Commissioner of Income Tax vs Kadri Mills (Coimbatore) Ltd.

Ismail, J.—The Income Tax Appellate Tribunal, Madras Bench, u/s 256(1) of the Income Tax Act of 1961 has referred the following

question of law for the opinion of this court:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no penalty was imposable u/s 271(1)(a)

looking to the interpretation ci the word '' month'' ?

The controversy which gives rise to this question is simple. The matter relates to the imposition of penalty u/s 271(1)(a) of the Income Tax Act

in respect of the assessment year 1961-62. The Income Tax Officer served on the assessee-company a notice u/s 22(2) of the Indian Income Tax

Act, 1922, on June 17, 1961. The company applied for extension of time for filing the return of income through various letters filed from time to

time. Thus, by a letter dated August 16, 1961, the company requested for time up to October 31, 1961. By another letter dated November 1,

1961, it again asked for time till December 31, 1961. The Income Tax Officer granted time only up to November 30, 1961, and this was intimated

to the company through an intimation card on November 3, 961. As the return was not forthcoming, the company was reminded by an intimation

sent on December 11, 1961. However, by a letter dated December 22, 1961, the company asked for further time till January 15, 1962. to file the

return of income. Even by January 15, 1962, the company did not file its return. The Income Tax Officer on January 22, 1962, passed an order on

the order-sheet directing to wait till January 31, 1962, and issue penalty notice. On February 2, 1962, notice u/s 28(3) of the Indian Income Tax

Act, 1922, was issued to the company to show cause why a penalty should not be imposed u/s 28(1)(a) of the same Act. The notice was to be

discharged on February 15, 1962, and the assessee filed a return on that date, It is thereafter the Income Tax Officer passed an order on March 4,

1968, imposing a penalty of Rs. 8,639 u/s 271(1)(a) of the Income Tax Act. The company preferred an appeal to the Appellate Assistant

Commissioner and the Appellate Assistant Commissioner cancelled the penalty. Thereafter, the department preferred the appeal to the Income

Tax Appellate Tribunal, Madras Bench. The Tribunal dismissed the appeal preferred by the department. While doiDg so, the Tribunal stated :

In our opinion, it is clear that the Income Tax Officer had given time to the assessee to file the return of income till January 15, 1962. The return

was filed on February 15, 1962. According to relevant provisions of Section 271(i), the penalty to be imposed in such a case is''a sum equal to

two per cent, of the tax for every month during which the default continued''. As pointed out by Shri Swaminathan, looking to the provisions of

Section 3(33) of the General Clauses Act ''a month'' is a calendar month. In this view of the matter, EO penalty is imposable in the instant case.

It is the correctness of this conclusion of the Tribunal that is challenged in the form of the question referred to this court.

Section 271(1)(a) of the Income Tax Act, so far as it is relevant to this case, states that if the Income Tax Officer is satisfied that any person has

without reasonable cause failed to furnish the return of the total income which he was required to furnish under Sub-section (1) of Section 139 or

by notice given under Sub-section (2) of Section 139 or Section 140 or has without reasonable cause failed to furnish it within the time allowed

and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be, he may direct that such person shall pay by

way of penalty, in addition to the amount of the tax, if any, payable by him, a sum equal to two par cent, of the tax for every month during which

the default continued, but not exceeding in the aggregate fifty per cent, of the tax. The question involved in this case is what exactly the word

month"" occurring in the above statutory provision means. As the extract from the order of the Tribunal shows the Tribunal held that the Income

Tax Officer had given time to the assessee to file the return of the income till January 15, 1962, but the return was actually filed on February 15,

1962. It would appear that the case of the department is that the Income Tax Officer had not given time to the assessee to file the return of income

till January 15, 1962. But such a contention on the part of the department is not open in view of the clear finding of the Tribunal that the Income

