Interpretation of Tax Statute

8/10/2019 Interpretation of Tax Statute

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INTERPRETATION OF TAX STATUTE

Guided By: Dr. Qazi Usman

SUBMITTED BY:

MD. ABID HUSSAIN ANSARIB.A. LL.B. (HONS.) 6

THSEMESTER


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Acknowledgement

Firstly, I would like to express my profound sense of gratitude towards the almighty

ALLAH forproviding me with the authentic circumstances which were mandatory for the

completion of my project.

Secondly, I am highly indebted to Prof. Dr. Qazi Usman at Faculty of Law, Jamia Millia

Islamia University, New Delhi for providing me with constant encouragement and guidance

throughout the preparation of this project.

Thirdly, I thank the Law library staff who liaised with us in searching material relating to the

project.

My cardinal thanks are also for my parents, friends and all teachers of law department in our

college who have always been the source of my inspiration and motivation without which I

would have never been able to unabridged my project.

My father, a lawyer with large access to books of value has been of great help to me.

Without the contribution of the above said people I could have never completed this project.

Mohd. Abid Hussain Ansari

B.A.LL.B (Hons) 6thSemester

3rdYear


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Table of Contents

1.

Introduction to Interpretation of Statutes..72. Rules of Interpretation: Historical Perspective...10

3. Cardinal Rules of Interpretation.12

4. Interpretation of Tax Statute.......15

5. Cardinal Rules for interpretation of taxing statutes16

6. Golden Rule: Doctrine of purposive construction..18

7.

Rule of harmonious construction19

8.

Doctrine of Reading Down..19

9.

Legislative response....................................................................................................20

10.

Rule of beneficial construction...2311.

Charging sections to be strictly construed while benevolent and procedural sections

should be liberally construed..24

12.Mischief rule (Heydons case)25

13.Construction of penal provisions26

14.Rule of ejusdem generis or noscitur a sociis28

15.

Rule of expressio unius est exclusio alterius...28

16.External aids to interpretation.29

17.Generalia Specialibus Non Derogant: General provisions must yield to the special

provision.30

18.

Where there is a conflict between two statutes...........31

19.Mimansa Rules of Interpretation32

20.Miscellaneous.33

21.Doctrine of Stare Decisis and Uniformity of construction of Precedents: Doctrine of

Stare Decisis...35

22.High Court decisions: Whether binding in nature and binding on whom.35

23.

Position in regard to different Benches of the same High Court....36

24.

Whether decision of a High Court extends beyond its territorial jurisdiction....37

25.

When a precedent ceases to be binding..38

26.

Obiter dicta are not binding3827.Present Position in India.39

28.Conclusion..41

29.Bibliography...43


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List of Cases

1.

Seaford Court Estates Ltd. v. Asher

2. Ispat Industries Ltd. v. Commissioner of Customs

3.

State of Andhra Pradesh v. Nagoti Venkataramana

4.

Secretary, H.S.E.B v. Suresh & Ors Etc.

5. Menaka Gandhi v. Union of India

6. Calcutta Jute Manufacturing Co. v. Commercial Tax officer

7. CWT v. Hashmatunnisa Begum

8. CIT v. T.V. Sundaram Iyyengar

9.

CIT v. Motors & General Stores Ltd.

10.

CIT v. Elphinstone Spg & Wvg Mills Co Ltd

11.Cape Brandy Syndicate v. IRC

12.

CIT v. Ajax Products Ltd.

13.Citigroup Global Markets India (Pvt.) Ltd. v. Dy. CIT

14.Smt. Tarulata Shyam v. CIT

15.

Brig. B. Lall v. WTO

16.CED v. R. Kanakasabai

17.

CIT v. Indian Engg. & Comml. Corpn. (P.) Ltd.18.

Keshavji Ravji & Co. v. CIT

19.Grey v. Pearson

20.CIT v. Chandanben Maganlal

21.

Sri Venkateshwara Timber Depot v. Union of India

22.Arun Kumar v. Union of India

23.Kedar Nath Singh v. State of Bihar

24.

Maharao Saheb Shri Bhim Singhji v. Union of India

25.Sanyasi Rao v. Govt. of A.P.

26.Union of India v. A. Sanyasi Rao

27.

C.B. Gautam v. Union of India

28.IRC v. Duke of Westminister

29.McDowell & Co. Ltd. v. CTO

30.Union of India v. Azadi Bachao Andolan

31.CIT v. Naga Hills Tea Co. Ltd.

32.CIT v. Contr ED v. Kanakasabai


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33.CIT v. Contr ED v. Kanakasabai

34.Gursahai Saigal v. CIT

35.

Bajaj Tempo Ltd.

36.uggilal Kamlapat v. CIT

37.CIT v. Strawboard Manufacturing Co. Ltd.

38.

CIT v. South Arcot District Co-operative Marketing SocietyLtd.

39.CIT v. Poddar Cement (Pvt.) Ltd.

40.CIT v. Shaan Finance (Pvt.) Ltd

41.

CIT v. Vegetable Products Ltd

42.Gannon Dunkerly & Co. Ltd. v. CBDT

43.arnail Singh v. ITO

44.

CIT v. Gangaram Chapolia

45.J

46.CIT v. Ram Rup Kishan

47.

J.M. Shah v. ITO

48.CIT v. Raj Kumar

49.Sole Trustee, Loka Shikshana Trust v. CIT

50.Chunnilal Onkarmal (P.) Ltd. v. UOI

51.

K.P. Varghese v. ITO

52.CIT v. M.K. Vaidya

53.

CIT v. Export India Corporation (P.) Ltd.

54.Ganji Krishna Rao v. CIT

55.Addl. CIT v. Sarvaraya Textiles Ltd

56.CIT v. Bhandari Machinery Co. (P.) Ltd.

57.State of Travancore, Cochin v. Bombay Company Ltd.

58.

CWT v. Yuvraj Amrinder Singh

59.B.R. Sound-n-Music v. O.P. Bhardwaj

60.CIT v. Shahzada Nand and Sons

61.UOI v. Indian Fisheries (P.) Ltd.,

62.CIT v. Shambulal Nathalal & Co

63.Jaswant Trading Co. v. CIT

64.

Hukumchand Mills Ltd v. State of MP.

65.

CIT v. The Hindu ; CIT v. Srinivasan & Gopalan

66.CIT v. Godavari Sugar Mills Ltd,


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Introduction to Interpretation of Statutes

The essence of law lies in the spirit, not its letter, for the letter is significant only asbeing

the external manifestation of the intention that underlies it

Salmond

Interpretation means the art of finding out the true sense of an enactment by giving the words

of the enactment their natural and ordinary meaning. It is the process of ascertaining the true

meaning of the words used in a statute. The Court is not expected to interpret arbitrarily and

therefore there have been certain principles which have evolved out of the continuous

exercise by the Courts. These principles are sometimes called rules of interpretation.

The object of interpretation of statutes is to determine the intention of the legislature

conveyed expressly or impliedly in the language used. As stated by SALMOND, "by

interpretation or construction is meant, the process by which the courts seek to ascertain the

meaning of the legislature through the medium of authoritative forms in which it is

expressed."

Interpretation is as old as language. Elaborate rules of interpretation were evolved even at a

very early stage of the Hindu civilization and culture. The importance of avoiding literalinterpretation was also stressed in various ancient text books Merely following the texts of

the law, decisions are not to be rendered, for, if such decisions are wanting in equity, a gross

failure of Dharma is caused. Interpretation thus is a familiar process of considerable

significance. In relation to statute law, interpretation is of importance because of the inherent

nature of legislation as a source of law. The process of statute making and the process of

interpretation of statutes are two distinct activities.

In the process of interpretation, several aids are used. They may be statutory or non-

statutory. Statutory aids may be illustrated by the General Clauses Act, 1897 and by specific

definitions contained in individuals Acts whereas non-statutory aids is illustrated by common

law rules of interpretation (including certain presumptions relating to interpretation) and also

by case-laws relating to the interpretation of statutes. Lord Denning in Seaford Court

Estates L td.v. Asher, English Knowledge is not an instrument of mathematical precision

It would certainly save the judges from the trouble if the acts of parliament were drafted with


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divine precision and perfect clarity. In the absence of it, when a defect appears, a judge

cannot simply fold hand and blame the draftsman

It is not within the human powers to foresee the manifold permutations and combinations that

may arise in the actual implementation of the act and also to provide for each one of them in

terms free from all ambiguities. Hence interpretation of statutes becomes an on-going

exercise as newer facts and conditions continue to arise.

It is a well-established fact that the legislature is highest law making body and the court is

merely an interpreter of the law. But actually the fact is by interpreting the law the court can

make comprehensive changes in the actual implementation and overall maneuver of the law.

This can be easily be gathered by analyzing the statutory interpretation made by Indian

judiciary and its effect on India and its citizens as a whole.

The living example of such effect is interpretation of Part III (Fundamental Rights) of Indian

Constitution and especially Article 211, wider and liberal interpretation of this article by the

Honble Supreme Court of India has granted many fundamental beneficial rights to the

citizens of the country2 and even ensured actual execution of these rights by liberally

interpreting the concept of locus standi3with further evolution of Public Interest Litigation

through which any public spirited person can file a petition on behalf of those who has noaccess to Court. Such evolutions with an important art of interpretation have ensured

principles of rule of law and equal justice or justice at door step in the developing country

like India. But here it is important to mention that the manner and expansion of interpretation

by judiciary has been criticized by many and termed as over judicial activism with

interference in the field of legislature. This point has been discussed in detail in the

subsequent submission.

Moving further, to understand everything about interpretation which has been gradually

evolved in modern context from ancient Indian rules with the help of follows up of different

rules/doctrines in different situations which has arisen for different statutes. In light of this

evolution, the utmost important aspect to understand for us is the meaning of term statute,

the very first term on which emphasis of the whole submission lies.

1 Protection of life and personal liberty: No person shall be deprived of his life or personal liberty except

according to procedure established by law (Court interpreted procedure needs to be just)2

Right to Livelihood, Right to have pollution free environment and many other such rights has been evolved aspart of right to life under Article 21.3The right of a party to appear and be heard before a court


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The word Statute generally is defined as the written will of the legislature solemnly

expressed according to the forms necessary to constitute it the law of the State.4Normally,

the term denotes personification of authoritative blueprint and words used in the same

constitute part of law. These blueprints are chief source of law which is known as legislation.

The other sources are precedents and customs. Each of these sources finds its expression in a

language or words used by authorities.5Many times the use of language in the legislation

even does not carry the clear cut meaning in dictionaries. It contains many alternative

meanings applicable in different contexts and for different purposes so that no clear field for

the application of a word becomes identified. In such a situation, importance of interpretation

comes into picture. For proper and healthy application of law, it is important to have uniform

expansion of language or words used by the authorities/law-makers. In a case, if one judge

takes the narrow view and the other the broad one, the law will connote different things for

different persons and soon there will be race for window shopping for justice. Moreover, we

always need to keep in mind that articulating a law is not equal to the execution of law. For

the purpose of execution, proper understanding of law or statute is utmost important and

better understanding is only possible through proper interpretation of the statute.

It is of general believed that the law is deemed to be what the Court interprets it to be. The

very concept of interpretationconnotes the introduction of elements which are necessarilyextrinsic to the words in the statute.6

The term interpretation is defined as the process by which the Courts seek to ascertain the

intent of the Legislature through the medium of the authoritative form in which it is

expressed. As everyone knows, administration of justice by Court is being conducted

according to the law and law requires having some rules of interpretation to ensure just and

uniform decisions. The art of correct interpretation only depend on the ability to read what is

stated in plain language, read between the lines, read through the provision, examining the

intent of the Legislature and call upon case laws and other aids to interpretation.7

Such art as popularly known as the rules of interpretation has been evolved in about all legal

jurisprudence. Such an evolution is a result of many considerations starting from general

4Farlex, Statute (The Free Dictionary) accessed on 21

August 2012.5Avtar Singh, Introduction to Interpretation of Statute (2nd ed., LexisNexis Butterworths, Nagpur 2007) 5

6

Whartons Concise Law Dictionary (15th ed., Universal Law Publishing Pvt. Ltd., New Delhi 2009) 551

7Deepak Jain, Interpretation of Statute: A treaties (April 2010) AIFTP Journal


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scope, purpose of the legislation mingled with intention of legislatures and from the legal

rights of the parties independent of the instrument or law in question to many other relevant

particulars. In simple words, this evolution is a logical process which is adopted for

determining the true sense of any form of language, the sense which their author intended to

convey and to ensure justice as the end result.

The present assignment entry focuses upon cardinal rules and general relevance of

interpretation of statutes and interpretation of tax statutes as being applied in Indian context

and has been evolved by Indian Judiciary with the passage of time. The enumeration below is

being substantiated with the relevant case laws of Indian jurisprudence but before that, it is

important to analyze historical aspect of rules of interpretation and the same has been

enumerated in the following part.

RULES OF INTERPRETATION: HISTORICAL PERSPECTIVE

Indian historical rules of interpretation of statute have not got the due recognition in the

present study of rules of interpretation. Many few peoples are aware about the existence of

such rules even in India. But in actual, there are many modern rules whose foundation has

been laid down in ancient rules of interpretation. These ancient Indian rules are popularly

known as Mimamsa Rules of Interpretation.

These rules are primarily for Vedanta8and have contributed a lot in formulation and

development of Hindu Law. The basic aim of these rules is to give interpretation of the

Vedas, the earliest scriptures of Hinduism, and to provide a philosophical justification for the

observance of Vedic rituals.

A basic discussion on six important Mimamsa rulesis as follow:

1.

Upakarma Upasamhara

This rule is basically to ensure unity of thought in the beginning as well as in the end and it

further indicates that statute should be read as a whole. There is one basic purpose or intent

which runs through the whole Statute. Moreover, in the very first instant, interpreter should

look into preamble and epilogue at the first9;

8

It represents the philosophical portion of the ancient scriptures of India.9Satyanarayan Venktaraman Upangas (Vedavichara); https://vedavichara.com/the-vedas/vedangas-the-

limbs-of-vedas/97.htmlaccessed on 22 August 2012


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2. Abhyasa

This rule is an indication of repetitive process, meaning thereby that what has been repeatedly

said is because of legislatures continuous effort to support his aim;

3. Apurvata

This rule is an indication of novelty or uncommon nature of the proof. It is to see by this rule

whether there is something novel to be achieved by the legislation10;

4. Phala

This rule suggests that there is need to go through word to word of the statute because each

word has specific thing to add on or to indicate upon and the result achieved after doing all

this need to be clearly gone through to achieve a correct conclusion;

5. Atharvada,

This rule indicates help of external aids is useful to interpret any statute. This rule is widely

followed in the modern context;

6. Upapatti

This is the last but most important rule which in literal sense is known as logical deduction.

This rule has its importance in case of ambiguity in the enactment.

These rules of interpretation are Indias one of great achievements, but regrettably few people

in our country are aware about the great intellectual achievements of ancestors and the

intellectual treasury they have bequeathed upon India. As rightly stated by Justice Katju11that

Maxwell and Craies usually get quoted on issue of Interpretation but Indian indigenous

system of interpretation is not been quoted even by Indian Lawyers in Indian Courts.

Recently one of the Supreme Court judgments, I spat Industr ies L td.v. Commissioner of

Customs12, has refereed these rules while deciding an appeal under the Customs Tariff Act,

1975.

10M.K. Venkatarama Iyer, Contribution of Bharati Tirtha and Vidyaranya to Development of Advaitic Thought

(Srisharada)http://www.srisharada.com/Vidyaranyar/ChapterV.htm accessed on 22 August 2012.11

Markandey Katju is the Chairman, Press Council of India. He was formerly a Judge of the Supreme Court ofIndia12

(2006)12 SCC 583


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CARDINAL RULES OF INTERPRETATION

The rules of interpretation are soul of arid body of legislation. With respect to modern

principles of interpretation, Indian Courts have evolved number of rules of interpretation

which can help them to resolve any sort of difficulty. These rules have major role to play in

proper and beneficial implementation of law under the garb of different rule, expressions of

interpretation. But before detailed discussion upon rules and expressions, it is important to

keep in mind that to interpret any statute, three basic rules or processes are to be followed.

These processes are:

1. Primary Rule of Interpretation

This rule has following steps involved which an interpreter has to follow:

i.

Read and analyze a section;

ii. Ascertain the primary meaning of the words used;

iii. Ascertain the grammatical, literal and plain meaning of the words used in the section.

This rule has further been explained in detail in the name of literal rule of interpretation in

the subsequent submission.

2. Secondary Rule of Interpretation

This rule is basically states about application of internal and external aids to ensure proper

interpretation of statute. Application of Internal and External aids has been explained in the

subsequent submission.

3. Final Rule of Interpretation

Interpretation of every statute must be based upon the aforesaid primary and secondary rules.

But there may be a situation when conflict may arise on simultaneous application of above

rules, to avoid such conflict, final rule i.e. principle of harmonious construction come into

picture. This rule has further been explained in the subsequent submission. Every effort


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should be made to ensure that all the primary and secondary rules are simultaneously

satisfied.

Here, it is also to be focus that certain specific statutes have specific pattern of Interpretation

as enumerated in numerous case laws. To illustrate this point, following submission is

important.

I. For Penal Statute, it is always need to have a strict interpretation13and with respect

to mens reait is always presumed that it is required to prove in each case unless the

statute specifically provides for the absence of the same;

In the case of State of Andhra Pradeshv. Nagoti Venkataramana14, it has been held

by the Supreme Court that in the interpretation of penal provisions, strict construction

is required to be adopted and if any real doubt arises, necessarily the reasonable

benefit of doubt would be extended to the accused.

II. For Beneficial Statute such as Statutes related to Industry/workmen, it is always

important to have beneficial liberal interpretation15. Presently, in the period of social

welfare legislation, beneficial interpretation has become important tool of

interpretation of statute.

In the case of Secretary, H.S.E.Bv. Suresh & Ors Etc.16it has been held by the SC

that the Contract Labour Regulation Act being a beneficial piece of legislation as

engrafted in the statute book, ought to receive the widest possible interpretation in

regard to the words used and unless words are taken to their maximum amplitude, it

would be a violent injustice to the framers of the law.

III. For Constitution, the basic spirit in form of social justice, equity fraternity etc. should

run throughout the interpretation17and the interpretation of the Constitutional

provisions should be harmonious and liberal;

13M. Narayanan Nambiar v. State of Kerala, 1963 SCR Supl. (2) 724

141996 (6) SCC 409

15

Bajaj Tempo Ltd. v. CIT, 196 ITR 188 (SC)161999 3 SCC 601

17Kesavananda Bharati v. State of Kerala, AIR 1973 SC 1461


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In the Case of Menaka Gandhiv. Union of India18, the Supreme Court widened the

protection of life and liberty contemplated by Article 21 of the Constitution. The

Court ruled that the mere existence of an enabling law was not enough to restrain

personal liberty. Such a law must also be just, fair and reasonable. This wider

interpretation ensured inclusion of many rights under Article 21.

IV. For Taxing Statute, Statutes imposing taxes or monetary burdens are to strictly

construe. The logic behind this principle is that imposition of taxes is also a kind of

imposition of penalty which can only be imposed if the language of the statute clearly

says so;19in many instances, liberal or beneficial interpretation has an important role

to play in taxing statutes interpretation.

In the case of, Calcutta Jute Manufactur ing Co.v. Commercial Tax off icer20the

Supreme Court held that in case of interpreting a taxing statute, one has to look into

what is clearly stated. There is no room of searching the intentions, presumptions.

Apart from above brief submissions on interpretation of different statutes, many types

of Internal and External aids are used for the purpose of interpretation of statute. The

term internal aid is defined as interpretation of statute with those means which are

found within the text of the statutes.21For example: Preambles, Definitional sections

and clauses, Provisos, Explanations etc.

18AIR 1978 SC 597

19CIT v. T.V. Sundaram Iyyengar (1975) 101 ITR 764 (SC)

20AIR 1997 SC 2920

21

Law Commission , A continuum on the General Clauses Act, 1897 with special reference to the admissibilityand codification of external aids to interpretation of statutes {Law Comm. No. 6(3)(79)/2002-LC(LS), 2002}

para 8


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Interpretation of Tax Statute

In the case of taxing statutes, as in different type of statutes, there are certain bedrock

principles on which the interpretation or construction of the particular statute is done by the

Courts and Tribunals; and the tax practitioners are required to have the knowledge of these

basics in their catalogue to understand the statute and implications of its provisions. Some

important aspects relating to Interpretation of Taxing Statutes are dealt herein.

Interpretation and ConstructionMeaning of

Statutes are embodiments of authoritative formulae and the very words which are used

constitute part of law. The interpretation or construction means the process by which the

Courts seek to ascertain the intent of the Legislature through the medium of the authoritative

form in which it is expressed. The law is deemed to be what the Court interprets it to be. The

very concept of interpretation connotes the introduction of elements which are necessarily

extrinsic to the words in the statute. Though the words interpretation and construction are

used interchangeably, the idea is somewhat different. The term construction has been

explained in CWTv. Hashmatunn isa Begum,22 to mean that something more is being got

out in the elucidation of the subject-matter than can be got by strict interpretation of the

words used. Judges have set themselves in this branch of the law to try to frame the law as

they would like to have it.

Further, L.J. Denningin Seaford Court Estatesv. Asher23, speaks as hereunder:

A Judge must not alter the material of which the Act is woven but he can and should

iron out the creases. When a defect appears, a Judge cannot simply fold his hands

and blame the draftsman.

He must set to work on the constructive task of finding the intention of the Parliament

and then he must supplement the written words so as to give force and life to the

intention of the Legislature.

The art of correct interpretation would depend on the ability to read what is stated in plain

language, read between the lines, read through the provision, examining the intent of the

Legislature and call upon case laws and other aids to interpretation.

22[1989] 176 ITR 98 (SC)

23[1949] 2 All ER 155


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Cardinal Rules for interpretation of taxing statutes

Rule of literal interpretation

This is the most widely used Rule of Interpretation in taxing statutes. Some decisions are

given hereunder.

In case of CI Tv. T.V. Sundaram Iyyengar,24it was held that if the language of the statute is

clear and unambiguous, the Court cannot discard the plain meaning, even if it leads to an

injustice.

In case of CIT v. Elphinstone Spg & Wvg M il ls Co Ltd.25, and CI Tv. Motors & General

Stores L td.26, it was held by the court of law that No tax can be imposed on the subject

without words in the Act clearly showing an intention to lay a burden upon him. In other

words, the subject cannot be taxed unless he comes within the letter of the law. The argument

that he falls within the spirit of the law cannot be availed by the Department.

Rowlatt J. in case of Cape Brandy Syndicate v. I RC27, approved in case of CI T v. Ajax

Products L td.28

,

In a taxing Act one has to look merely at what is clearly said. There is no room for

any intendment. There is no equity about a tax. There is no presumption as to a tax.

Nothing is to be read in, nothing to be implied. One can only look at the language

used.

Thus, when the language of a taxing statute is clear, if an assessee falls within the four

corners of the statute, he is to be taxed; if not, no tax is to be levied.

In case of Citigroup Global Markets I ndia (Pvt.) Ltd.v. Dy. CIT29, In this case payment of

salary was made and the provisions of section 192 were applicable. The words at the time of

payment in section 192(1) was interpreted where the ITAT held that the literal meaning is

that, it is a point of time when the assesse actually remits the amount either in cash or through

24[1975] 101 ITR 764 (SC)

2540 ITR 142 (SC)

2666 ITR 692, 699-700 (SC)

27

[1921] 1 KB 6428[1965] 55 ITR 741 (SC), (p. 747)

29[2009] 29 SOT 326 (Mum)


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bank which is contemplated as actual payment in normal commercial practice. Under section

192 TDS is to deducted at the time of the payment and not when the salary is accrued or

credited to the account of the payee. The tax statutes need to be strictly interpreted and the

language used by the Legislature should not be unnecessarily stretched in the process of

finding the intention of the Legislature. [TDS needs to be deducted u/ss. 194C, 194E, 194H

and 194-I at the time of credit or payment whichever is earlier]. It was held that the assessees

statutory obligation was to deduct the tax at the time of payment or remittance of the salary

and, hence, the claim of the expenditure towards the salary payment was not hit by section

40(a) (iii) in the circumstances of the instant case.

In case of Smt. Tarulata Shyam v. CI T30, it was held by the court that there is no scope for

importing into the statute words which are not there. Such importation would be, not to

construe, but to amend the statute. Even if there be a casus omissus, the defect can be

remedied only by Legislation and not by judicial interpretation.

Also in case of Brig. B. Lallv. WTO31

, The question was about the application of section

16A of the Wealth-tax Act, which empowers the WTO to refer the valuation of any property

to the VO of the Government to ascertain the true market value of the property on the date of

valuation if he feels that the value declared by the assessee was low. It can be done only

during the pendency of a case before the WTO. In this case it was the opinion of the audit

that it suspected the value declared to be low and on the basis of such advice, the WTO

referred the valuation to the departmental valuer. Since at the time of such reference no case

was pending before the WTO, on a writ petition filed by the assessee, it was held that the

WTO had no jurisdiction to make such reference. He cannot be allowed to make roving

enquiry to make any enhancement in the value of the property. Since the provisions of section

16(1) apply only where a case is pending, it cannot be read for reopening the completed

assessment after receipt of the valuation report which was to be received.

It rejected the suggestion that although no case was pending, it would come to be so on

reopening of the reassessment. The Court disagreed with the said proposition as it would

mean changing the condition for completing the assessment to the condition for reopening the

completed assessment, which would mean addition of certain words in the statute which

30[1971] 108 ITR 345 (SC)

31 [1981] 127 ITR 308/ [1980] 4 Taxman 559 (Raj)


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cannot be allowed in interpreting the statute as was held by the Supreme Court in CED v. R.

Kanakasabai32.

In case of CI Tv. I ndian Engg. & Comml. Corpn. (P.) L td.33,the court observed that besides

salary, certain commission as percentage of sales was paid to the directors, and the revenue

sought to disallow the same being in excess of the provision contained in section 40(a) (v). It

was held that the commission paid did not partake of the character of salary, not it partook of

the character of perquisite. It is not possible to read something in the provision which, by

considering the wordings used, is outside the scope of the provision. The Court is not

required to legislate which is the function of the Legislature.

In case of Keshavji Ravji & Co. v. CI T34

, As long as there is no ambiguity in the statutorylanguage, resort to any interpretative process to unfold the legislative intent becomes

impermissible.

Golden Rule (Doctrine of purposive construction)

If the strict interpretation of the taxing statute is likely to lead to a manifest absurdity, then

the golden rule of construction implies that the meaning of the words should be so affected

that such an absurdity is avoided. The application of this rule is rather limited in the realm of

construction of taxing statutes, since the literal rule would gain precedence over the golden

rule and it is often remarked that equity and taxation are strangers: held in case of Greyv.

Pearson35.

Here, it is important to analyze that in Indian Context, there is hardly any example where a

statute have been declared void for sheer vagueness , although theoretically it may be

possible to reach such a conclusion in case of absolute intractability of the language used or

when the language is absolutely meaningless but application of this pattern of interpretation

with the following list of rules prevent redundancy of a statute.

32[1973] 89 ITR 251 (SC) at page 257

33

[1993] 201 ITR 723/68 Taxman 39 (SC)34[1990] 49 Taxman 87 (SC)

35[1857] 6 HL Cas. 61


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This principle has further been defined by the Court itself as if the choice is between two

interpretations, the narrower of which would fail to achieve the manifest purpose of the

legislation, we should avoid an interpretation which would reduce the legislation to futility

and should rather accept the bolder interpretation based on the view that Parliament would

legislate only for the purpose of bringing about an effective result. At last, Statute should be

interpreted as effective as workable as is possible while lining with following rules.

Rule of harmonious construction

In case of In case of CI Tv. Chandanben Maganlal36, When any provision of a taxing statute

is interpreted, it must be so constructed that the meaning of such provision must harmonise

with the intention of the Legislature behind the provision in particular and the enactment ingeneral. However, this would always be subject to the fact that the particular provision, or

even the entire enactment, should not be held unconstitutional.

Doctrine of reading down

Resort to reading down is done where a legal provision; read literally, seems to offend the

Constitutional provisions concerning fundamental rights or is found to be outside the

competence of the particular Legislature. Some relevant decisions are given hereunder.

The application of doctrine of reading down is done where a legal provision; read literally,

seems to offend the Constitutional provisions concerning fundamental rights or in case of

other statutory enactment, it is found to be outside the competence of the particular

Legislature.

In case of Sri Venkateshwara Timber Depotv. Union of India37,The Court construes the

provision in question in a limited sense to ensure that its meaning falls within the parameters

of constitutionality or is intra vires the powers of the Legislature in question (generally in the

case of State Legislatures).

36[2002] 120 Taxman 38 (Guj)

37[1991] 189 ITR 741/155 Taxman 308 (Ori)


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Also in case of Arun Kumarv. Union of I ndia38, it was held that Reading down a provision

is based on the premise that to sustain the law by interpretation is the rule; to add further, as

held in Kedar Nath Singhv. State of Bihar39.

The Legislature is presumed to be aware of its limitations and is also attributed an intention

not to overstep its limits.

The Supreme Court in case of Arun Kumar, was required to consider the validity of rule 3 of

the Income-tax Rules, 1962 as amended vide Notification No. S.O. 940 (E), dated September

25, 2001. The substituted rule revised the method of computing valuation of perquisites in the

matter of rental accommodation provided by employers to the employees. It was contended

by the writ petitioner that rule 3 is invalid on the ground that the amended rule does notprovide for giving an opportunity to the assessee to convince the A.O. that no concession is

given by the employer to the employee in respect of accommodation provided and, hence,

rule 3, has no application, as the amended rule is arbitrary, discriminatory or ultra vires article

14 and inconsistent with the provisions of section 17(2) (ii).

The Court did not accept the petitioners contention and has said that (amended) rule 3 is in

the nature of a machinery provision and applies only to cases where concession in the matter

of rent is involved, respecting any accommodation provided by an employer to his employee.

The Court held that the assessee (employee) could contend that there is no concession in the

matter of accommodation provided by the employer to the employee and on that basis, claim

that rule 3 is not applicable

The doctrine of reading down can be applied if the statute is silent, ambiguous or allows more

than one interpretation. But where it is express and clearly mandates to take certain actions,

the function of the Court is to interpret it plainly and declare intra vires or ultra vires withoutadding, altering or subtracting anything therein.

Krishna Iyer, J., in Maharao Saheb Shr i Bh im Singhj iv. Union of I ndia40, has observed:-

. . . reading down meanings of words with loose lexical amplitude is permissible as

part of the judicial process. To sustain a law by interpretation is the rule. Courts can

38

[2006] 155 Taxman 659 (SC)39AIR 1962 SC 955

40AIR 1981 SC 234; (p. 242)


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and must interpret words and read their meanings so that public good is promoted

and power misuse is interdicted. As Lord Denningsaid: A judge should not be a

servant of the words used. He should not be a mere mechanic in the power house of

semanties. .. .

In Sanyasi Raov. Govt. of A.P.41, The constitutional validity of sections 44AC and 206 of

the Income-tax Act, was challenged. These sections were introduced in the Income-tax Act

by the Finance Act, 1988. Section 44AC (which had since been deleted with effect from April

1, 1993 by the Finance Act, 1992) determined the profits and gains of a buyer from the

business in trading in certain specified goods at a given percentage of the purchase price; and

section 206C deals with collection and recovery of tax relating thereto. It was contended,

inter alia, that section 44AC is an arbitrary and discriminatory provision, the measure of

profits and gains prescribed by that section constitutes an unreasonable restriction upon the

assessees fundamental rights guaranteed by sub-clause (g) of clause (1) of article 19 of the

Constitution; and that there ought to be income, before tax is levied. The amount collected at

source under section 206C is related to the income component of the purchase price. In its

judgment, the High Court held that the legislative policy of fixing the rate of profit, as has

been done in section 44AC, had to be regarded as in the nature of unreasonable restriction in

cases of some of the assessees. Therefore, section 44AC has to be regarded as violative of

Article 19(1) (g) in the cases of some of the petitioners before the Court.

The High Court then considered whether anything can be done to uphold the validity of

section 44AC and the court found the solution in reading down the provision . The reading

down was to the extent that section 44AC shall be read not as an independent provision but as

an adjunct to and as explanatory to section 206C; and that it does not dispense with regular

assessment altogether with the result that after the tax is collected in the manner provided by

section 206C, a regular assessment would be made where the profit and gain of business in

goods in question would be ascertained in accordance with sections 28 to 43C.

The High Courts decision was upheld by the Supreme Court in Union of I ndiav. A. Sanyasi

Rao42, saying that section 44AC is a valid piece of legislation and is an adjunct to and

explanatory to section 206C.

41[1989] 178 ITR 31 (AP)

42[1996] 219 ITR 330 (SC)


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Legislative response

While the debate about the constitutionality of section 44AC was on, the Government,

realising the deficiencies of section 44AC, omitted section 44AC by the Finance Act, 1992

w.e.f. assessment year 1993-94. However section 206C continued as an aid to collect tax at

source from the buyers of the products/items covered in the section.

The Statute must be read as whole in its context. This one is the very first rule to start with

the interpretation of Statute (as even been mentioned in historical perspective) in Indian

Context. It has been rightly defined in the case of Reserve Bank of India v. Peerless General

Finance and Investment Company limited that the art of interpretation depend on the text and

the context. These both are the bases of interpretation in Indian jurisdiction. One may wellsay if the text is the texture, context is what gives the color. Neither can be ignored. Both are

important. That interpretation is best which makes the textual interpretation match the

contextual. A statute is best interpreted when we know why it was enacted. With this

knowledge, the statute must be read, first as a whole and then section by section, clause by

clause, phrase by phrase and word by word. If a statute is looked at, in the context of its

enactment, with the glasses of the statute- maker, provided by such context, its scheme, the

sections, clauses, phrases and words may take color and appear different than when the

statute is looked at without the glasses provided by the context. With these glasses we must

look at the Act as a whole and discover what each section, each clause, each phrase and each

word is meant and designed to say as to fit into the scheme of the entire Act. No part of a

statute and no word of a statute can be interpreted in isolation. Statutes have to be interpreted

so that every word has a place and everything is in its place.

In C.B. Gautam v. Union of I ndia43, The Court had to deal with section 269 UD of the

Income-tax Act, which did not contain any provision for an opportunity to the parties to be

heard before an order for compulsory purchase of the property under Chapter XX-C of the

Income tax Act was made. Therefore, the requirement of an opportunity to show the cause

before an order for compulsory purchase is made by the Central Government must be read

into the provisions of Chapter XX-C, otherwise it would have adverse civil consequences for

the parties affected. The provisions were later amended to incorporate the principle of natural

43[1992] 199 ITR 530 (SC)


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justice vide sub-section (1A) of section 269UD by the Finance Act, 1993 from November 17,

1992.

Rule of beneficial construction

In cases where there are two interpretations possible, the one which is beneficial to the

assessee would be preferred. This principle was laid down in a landmark Judgment in I RCv.

Duke of Westminister44, wherein Tomlin LJ., stated that an assessee may arrange his affairs

within the bounds of the law so as to minimize the incidence of tax.

In McDowell & Co. Ltd. v. CTO45, The Apex Court clamped down on the liberal

construction and the pendulum swung to the other extreme, as the Court made fine

distinctions between tax evasion, tax avoidance and tax planning and virtually rendered the

WestministerPrinciple nugatory. Here the Court followed the interpretation that the letter

and spirit of the law must be followed. In this post- McDowell era, the department generally

got favourable verdicts and a lot of assessees suffered due to the Courts coming down heavily

on tax avoidance measures, which were equated with tax evasion.

In Union of India v. Azadi Bachao Andolan46, The case dealt with conflicts between the

Indo- Mauritius Double Tax Avoidance Agreement and the Income-tax Act, 1961, it was held

that an assessee was entitled to arrange his affairs so as to minimize the incidence of tax,

thus, partly confirming the Westminister Principle.

In CI Tv. Naga Hi ll s Tea Co. L td.47

, and in CI Tv. Contr EDv. Kanakasabai48

, it was held

that where a literal construction would defeat the obvious intention of the legislation and

produce a wholly unreasonable result, the court must do some violence to the words and so

achieve that obvious intention and produce a rational construction. If the interpretation of a

fiscal enactment is open to doubt, the construction most beneficial to the subject should be

adopted.

441936 AC 1

45[1985] 154 ITR 148 (SC)

46

[2003] 263 ITR 707 (SC)4789 ITR 236, 240 (SC)

4889 ITR 251, 257 (SC)


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Charging sections to be strictly construed while benevolent and procedural sections

should be liberally construed

This is a very important and practical rule of interpretation and generally resorted to while

interpreting the sections pertaining to incentives, exemptions and deductions where the spirit

is to promote exports, increase earnings in foreign convertible exchange, promote

industrialization, infrastructure development etc. A provision for appeal should also be

liberally construed.

In CI Tv. Contr EDv. Kanakasabai49, held that a provision for exemption or relief should be

construed liberally and in favour of the assessee even if it results in his obtaining a double

advantage.

In Gursahai Saigalv. CI T50, it was decided by the court of law that those sections which

impose the charge or levy should be strictly construed; but those which deal merely with the

machinery of assessment and collection should not be subjected to a rigorous construction but

should be construed in a way that makes the machinery workable.

In Bajaj Tempo Ltd.51: A provision in a taxing statute granting incentives for promoting

growth and development should be construed liberally, and since as provision for promotingeconomic growth has to be interpreted liberally, the restriction on it too has to be construed

so as to advance the objective of the provision and not to frustrate it. While interpreting the

various provisions, the Court must not adopt a hyper technical approach and apply cut and

dry formula. A pragmatic approach should be adopted so that the object of the

introduction/insertion of a particular provision could be achieved. Similar views have been

expressed in Juggil al Kamlapatv. CI T52

, CI Tv. Strawboard Manufactur ing Co. Ltd.53

and

CI Tv. South Arcot Di str ict Co-operative Marketing Society Ltd.54

In CI Tv. Poddar Cement (Pvt.) L td.55,it was observed by the court that where there are two

possible interpretations of a particular section which is akin to a charging section, the

interpretation which is favourable to the assessee should be preferred while construing that

49Ibid 48

5048 ITR (SC) 1

51196 ITR 188 (SC)

52[1969] 73 ITR 702 (SC)

53

[1989] 177 ITR 431 (SC) at page 43454176 ITR 117 (SC) at page 119

55[1997] 226 ITR 625 (SC)


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For the application of this rule four things are considered in the first instance 60:

1.

What was the common law before the making of the Act?

2. What was the Mischief and defect for which law did not provide?

3. What remedy are available to cure damages?

4.

The true reason of the remedy.

Applicability of this rule, resolves difficulty of interpretation in number of instances. For

example, if the object of any enactment is public safety, then its working must be interpreted

widely to give effect to that object. Thus in the case of Workmens Compensation Act, 1923

the main object being provision of compensation to workmen, it was held that the Act ought

to be so interpreted, as far as possible, so as to give effect to its primary provisions.

Apart from this, there are other rules as well which are equally important for the purpose of

statutory interpretation. So Denning L.J.61once said

It would be idle to expect every statutory provision to be drafted with divine prescience and

perfect clarity.62

In backdrop of this statement, it is to keep in focus the importance of other rules of

interpretation simultaneously.

Construction of penal provisions

There are several penal provisions in taxation statutes and these have special rules of

interpretation and notable among these are:

a. strict construction

b.

prospective in operation and not retrospective; thus, any act which is currently not an

offence cannot be made one retrospectively by amendment of a penal provision with

retrospective effect;

c.

Presumption of mens rea (i.e., guilty intention to commit the crime) unless the statute

specifically provides for the absence of the same.

60CIT v. Sodra Devi, (1957) 32 ITR 615 (SC)

61

Alfred Thompson Tom Denning was a British lawyer and judge 62H. P. Ranina, Putting life into the letter of law The Hindu (New Delhi, 18 February 2006) 7


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To illustrate, concealment of income may be presumed by the department (without mens rea)

and the onus of proof lies on the assessee to show that there is no concealment.

In Jarnail Singhv. I TO63

and in CI Tv. Gangaram Chapolia64,it was held that to bring an

act under the provisions of section 276 C, the action of the person concerned has to be a

wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act.

The word wilful imparts the concept of mens rea, and if mens rea is absent, no offence

under this section is made out.

In CI Tv. Ram Rup Kishan65and in J.M. Shahv. I TO

66, it was seen that as per section 277,

the intention of the Legislature in incorporating the words and which he knows or believes to

be false, or does not believe to be true is quite obvious. It is that a prosecution will not

follow in every case where a wrong statement is made and it will have to be judged as to

whether the assessee harboured mens rea or not.

In Indian jurisdiction, it is of general believe that a new statute should affect the future not the

past because in general, first and strong presumptions of any law enacted for the first time or

amending the enacted law, is its prospective applicability. The power of retrospective

legislation does exist which is not only subject to the question of competence but is also

subject to several judicially recognized limitations.

67

In order to determine the validity ofretrospective law the court has to take into account all relevant surrounding facts and

circumstances.68It has been held that a law will be retrospective only if the words used must

expressly provide or necessarily imply retrospective operation. Retrospective operation is not

taken to be intended unless that intention is manifested by express words or necessary

implication; there is a subordinate rule to the effect that a statute or a section in it is not to be

construed so as to have larger retrospective operation than its language renders necessary. 69

Article.20 (1) provides the necessary protection against retrospective application of penal

statute.70

63[1989] 179 ITR 426 (P&H)

64[1976] 103 ITR 613 (Ori) (FB)

65[1992] 193 ITR 129 (P&H)

66[1996] 218 ITR 38 (Mad)

67National Agricultural Co-operative Marketing Federation of India v. Union of India, (2003) 260 ITR 548 (SC)

68Jawaharmal v. State of Rajasthan, AIR 1966 SC 764

69S.L. Srinivasa Jute Twine Mills (P) Ltd. v. Union of India & Anr., 2006 (2) SCC 740

70

No person shall be convicted of any offence except for violation of the law in force at the time of thecommission of the act charged as an offence, nor be subjected to a penalty greater than that which might have

been inflicted under the law in force at the time of the commission of the offence


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But, in case of reduction in punishment by the subsequent enactment, the rule of beneficial

construction requires that ex-post facto law should be applied to reduce the rigorous sentence

of the previous law on the same subject. Such a law is not affected by Article 20(1) and other

reasons for non-application of retrospective application will also not be applicable.

Rule of ejusdem generis or noscitur a sociis, The Rule is that the meaning of a general

word is restricted by the special words appearing along with it. To illustrate:

If a man tells his wife to go to the market to buy vegetables, fruits, groceries and anything

else she needs, the anything else would be taken to mean food and grocery items due to the

rule of ejusdem generis and not cosmetics or other feminine accessories.

Thus, the meaning of a word must be taken by the company it keeps (Rule of noscitur a

sociis). In the case of CI Tv. Raj Kumar,71regarding Deemed dividend under section 2 (22)

(e) of the Income-tax Act, 1961, the word advance, which appears in company of word

loanwas interpreted. Section 2 (22) (e) reads as any payment by a company, not being a

company in which the public are substantially interested, of any sum (whether as

representing a part of the assets of the company or otherwise) [made after the 31st day of

May, 1987, by way of advance or loan to a shareholder.)

It was held that advance can only mean such advance which carries with it an obligation of

repayment. A trade advance, which is in nature of money transacted to give effect to a

commercial transaction, cannot be treated as deemed dividend falling within ambit of

provisions of section 2 (22) (e). Rule of noscitur a sociis was applied.

Rule of expressio unius est exclusio alterius

This rule means that where there are two mutually exclusive items, the inclusion of one

would implicitly mean the exclusion of the other.

The above rules are the most basic rules of interpretation and the Courts use them along with

certain Acts like the General Clauses Act, 1897 and the State General Clauses Act, to

ascertain meanings of words not defined in the Act.

71[2009] 181 Taxman 155 (Del.)


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Machinery Co. (P.) L td.79

; Aswin i Kumar Ghose v. Arabinda Bose80

; State of Travancore,

Cochin v. Bombay Company Ltd.81; CWT v. Yuvraj Amri nder Singh

82; B.R. Sound-n-

Musicv. O.P. Bhardwaj83, it was held that:

The speeches made by the members of the House in the course of the debates are not

admissible as external aids to the interpretation of a statutory provision. A statute, as

passed by Parliament, is the expression of the collective intention of the Legislature

as a whole, and any statement made by the individual, albeit a Minister, of the

intention and objects of the Act cannot be used to cut down the generality of the words

used in the statute. The Statement of Objects and Reasons, seeks only to explain what

reasons induced the mover to introduce the Bill in the House and what objects he

sought to achieve. But those objects and reasons may or may not correspond to the

objective, which the majority of members had in view when they passed it into law.

The Statement of Objects and Reasons appended to the Bill should be ruled out as an

aid to the construction of a statute. Strictly speaking, even the speech of the Finance

Minister and Notes on Clauses do not lend support to the view taken by the Tribunal.

Noscere means to know and sociis means association. Thus, Noscitur a Sociis means

knowing from association. Thus, under the doctrine of noscitur a sociis the questionable

meaning of a word or doubtful words can be derived from its association with other words

within the context of the phrase. This means that where two or more words which are

susceptible of analogous meaning are coupled together they are understood to be used in their

cognate sense. They take, as it were, their color from each other, the meaning of the more

general being restricted to a sense analogous to that of the less general.84

Generalia Specialibus Non Derogant: General provisions must yield to the special

provision

Generally speaking, the sections in the Act do not overlap one another and each section deals

only with the matter specified therein and go no further. If a case appears to be governed by

79[1998] 231 ITR 294 (Del.)

80AIR 1952 SC 369

81AIR 1952 SC 366

82

[1985] 156 ITR 525 (SC)83 [1988] 173 ITR 433 (Bom)

84Rainbow Steels Ltd. And Anr v. Commissioner of Sales Tax, 1981 SCR (2) 727


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either of two provisions, it is clearly the right of the assessee to claim that he should be

assessed under the one, which leaves him with a lighter burden.

The literal meaning of the expression Generalia Specialibus Non Derogantis that general

words or things do not derogate from the special. The Courts have held the expression to

mean that when there is a conflict between a general and special provision, the latter shall

prevail as held in the cases of CI T v. Shahzada Nand and Sons85

and UOI v. Indian

F isheries (P.) Ltd.,86, or the general provisions must yield to the special provision.

Where there is a conflict between two statutes

The general rule to be followed in case of a conflict between two statutes is that a later statute

abrogates the earlier (leges posteriors priores contrarias abrogant) and the well-known

exception is that general legislations do not derogate special legislations.

Partnership Act v. Income Tax Act: The above maxim was applied when the questions

relating to assessments of a firm and its partners arose under the Income-tax Act, 1961 where

the dissolution of the firm and its succession was held to be governed by the Special Act viz.,

the Income-tax Act and not the Partnership Act. The Karnataka High Court has held in the

case of CI Tv. Shambulal Nathalal & Co.87,that when the Legislature has deliberately made

a specific provision to cover a particular situation, for the purpose of making an assessment

of a firm under the Income-tax Act, there is no scope for importing the concept and the

provisions of the Partnership Act. The legal position of a firm under the income-tax law is

different from that under the general law of partnership in several respects.

Claim as Donation under section 80G or Business Expenses under section 37 (1): In Jaswant

Trading Co. v. CI T88, the Rajasthan High Court held that the provisions of section 37 are

general in nature and the provisions of section 80G are specific. Applying the maxim

generalia specialibus non derogantif an amount is liable for deduction under section 80G it

cannot be claimed under the general provisions of section 37(1).

8560 ITR 392 (SC)

86

AIR 1966 SC 3587[1984] 145 ITR 329 (Kar)

88212 ITR 24 (Raj): 128 CTR 306: 85 Taxman 639 (Raj.)


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Mimansa Rules of Interpretation

In I spat Industri es L td.v. Commissioner of Customs89, Honble Justice Markandey Katju

has referred to the Mimansa Rules of Interpretation of the ancient times while deciding an

appeal under the Customs Tariff Act, 1975. The issue for decision involved the interpretation

of section 14 of the Customs Act and some relevant rules, especially Rule 9(2) (a) of the

Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The decision

required consideration of deeming provisions in a statute, legal fictions, how decisions are to

be taken, when two interpretations of a provision/rule are possible, how the principle

(primary) and subordinate legislations work and similar other related issues. According to the

Court, every legal system has a hierarchy of laws. Whenever there is conflict between a norm

in a higher layer in this hierarchy and a norm in a lower layer, the norm in the higher layer

will prevail. The hierarchy in our country has the Constitution of India right at the top. Next

comes the statutory law, which may be either the Parliamentary law or law made by the State

Legislature. Third is delegated or subordinate legislation, which may be in the form of rules

and regulations made under the Act. And last in the hierarchy are administrative orders or

executive instructions. The theory of the eminent positivist jurist Kelsen(The Pure Theory

of Law), were relied on. On the basis of existing rules of interpretation generally followed by

Courts, the Court has summarized the position with respect to statute and rules, as hereunder

a. If there are two possible interpretations of a rule, one which serves the object of a

provision in the parent statute and the other, which does not, the former has to be

adopted because adopting the latter will make the rule ultra vires the Act.

b. The Act falls in the second layer in this hierarchy, the rules made under the Act fall in

the third layer. Hence, if there is any conflict between the provisions of the Act and

the provisions of the Rules, the former will prevail.

Rules and notification: Rules made under the Act have the same force as the sections in the

Act. But no exercise of the rule-making power can affect control or detract from the full

operative effect of the provisions of the sections. Any rule, which purports to do so, would be

ultra vires and void held in case of Hukumchand Mil ls Ltdv. State of M P.90

89(2006) 202 ELT 561 (SC)

90 52 ITR 583, 589 (SC)


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Miscellaneous

a. Definition clause

In CI T v. The H indu91; CI T v. Sri nivasan & Gopalan

92, it was held that a definition or

interpretation clause, which extends the meaning of a word, should not be construed as taking

away its ordinary meaning. Further, such a clause should be as interpreted as not to destroy

the basic concept or essential meaning of the expression defined, unless there are compelling

words to the contrary.

b. Undefined words

Words, which are not specifically defined, must be taken in their legal sense or their

dictionary meaning or their popular or commercial sense as distinct from their scientific or

technical meaning, unless a contrary intention appears.

c. Legal fiction

In CI Tv. Godavari Sugar M il ls Ltd,93it was held that the word deemedis apt to include

the obvious, the uncertain and the impossible. A legal fiction has to be carried to its logical

conclusion. However, in CI Tv. Vadil al Lallubhai94, it was held that the fiction operates only

within the field of the definite purpose for which the fiction is created.

d. Marginal notes

Marginal notes to the sections cannot control the construction of the statute held in CI Tv.

Ahmedbhai Umarbhai95; Chandroji Raov. CI T

96, but they may throw light on the intention

of the legislature held in case of CI Tv. Vadil al Lallubhai.97

e. Punctuation

Punctuation may assist in arriving at the correct construction of a statutory provision.

f. Retrospective effect of rules and notifications

9118 ITR 237, 250

9223 ITR 87 (SC)

9363 ITR 310, 315-6 (SC)

9486 ITR 2, 8 (SC)

95

18 ITR 472, 487 (SC)9677 ITR 743, 745-6 (SC)]

9786 ITR 2,11 (SC)


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An authority cannot make rules or issue notifications adversely affecting the assessees rights

with retrospective effect, unless the statute, whether expressly or by necessary intendment,

empowers the authority to do so hold in case of I TOv. Ponnoose98. This principle received

statutory recognition in section 295(4) w.e.f. 18.8.1974 inserted by Direct Taxes

(Amendment) Act, 1974.

g. A completed assessment may be reopened or rectified

A completed assessment may be reopened under section 147 or rectified under section 154

held in Venkatachalam v. Bombay Dyeing & Manufactur ing Co L td.99, if the relevant

provisions of the law are amended with appropriate retrospective effect.

h.

Necessity of speaking orders

Where under the provisions of the Act an authority is empowered to grant approval or

exemption, and the taxpayer has a right to claim it on fulfillment of the statutory conditions,

the authority is bound to pass a speaking order and give reasons in support of its finding that

the taxpayer is not entitled to the approval or exemption. The appellate and revisional

authorities likewise must pass speaking orders. In fact Article 141 of the Constitution of India

also mandates this.

i. Double taxation not permitted

In Jain Brosv. Union of I ndia100, it has been broadly stated the principle of the Income-tax

Act is to charge all income with tax, but in the hands of the same person only once. There

could be double taxation if the legislature distinctly enacted it.

In CI Tv. Murl idhar Jhawar & Purna Ginning & Pressing Factory101

, it was held that if an

association or unregistered firm is taxed in respect of its income, the same income cannot be

charged again in the hands of the members individually and vice versa. Also in Nagappav.

CI T102

, the court held that Trust income cannot be taxed in the hands of the settlor and also in

the hands of the trustee or the beneficiary. In T.N.K. Govindraju Chetty & Co. (P) Ltd.v.

CI T103, the court has observed that the same person can be taxed both as individual as well as

98[1970] 75 ITR 174 (SC)

9934 ITR 143 (SC)

10077 ITR 107, 112 (SC)

101

60 ITR 95 (SC)10273 ITR 626, 633 (SC)

103[1964] 51 ITR 731 (Mad)


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the kartaof his family but same income cannot be charged twice over in the hands of the

same person is well settled. There is rule of law that income which has borne tax in the hands

of a particular individual becomes wholly immune from tax in all its subsequent devolutions

or passage to another person.

Doctrine of Stare Decisis and Uniformity of construction of Precedents: Doctrine of

Stare Decisis

Stare decisis is a Latin phrase which means to stand by decided cases or to uphold

precedents. Doctrine of stare decisis is a general maxim which states that when a point of

law has been decided, it takes the form of a precedent which is to be followed subsequently

and should not normally be departed from.

By virtue of Article 141 of the Constitution of India, the judgments pronounced by the

Supreme Court have the force of law and are binding on all the Courts in India. However, the

Supreme Court itself is free to review its earlier decision and depart from it if the situation so

warrants.

The Madras High Court in Peirce Lesl ie & Co.v. CI T104, observed that the doctrine of stare

decisis is one of the policy grounded on the theory that security and certainty require that

accepted and established legal principles, under which rights may accrue, be recognised and

followed, though later found to be not legally sound, but whether a previous holding of the

Court shall be adhered to or modified, or over-ruled, is within the Courts discretion under

the circumstances of a case before it.

Income Tax Act, being a Central Act of Parliament, uniformity of construction by the various

High Courts should be followed unless there are overriding reasons for taking a divergent

view.

High Court decisions: Whether binding in nature and binding on whom

Though there is no express provision in the Constitution like Article 141, in respect of the

High Courts, the Tribunals within the jurisdiction of a High Court are bound to follow its

judgments as the High Court has the power of superintendence over them under Article 227

of the Constitution.

104[1995] 216 ITR 176 (Mad.)


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The Supreme Court in East I ndia Commercial Co. Ltd. v. Collector of Customs105

has

observed:

. . . We, therefore, hold that the law declared by the highest court in the State is

binding on authorities or Tribunals under its superintendence, and that they cannot

ignore it . . . .(p. 1905)

In K.N. Agrawalv. CI T106, it was observed that the orders of the Tribunal and the High Court

are binding upon the A.O.

In State of A .P. v. CTO107, it was held that it is not permissible for the authorities and the

Tribunals to ignore the decisions of the High Court or to refuse to follow the decisions of the

High Court on the pretext that an appeal is pending in the Supreme Court or that steps are

being taken to file an appeal. The Court then made the following important and bold

observations:

. . . If any authority or the Tribunal refuses to follow any decision of this High Court

on the above grounds, it would be clearly guilty of committing contempt of this High

Court and is liable to be proceeded against.(p. 572)

Position in regard to different Benches of the same High Court

The position in regard to the different Benches of the same High Court is as follows:

A Single Judge or a Division Bench order of a High Court is binding on the single

Judge of the same High Court.

It is obligatory on the part of a Division Bench to follow the decision of another

Division Bench of equal strength or a Full Bench of the same High Court.

Judicial propriety requires a Single Judge to follow and apply earlier Division Bench

judgment of the same Court which is very much binding on him sitting as a Single

Judge of the same High Court.

Where a Single Judge does not subscribe to the views expressed in a Single Judges

order or Division Benchs order of the same High Court, he should place the papers

before the Chief Justice to enable him to constitute a larger Bench to examine the

question.

105

AIR 1962 SC 1893106[1991] 189 ITR 769 (All)

107[1988] 169 ITR 564 (AP)


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Similarly where a Division Bench differs from another Division Bench of the same High

Court, it should refer the case to a larger Bench.

The above position has been culled out from CI Tv. Thana Electricity Supply L td.108

; CI Tv.

Hari Nath & Co.109; Super Spg. M il ls Ltd.v. CI T110; Kodur u Venkata Reddyv. LAO111;

Sundarjas Kanyalal Bhatijav. Collector112.

Whether decision of a High Court extends beyond its territorial jurisdiction

In Patil Vij aykumarv. UOI113

, it was observed that

. . . But we wish to add that although a decision of another High Court is not binding

on this Court, we see no reason for not accepting, with respectful caution, any help

they can give in the elucidation of questions which arise before this Court. (p. 60)

It is a well-settled position that decision rendered by a High Court is not binding on other

High Courts or the Tribunals or authorities beyond its territorial jurisdiction. At best, its

decision can have persuasive value.

In Benoy Kumar Sahas RoyCase114

,it was held that a decision of a High Court would have

binding force in the State in which the Court has jurisdiction but do not have binding force

outside that State.

Contrary decisions: However, the courts have also held that normally, more so, in regard to

the Income-tax Act, which is a piece of all India legislation, if any High Court has construed

any section or rule, that interpretation should be followed by the other High Court unless

there are compelling reasons to depart from that view was held in Peirce Leslie & Co.s

case115; CI Tv. Deepak F amily Trust No. 1

116; CI Tv. Alcock Ashdown & Co. L td.

117; and

Sarupchand Hukamchand, In re118.

108[1994] 206 ITR 727 (Bom)

109[1987] 168 ITR 440 (All)

110[1993] 199 ITR 832 (Mad.)

111[1988] 170 ITR 15 (AP)

112[1990] 183 ITR 130 (SC)

113 [1985] 151 ITR 48 (Kar)

11432 ITR 466 (SC)

115supra

116

[1994] 72 Taxman 406 (Guj)117[1979] 119 ITR 164 (Bom)

118[1945] 13 ITR 245 (Bom)


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When a precedent ceases to be binding

The Andhra Pradesh High Court in CI T v. B.R. Constructions119

, states that a precedent

ceases to have a binding force in the following situations:

1.

if it is reversed or over-ruled by a higher court;

2. when it is affirmed or reversed on a different ground;

3. when it is inconsistent with the earlier decisions of the same rank;

4.

when it is sub silentio (non-speaking judgment)

5. When it is rendered per incuriam (decision decided without referring to a statutory

provision or a precedent).

Obiter dicta are not binding

Word Obiter means by the way, in passing, incidentally. Obiter dictum is the

expression of opinion stated in the judgment by a Judge on a question immaterial to the ratio

decidendi. However, these are of persuasive value. They are unnecessary for the decision of a

particular case.

In Mohandas I ssardasv. Santhanam120

, it was held that it would be incorrect to say that

every opinion of the Supreme Court would be binding on the High Courts. Only the opinionexpressed on a question that arose for the determination of a case is binding.

119[1993] 202 ITR 222

120(A.N.) AIR 1955 Bom. 113


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PRESENT POSITION IN INDIA

In Kanai Lalv. Paramnidh121

, the court said it must always be borne in mind that the first

and primary rule of construction is that the intention of the Legislature must be found in the

words used by the legislature.It also added, When the material words are capable of two

constructions, one of which is likely to defeat or impair the policy of which is likely to defeat

or impair the policy of the Act whilst the other construction is likely to assist the achievement

of the said policy, then the courts would prefer to adopt the latter construction.122This case

basically dealt with the ejection of theka tenants under provisions of Calcutta Theka Tenancy

Act, 1949.

In S. A. Venkataramanv. The State123, the court said. This case dealt with Section 6 of the

Prevention of Corruption Act. It was to do with taking a sanction from an appropriate

authority. It considers only the present working employees as employees; those who have

retired are not considered as employees. The court said, In construing the provisions of a

statute it is essential for a court, in the first instance, to give effect to the natural meaning of

the words used therein, if those words are clear enough. Apparently clear and simple

language at times in its analysis is so ambiguous as to present great difficulty in construction

.regarding Article 105(2) of the Constitution which provides that no member of the

Parliament shall be liable to any proceeding in respect of anything said or any vote given by

him in Parliament, The Supreme Court in Tej Ki ran Jainv. N. Sanjeeva Reddy124, held that

the Article means what it says in language which could not be plainer. In the case of P. V

Narshima Raov. State (Centr al Bureau of I nvestigation)125

, When Mr. P. V. Narshima Rao

was the Prime Minister; the government faced a no-confidence movement, which was

defeated later on. However they were few members who were accused of the offence of

giving and taking bribes and the President of Rashtriya Mukti Morcha filed a complaint,

against the P. V. Narishma Rao, alleging charges of corruption, with the Central Bureau of

Investigation. However Article 105 of the Indian Constitution which gives provisions for the

powers and privileges of the members of the House of Parliament. It was held by a majority

of three judges that a member who voted in Parliament after receipt of bribe cannot be

121A.I.R 1957 SC 907

122DEEPAK JAIN, Interpretation of Statutes: A Treatise

http://www.itatonline.org/articles_new/index.php/interpretation-of-statutes-a-treatise/123

A.I.R 1958 SC 107124(1971) 1 SCR 612

125(1998) 4 SCC 626


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prosecuted as his prosecution would be a proceeding in respect of a vote given by him and

barred by Article 105(2).

In another case Ramavtar Budhaiprasad v. Assistant Sales Tax Officer126

, the Supreme

court was faced with a question with the meaning of vegetable, as it had occurred in the

C.P and Berar Sales Tax Act, 1947 as amended by Act of 1948,whether the word vegetables

included betel leaves or not. The Supreme Court held that being a word of everyday use it

must be construed in its popular sense.127 It was therefore held that betel leaves were

excluded from its purview. In the case of Forest range Off icerv. Khushboo Enterpri se128

,

The question in the case was whether sandal wood oil is wood oilas used in the Section

2(f) of the Kerala Forest Act, 1961. The argument referred to a technical dictionary which

defined wood-oil as a natural produce of the forest. Hence it was held that sandalwood oil

was a wood-oil. In the case of VemmaReddy Kumarsawmy Reddy v. State of Andhra

Pradesh129, The dispute was regarding the excess of land possessed by the appellant, and this

was surrendered by them, however it had cashew-nut plantation. The trees in the surrendered

land were fruit bearing. The court stated that in construing if it was plain and ambiguous than

the primary rule of interpretation was supposed to be used. The Andhra Pradesh Land

Reforms (Ceiling on Agricultural Holdings) Act 1973 was referred to for the compensation of

the land. It is considered as a part of statute and key source to open the mind of interpreters. Itexpresses the scope and object of the Act in a comprehensive manner.

In case of Shree Sajjan Mil ls Ltd. v. CIT, It was decided by the court of law that these

marginal notes applied to the section cannot be used for interpreting the section. However,

when words are ambiguous, marginal notes are relevant factor to be taken into consideration

while interpreting the ambit of the section. However with respect to Constitution, marginal

notes appended to the Articles have been made use of in interpreting the articles.

In case of Qwali ty Ice Cream Co v. Sales-tax Of f icer, New Delhi,130 It is an elementary

principle of the construction of statutes that the words have to be read in their literal sense.

Thus, generally speaking, words and expressions would be given their plain and ordinary

meaning which cannot be cut down or curtailed unless they in themselves are clearly

restrictive.

126A.I.R 1961 SC 1325

127RIPATHI, at 127

128

A.I.R 1994 SC 120129(2006) 2 SCC 670

130(1975) 11 Del LT 180


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In case of Hira Lal Ratanlal v. Sales Tax Off icer, Kanpur ,131

it was held that if the provision

is unambiguous, and if from that provision, the legislative intent is clear, there is no need to

call into aid other rules of construction of statutes.

In case of Commissioner of I ncome Tax, Centr al Calcuttav. National Taj Traders132, The

purpose of the Legislature has to be established from the exact words of the Statute, where

they arise in their accurate and precise form. But if the same is implied in vague and

ambiguous language, the Courts may seek the aid of every reasonable and permissible aid to

interpretation. This principle of Casus Omissus cannot be supplied by the Court except in

case of clear necessity and when the reasons for it are found in the four corners of the Statute

itself.

In another case Ramavtar Budhaiprasad v. Assistant Sales Tax Officer133, the Supreme

court was faced with a question with the meaning of vegetable, as it had occurred in the

C.P and Berar Sales Tax Act, 1947 as amended by Act of 1948,whether the word vegetables

included betel leaves or not. The Supreme Court held that being a word of everyday use it

must be construed in its popular sense.134

In case of Commissioner of I ncome Taxv. I ndo Mercantile Bank L td, The purpose of the

proviso is to qualify or create an exception to what is in the enactment. It is a fundamentalrule of construction that a proviso must be considered with relation to the principal matter to

which it stands as a proviso. Therefore, it is to be interpreted harmoniously with the main

enactment.

131AIR 1973 SC 1034

132

A.I.R 1980 S.C 481133A.I.R 1961 SC 1325

134TRIPATHI,at 127


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CONCLUSION

At last, I would like to conclude by saying that art of interpretation is a remarkable tool to

paint citizens life with numerous beneficial colors of joy, peace and happiness. Indian

judiciary has wonderfully endorsed Indian Statutes with a manner which is fair, reasonable

and in conformity with the purpose for which the law is framed. Here, it is not to suggest that

judicial interpretation has never been erroneous or never resulted into absurdity but is to

simply indicate that to make sense out of miserably worded statute, where the purpose of the

statute was apparent, judicial violence with the language has paid rich dividends for the

country. In light of which, I can simply hope that statutory endorsement by judiciary will

continue because a statute can never be exhaustive and legislative incapacity to speculate all

the possible situations that may arise in a future and in myriad circumstances will always

leave a wide scope for interpretation. This gap will ensure that the interpretation by judiciary

in the future will yield fruit bearing results for all. The degree of strictness and literal

construction applied by the Courts swung like the proverbial pendulum to extremes. The

above is a very basic overview of the rules of interpretation of taxing statutes and is intended

to give an insight into the various methods employed by the Courts to ascertain the meaning

of legal provisions. To conclude, one must strive hard to read between the lines by using the

interpretative techniques, since one must bear in mind the words of LJ. Denning who statedthat

It would be idle to expect every statutory provision to be drafted with divine prescience and

perfect clarity.

But, I would also like to focus upon that this special art of interpretation having many

brushes should be prevented to indulge in any sort of controversy. This art should not be used

to make painting boards (to make law); the real use of this art lies in painting a board (in

interpretation) which it can very well do with the brushes (rules/doctrines of interpretation)

which has been the prime focused in the whole submission.


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Bibliography

1.

Interpretation of Statutes, M.P.Tandon; 11th edition, 2013

2.

Interpretation of Statutes, B.M.Gandhi 20113. Interpretation of Statutes, N.S.Bindra, revised by M.N. Rao & Amita

Dhanda 10th edition, 2007

4.

Maxwell on the Interpretation of Statutes , Maxwell, revised by P. St.

J

Interpretation of Tax Statute

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