(7) of the Income Tax Act, 1961 and more so when all the three conditions as stipulated in section have not been satisfied at the same time and more so when the assessee has bought the units on 26.12.2003 (i.e. the record date) and the same cannot be construed as buying 'within a period of three months prior to the record date' as stipulated in section 94(7) (a) of the Income Tax Act, 1961 and units bought on 26.12.2003 were sold on 26.3.2004 i.e. after three months and one day and the same cannot be construed having sold 'within a period of three months after said date' as stipulated in Section 94(7) (b)?” 2. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal may be noticed. For the assessment year 2004-05, the assessee concern filed return of income on 30.7.2004 declaring income of ` 5,40,445/-. The same was processed on 24.11.2004. The case was taken up for compulsory scrutiny. Notice under section 143(2) of the Act was issued on 2.11.2004 to the assessee. On 30.12.2005, the Assistant Commissioner of Income Tax Circle II, Bathinda passed the assessment order, Annexure A.1, disallowing the claim of loss of ` 3,67,795/- from speculative transactions of stock option or stock future. Short term capital loss of ` 3,11,934/- against short term capital gains was disallowed as the transaction was hit by the provisions of Section 94 (7) of the Act. Thus, total addition of ` 6,79,730/- was made to the Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 3 short term capital gains and assessment was completed at total income of ` 12,22,930/-. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which was dismissed on 17.9.2007, Annexure A.2. Still not satisfied, the assessee filed appeal before the Tribunal which was dismissed vide order dated 6.6.2008, Annexure A.3. The assessee filed Miscellaneous application (Rectification Petition) for recall of the order dated 6.6.2008 relating to ground No.2. The said application was allowed by the Tribunal vide order dated 16.9.2008 and the case was heard on 22.9.2008 but no order thereupon was passed by the Tribunal. Aggrieved by the order dated 6.6.2008 passed by the Tribunal, the assessee is before this court through the present appeal. 3. Learned counsel for the assessee submitted that the Tribunal was wrong in declining the claim of the assessee on account of loss on sale of certain shares to the tune of ` 3,67,995/- by treating the same to be speculative loss in view of the provisions of section 43 (5) of the Act. According to the assessee, the same was to be treated as short term capital loss in view of Section 43(5) (d) of the Act. The other contention raised by learned counsel was that the assessee had purchased the units on 26.12.2003 which was the record date and were sold on 26.3.2004 just after the expiry of three months and one day. The period of three months after the said date as provided under section 94(7) (b) of the Act, applied whereby the assessee was entitled to claim short term capital loss of ` 3,11,934/- on the sale of the units. He referred to sub-section 35 of Section 3 of the General Clauses Act, Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 4 1897 to submit that the word 'month' shall mean a month reckoned according to the British Calendar. Learned counsel further submitted that according to Halsbury's Laws of England, Third Volume 37, wherein calendar month running from arbitrary date has been defined, according to which when the period prescribed is a calendar month running from any arbitrary date, the period expires with the day in the succeeding month immediately preceding the day corresponding to the date upon which the period starts. It was urged that in the present case, the period of three months as envisaged under Section 94(7) (b) of the Act had expired on 25.3.2004 and consequently the sale on 26.3.2004 was not covered under the mischief of Section 94(7) (b). Reference was made to Judgment of the Apex Court in State of Himachal Pradesh and another v. M/s Himachal Techno Engineers and another, 2010(4) CCC 312. 4. On the other hand, learned counsel for the revenue besides supporting the orders passed by the Assessing Officer, CIT(A) and the Tribunal, submitted that the day 26.3.2004, when the units were sold was to be counted, as three months from 26.12.2003 would expire on that date and the said authorities were right in applying the provisions of Section 94(7) (b) of the Act and disallowing the claim of short term capital loss made by the assessee. 5. After hearing learned counsel for the parties, we do not find any merit in the appeal. 6. Adverting to the first question, it may be noticed that Section 43 (5) (d) of the Act was introduced by Finance Act 2005 Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 5 w.e.f 1.4.2006. The said provision would thus be applicable from assessment year 2006-07. Once that was so, the benefit as claimed by the assessee that it was entitled to set off short term capital loss, has been rightly declined by the authorities below. 7. Taking up the second question, the primary issue that would arise for determination is whether the date on which the units were sold i.e. 26.3.2004 would fall outside the ambit of three months from the record date of 26.12.2003. 