Tax Officer has given time to the assessee to file the return of income till January 15, 1962, and in view of the fact that the department has not

asked for a reference questioning the correctness of this finding. Therefore, we have to proceed on the basis that the assessee had time to file the

return till January 15, 1962, but actually filed the return on February 15, 1962. The question in that context that arises for consideration is whether

the assessee is liable to penalty in terms of Section 271(1)(a) referred to already. There can be no dispute that the said provision contemplates the

levy of penalty at a particular percentage of the tax per month of default. Therefore, we have to find in this particular case whether there is a

month''s default at all. The learned counsel for the department contended that the word ""month"" means a period of 30 days and, in this case, such a

period of 30 days of default has occurred and, consequently, the assessee was liable to penalty even on the basis of the finding of the Tribunal. As

against this, the contention of the learned counsel for the assessee is that the word ""month"" his to be reckoned according to the English calendar as

provided for in Section 3(35) of the General Clauses Act, 1897, and if so reckoned the assessee has filed the return within a month from January

15, 1962, and, therefore, no penalty is leviable.

Before proceeding further, we can make one thing clear. On the finding of the Tribunal that the Income Tax Officer had given time to the

assessee to file the return of income till January 15, 1962, the default commenced only on January 16, 1962. But, on February 15, 1962, the

assessee had filed the return. If the argument of the department is to be accepted, the assessee filed the return after the expiry of 30 days, that is,

on the 31st day and, therefore, there had been a month''s default. On the other hand, if the argument of the assesseo is to be accepted, the

assessee had filed the return on the last day of the month of default and, consequently, there had not been a month''s default so as to calculate the

penalty at a particular percentage of the tax for a month. Which of these contentions is correct is the question that has to be now considered.

The Income Tax Act, 1961, itself does not define the word ""month"". However, Section 3 of the General Clauses Act, 1897, defines certain

terms. Section 3 opens by saying:

In this Act and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or

context,...

the words enumerated therein will have the meaning assigned thereto. Clause (35) of Section 3 defines the word ""month"" as follows :

(35) ''month'' shall mean a month reckoned according to the British calendar.

Thus, this definition will apply to the term ""month"" occurring iu the Income Tax Act, 1961, unless there is something in the context which will

exclude such application. As we shall show hereunder, there is nothing in the context to exclude the invocation of this definition to construe the

word occurring in the Income Tax Act, 1961.

How a month is to be reckoned has been the subject-matter of consideration by courts. According to Words and Phrases, permanent edition,

West Publishing Company:

The term ''month'', whether employed in modern statutes or contracts, and not appearing to have been used in a different sense, denotes a period

terminating with the day of the succeeding month numerically corresponding to the day of its beginning, loss one. If there be no corresponding day

of the succeeding month, it terminates with the last day thereof.

According to the Shorter Oxford English Dictionary, third edition, ""month"" means :

A space of time, either (a) extending from any day to the corresponding day of the next calendar month (called ''a calendar month'') or (b)

containing 28 days (often) miscalled a ''lunar month '')

One of the earlier decisions which happened to consider the meaning of the word ""month"" is the decision of the Full Bench of the Calcutta High

Court in South British Fire and Marine Insurance Co. v. Brojo Nath Shaha ILR [1909] Cal 516. That was concerned with the meaning to be

attributed to the word ""month"" occurring in an insurance policy. The question for consideration was whether the word ""month"" was to be

understood as a lunar month or it was to be understood in any other sense. Chief Justice Maclean stated :

The ordinary meaning of the word ''month'' in the English language is a lunar month and not the artificial month in the Gregorian calendar. This is

sufficiently shown by the fact that until the year 1850 the word ''month'' in an Act of Parliament meant ''lunar month'', since which date, however,

by virtue of a statutory enactment, the word ''month'' is used in Acts of Parliament to mean a calendar month. But the rule as to ''month'' meaning a

''lunar month'' in contracts still remains the law in England.

The learned counsel for the plaintiff, however, has argued before us that the rule is different in India having regard to certain statutory

enactments of the Indian legislature. The statutory enactments relied on are the General Clauses Act and Section 25 of the Indian Limitation Act.

The definition of the word ''month'', however, in the General Clauses Act is only for the purpose of Acts passed by the Indian legislature. Then

coming to Section 25 of the Limitation Act, all that section provides is that for the purpose of that Act time shall be computed according to the

Gregorian calendar. The object of the section is obvious; here in India there are in use several calendars, the Gregorian and the Bengali, Samvat,

so forth--each of which divides the year artificially in a different manner, and for the purpose of the Limitation Act Section 25 provides that the

Gregorian calendar is to be used. This section, therefore, appears to us to have no bearing on the question as to what is the meaning of the word

''month'' in a contract drawn in the English language. In various statutes in India a month is defined as a calendar month; this would have been

unnecessary if that were its ordinary meaning. As we have pointed out above it is clear in England that the word ''month'' in a contract means ''lunar

month'' and we see no reason why the interpretation of an ordinary word in a contract in England should bear a different signification in India to

that in England.

Even this is an authority for the proposition that the word ""month"" occurring in a statute passed by the Indian legislature has to be understood

according to the definition contained in the General Clauses Act, 1897. The expression ""monthly tenancy"" occurring in Section 106 of the Transfer

of Property Act, 1882, was the subject-matter of consideration of the Calcutta High Court in Ahumad Ali Biswas Vs. Jyotsna Kumar

Bandopadhyay and Another, . The learned judge held :

Section 106 of the Transfer of Property Act clearly contemplates any kind of ''monthly tenancy'' and it is well-known that a monthly tenancy may

be according to an English calendar, Bengali calendar, Samvat calendar and so forth, and may commence on any day of the particular month, say,

from the 5th of one to the 4th of next and so on.

In Marakanda Sahu Vs. Lal Sadananda Singh, a Division Bench of the Orissa High Court had applied this definition of ""month"" contained in

the General Clauses Act to the word ""month"" occuring in decrees and orders of courts. The Rajasthan High Court had occasion to consider the

same expression in Section 106 of the Transfer of Property Act in its judgment in Banarsilal v. Shri Bhagwan AIR 1955 Raj 167. In that judgment,

the Rajasthan High Court followed the view expressed by the Calcutta High Court in Ahumad Ali Biswas Vs. Jyotsna Kumar Bandopadhyay and

Another, , referred to already. A Bench of the Allahabad High Court in Abdul Latif Nomani Vs. Commissioner Gorakhpur and Others, had

occasion to consider the use of the word ""month"", occurring in Section 40(1)(a) of the U.P. Municipalities Act, Section 4(28) of the U.P. General

Clauses Act had defined the word ""month"" in identical terms as in Section Transfer of Prope of the General Clauses Act, 1897. In the light of this

definition, the meaning of the expression ""three consecutive months"" occurring in Section 40(1)(a) of the U.P. Municipalities Act had to be

considered. The Allahabad High Court held with reference to the facts of that case that the calendar month commenced on October 30, 1965, and

ended on November 29, 1965.

A Bench of the Andhra Pradesh High Court had to consider the meaning of the word ""month"" occurring in Section 106 of the Factories Act of

1948 in In Re: V.S. Metha and Others, , Section 106 of the Factories Act states :

No court shall take cognizance of any offence punishable under this Act unless complaint thereof is made within three months of the date on which

the alleged commission of the offence came to the knowledge of an inspector.

There is a proviso and it is not necessary to refer to it for the purpose of this case. That case dealt with 5 prosecutions. In two cases, the

inspector had visited the factory on Auugst 29, 1966, and the complaint was lodged on November 29, 1966, and in three other cases, the

inspector visited the factory on August 21, 1966, and the complaint was lodged on November 21, 1966. It was contended by the accused that the

prosecution was beyond time. The basis for the contention was that a month meant a period of 30 days and three months meant 90 days and the

complaint should be lodged within 90 days from the date of inspection. The Andhra Pradesh High Court held that the definition of the word

month"" occurring in Section 3(35) of the General Clauses Act, 1897, applied, any if so applied, the three months meant only three calendar

months from the date of inspection and, consequently, the prosecutions were in time.

IIalsbury''s Laws of England, 3rd edition, volume 37, paragraph 139, at page 82, gives the variant meanings of the word ""month"". That

paragraph states:

The term ''month'' is used in several senses. It may mean one of the twelve unequal parts into which the calendar year is divided; it may mean the

period which, beginning on any day of a calendar month other than the first, ends on the day next before the corresponding day of the next month ;

or it may denote a lunar month, that is to say, a period consisting of twenty-eight days.

In paragraph 140, it is pointed out that in statutes before 1850 and instruments before 1926, the word ""month"" was understood as a lunar

month. In statutes after 1850, the word ""month"" meant calendar month and similarly in instruments after 1925, the word ""month"" meant calendar

month. Paragraph 143 gives the meaning of the word ""calendar month"" :

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 ; 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.

As far as the present case is concerned, as we have pointed out already, the default commenced on January 15, 1962. Consequently, one

month of default would have been completed on February 15, 1962. But, on February 15, 1962, itself, the assessee has filed the return.

Consequently, the default had not lasted for a month as provided for in Section 271(1)(a) of the Income Tax Act, read with Section 3(35) of the

General Clauses Act, 1897, so as to attract the liability to penalty.

The learned counsel for the department brought to our notice a decision of the Allahabad High Court dealing with the identical word ""month

occurring in the very Section 271(1)(a) of the Income Tax Act, which is in Commissioner of Income Tax Vs. Laxmi Rattan Cotton Mills Co. Ltd.,

. A Bench of the Allahabad High Court in that case after referring to the rival contentions of the parties observed :

It is settled that the word ''month'' is normally understood to mean ''a lunar month'', i.e., a period of thirty days. (See Simpson v. Margitson [1847]

11 QB 23, Ryalls v. R [1848] 11 QB 781, Rogers v. Kingston-Upon-Hull Dock Co. [1864] 4 New Rep 494, Schiller v. Peterson & Co. Ltd.

[1924] 1 Ch 394, Phipps (P.) & Co. (Northamplon and Towcester Breweries) Ltd. v. Rogers [1925] 1 KB 14 and South British Fire and Marine

Insurance Co. v. Brojo Nath Shaha ILR [1909] Cal 516. Although these cases do not deal with the interpretation to be put on the word ''month''

as occurring in a statute, and relate to cases relating to contract, they throw light on the meaning of the word as commonly understood. This court

in the case of Misri Lal v. Jwala Prasad ILR [1962] All 761 has, however, taken the view that, in some cases, the word ''month'', as occurring in a

statute, may be taken to mean a period of thirty days. On an examination of the scheme and purpose of this section, we are of the view that the

word '' month '' as occurring in this sub-section must be taken to mean a period of thirty days. This provision 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.

The penalty is imposable for every month during which the default continues. 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. 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. 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.

With respect, we are unable to share the above view. In the first place, the learned judges have failed to take note of the 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. As we pointed out

already, till 1 850, 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

decisions construing the word ""month"" occurring in deeds for the purpose of construing the word ""month"" occurring in statutes. As a matter of fact,

the very decision of the Calcutta High Court in South British Fire and Marine Insurance Co. v. Brojo Nath Shaha ILR [1909] Cal 516, to which

we have already drawn attention and which has been referred to by the learned judges themselves, makes this distinction clear. Further, even under

the English law, the lunar month meant only 28 days and not 30 days. Apart from this, the very illustration given by the learned judges do not

support their reasoning and conclusion. In their illustration, the learned judges pointed out that time has been given to an assessee up to 30th

January, in a particular year, for filing a return and he defaults and files the return on the 27th February. Between 30th January and 27th February,

30 days had not elapsed and even on the interpretation of the learned judges the illustration does not establish the assessee escaping from the

liability to penalty. Independent of the above we are also of the opinion that there is absolutely nothing in the context of Section 271(1)(a) of the

Income Tax Act to exclude the application of the definition of the word ""month"" occurring in Section 3(35) of the General Clauses Act, 1897. The

learned judges state that the examination of the scheme and purpose of Section 271(1)(a) showed that the word ""month"" occurring in the said sub-

section must be taken to mean a period of 30 days. Otherwise, according to the learned judges, a defaulter will escape penalty. 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. 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 the learned judges 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, in our view, 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 Section 271(1)(a) of the Income Tax Act repugnant to the definition

of the word ""month"" contained in Section 3(35) of the General Clauses Act, 1897, so as to exclude its application. Under these circumstances, we

are of the opinion that the word ""month"" occurring in Section 271(1)(a) of the Income Tax Act has to be reckoned according to the British

calendar as provided for in Section 3(35) of the General Clauses Act, 1897, and, consequently, we answer the question referred to us in the

affirmative and in favour of the assessee. The assessee is entitled to its costs. Counsel''s fee, Rs. 500.