8. It would be advantageous to refer to relevant portion of section 94(7) of the Act, which reads thus:- “94(7) Where—(a) any person buys or acquires any securities or unit within a period of three months prior to the record date; (b) such person sells or transfers— (i) such securities within a period of three months after such date; or (ii) such unit within a period of nine months after such date; (c) xx xx xx xx xx xx” 9. It may be noticed that sub section 35 of Section 3 of the General Clauses Act, 1897 defines 'month' and it reads thus:- “3(35).'month' shall mean a month reckoned according to the British calendar;” 10. According to Halsbury's Laws of England third Edition Volume 37, the word 'month' has been described as under:- “143.Calendar month running from arbitrary date – When the period prescribed is a calendar month running from any arbitrary date the period expires with the day in the succeeding month immediately preceding the day Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 6 corresponding to the date upon which the period starts; save that, if the period starts at the end of a calendar month which contains more days than the next succeeding month, the period expires at the end of the latter month (k). If a period of one calendar month includes the last day of February there must be twenty nine or twenty eight days, according as the year is or is not leap year (I).” In the aforesaid volume, an illustration has been given which reads thus: “(k) A period of a month which begins on the 28th or any later day in January must in the ordinary year terminate on 28th February.” 11. Further the Hon'ble Apex Court in M/s Himachal Techno Engineers's case (supra) in para 11 had noticed as under:- “11. Section 3(35) of the General Clauses Act, 1897 defines a month as meaning a month reckoned according to the British calendar. In Dodds v. Walker - (1981) 2 All ER 609, the House of Lords held that in calculating the period of a month or a specified number of months that had elapsed after the occurrence of a specified event, such as the giving of a notice, the general rule is that the period ends on the corresponding date in the appropriate subsequent month irrespective of whether some months are longer than others. To the same effect is the decision of this Court in Bibi Salma Khatoon v. State of Bihar - (2001) 7 SCC 197. Therefore when the period prescribed is three months (as contrasted from 90 days) from a specified date, the said period would expire in the third month on the date corresponding to the date upon which the period starts. As a result, depending upon the months, it may mean 90 days or 91 days or 92 days or 89 days.” 12. Similarly the Gujarat High Court in Mistry Bhikhalal Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 7 Bhovan v. Sunni Vora Noormamad Abdul Karin and others, AIR 1978 Gujarat 149, while examining the scope of the term 'month' had noticed as under:- “4. In common parlance, the 'month' is hardly understood as a calendar month according to the Gregorian calendar, but it by and large means “space of time from a day in one month to the corresponding day in the next\". This is the meaning of the term 'month' given in the Concise Oxford Dictionary, 1964 Edition. The term 'month' has been explained also in the Bombay General Clauses Act, 1904. The term 'month' as defined in S. 2(30) of the Bombay General Clauses Act, means \"a month reckoned according to the British Calendar.\" The term \"reckoned\" is equivalent of the term \"calculated\" or counted.\" If the legislature wanted the month to mean only a compact unit of a calendar month, the normal definition would have been as a British Calendar month or a calendar month. The elaborate explanation given in the definition of the term 'month' and particularly the reference to calculation clearly and pointedly suggest that what is intended to be referred to by the term is a space of time between the two dates of the two contiguous months. Xx xx xx xx xx xx xx xx xx 6.No doubt, there is the judgment of the learned Single Judge of this court referred to above, supporting the submissions made on behalf of the petitioner tenant, but we find that the learned Single Judge has not put forward any reasons in support of that view of his, which with profound respect we say is not correct, The learned single Judge has assumed we say so with respect because there is no elaboration at all that a month as occurring in S. 12(2) of the Rent Act means a calendar month, commencing from the first day of the month following the service of the notice of demand upon the tenant. Even the learned Single Judge in his judgment accepts the Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 8 position that \"ordinary\" or \"usual\" would mean a month calculated from a specified date. There is nothing in the context or in the text of S. 12(2) of the Rent Act which would suggest such an unusual connotation. As observed by us above, both the general tenor of the term as well as the clear meaning that could be derived from the interpretation of the term occurring in S. 12(2) clearly point to only one conclusion, namely, that the month referred to there is a span of time between two dates of two Contiguous months and not a calendar month. We, therefore, find ourselves unable to agree with the view of the learned Single Judge.” 13. In view of the above, the period of three months reckoned from the date of purchase of the units on 26.12.2003, would expire on 26.3.2004. Thus, the Assessing Officer, CIT(A) and the Tribunal were right in holding that the provisions of Section 94(7) (b) of the Act were fully applicable. 14. Adverting to the judgment in M/s Himachal Techno Engineers's case (supra), on which reliance had been placed by the learned counsel for the appellants, suffice it to say that in view of the observations quoted above, we do not find that the said pronouncement helps the assessee in any manner. 15. In view of the above, the substantial questions of law are answered against the assessee and in favour of the revenue. 16. Accordingly, the appeal is dismissed. (Ajay Kumar Mittal) Judge October 24, 2013 (Jaspal Singh) 'gs' Judge Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.686 of 2008 (O&M) 9 Singh Gurbax 2013.11.21 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh "