PRINCIPLES OF INTERPRETATION

OF OTHER LAWS APPLICABLE

TO DIRECT TAX LAWS

The Supreme Court in Institute of Chartered Accountants of India vs.

M/s. Price Waterhouse (A.I.R. 1998 S.C. 90), while lamenting the scant attention paid by
draftsman to the language of statutes, referred to the British jingle “I am the Parliamentary
draftsman. I compose the country’s laws. And of half of the litigation, I am undoubtedly the
cause”. Reference was also made to Kirby vs. Leather (1965) 2 All ER 441, where the Court
observed that the provision of the ( UK ) Limitation Act, 1939 was so obscure “that the
draftsman must have been of unsound mind”. Construction of statutes and interpretation of
laws should obviously cover all areas affecting the rights of the citizens.
“A statute is an edict of Legislature” observed the Apex Court and ruled that the
elementary principle of interpreting or construing a statute is to gather the mens or
sententia legis of the Legislature. The following observation of the Supreme Court in this
context is very revealing.
“Interpretation postulates the search for the true meaning of the words
used in the statute as a medium of expression to communicate a particular
thought. The task is not easy as the “language” is often misunderstood even in
ordinary conversation or correspondence. The tragedy is that although in the
matter of correspondence or conversation the person who has spoken the words
or used the language can be approached for clarification, the Legislature cannot
be approached as the Legislature, after enacting a law or Act, becomes functus
officio so far as that particular Act is concerned and it cannot itself interpret it.
No doubt, the Legislature retains the power to amend or repeal the law so made
and can also declare its meaning, but that can be done only by making another
law or statute after undertaking the whole process of law-making.”
While observing that the Supreme Court in interpreting the constitution enjoys a
freedom which is not available in interpreting other statutes, the Court referred to the
observation of Lord Diplock of the House of Lord to the following effect:
“It endangers continued public confidence in the political impartiality of the
judiciary, which is essential to the continuance of the rule of law, if Judges, under
the guise of interpretation, provide their own preferred amendments to statutes
which experience of their operation has shown to have had consequences that
members of the Court before whom the matter comes consider to be injurious to
public interest.”
Salmond defines “interpretation” as “a process by which the Court seeks
the meaning of Legislature through the medium of authoritative forms in which it
expresses”.
When does the need to interpret arise?
Judicial authorities are consistent that where the language of the statute is plain and
unambiguous and admits only one interpretation “there does not arise a need for
interpretation”.
Gray in his “The Nature and Sources of the Law” defines interpretation as “the
process by which a Judge constructs from the words of a Statute Book a meaning which he
either believes to be that of the Legislature or which he proposed to attribute to it”.
Interpretation as widely accepted, is the process by which the Courts determine the
meaning of a provision for applying it to a situation before them.
Very often “Interpretation” is used as analogous to “Construction”, but judicial
precedents have recognised the distinction between the two. “Interpretation” is the art of
finding out the true sense of any form or words, the sense which they are intended to
convey, while “Construction” is the drawing of the conclusions, respecting objects that lie
beyond the direct expression of the text, from elements known from and given in the text.
“Construction” constitutes the conclusions which are in the spirit though not within the letter
of the law (Cooley “Constitutional Limitations”).
The above concept of Interpretation as distinct from Construction has been
recognized by the Supreme Court in a number of decisions.
Corpus Juris Secundum distinguishes between “Interpretation” and “Construction” of
statutes as follows:
“Construction,” as a process for determining the meaning of statutes, has been
defined as the drawing of conclusions with respect to subjects which lie beyond the direct
expression of the text from elements known from, and given in the text, while
“interpretation,” strictly speaking, is limited to exploration of the written text itself.” It has
been said that with respect to statutes construction sometimes is to be exercised as well as
interpretation.
The object and the rules of Interpretation being what they are it is only natural that
the rules of interpretation should not be static but dynamic. Rules of interpretation are not
the rules of law and have to evolve constantly to ensure that they lie in sync with the march
of the society. It is in this context that the Supreme Court in Kehar Singh vs. State (A.I.R.
1988 Supreme Court 1883) gave a go-by to the golden rule by which statutes were to be
interpreted according to the grammatical and ordinary sense of the word. The following
observation of the Supreme Court is very revealing in this context:
“During the last several years, the ‘golden rule’ has been given a go-by. We now look
for the ‘intention’ of the legislature or the ‘purpose’ of the statute. First, we examine the
words of the statute. If the words are precise and cover the situation in hand, we do not go
further. We expound those words in the natural and ordinary sense of the words. But, if the
words are ambiguous, uncertain or any doubt arises as to the terms employed, we deem it
as our paramount duty to put upon the language of the legislature rational meaning. We
then examine every word, every section and every provision. We examine the Act as a
whole. We examine the necessity which gave rise to the Act. We look at the mischiefs which
the legislature intended to redress. We look at the whole situation and not just one-to-one
relation. We will not consider any provision out of the framework of the statute. We will not
view the provisions as abstract principles separated from the motive force behind. We will
consider the provisions in the circumstances to which they owe their origin. We will consider
the provisions to ensure coherence and consistency within the law as a whole and to avoid
undesirable consequences. “
In Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. (A.I.R. 2003 SC 511), the
Supreme Court reiterated the rules relating to the interpretation of statutes and held that
recourse to construction or interpretation of the statute arises only when there is an
ambiguity, obscurity, or inconsistency therein or otherwise. The basic principle of
construction of statutes is that it should be read as a whole, then chapter by chapter,
section by section and word by word. True meaning of a provision of law has to be
determined on the basis of the clear language with due regard to the scheme of the law. No
words shall be added, altered or modified unless it becomes necessary to do so to prevent
the provision becoming unintelligible, absurd, unreasonable, unworkable or totally
irreconcilable with the rest of the statute.
It is a presumption of interpretation of statute that the legislature inserted every
word and expression in the statute for a definite purpose, and while interpreting a statute no
word can be rejected as being inapposite or surplusage (Mithilesh Singh vs. Union of India
(AIR 2003 SC 1145).
Where the language of the statute is clear and unambiguous nothing can be
read into it by implication and the intention of the legislature has to be gathered
from the language used. (Dayal Singh vs. Union of India ) (AIR 2003 SC 1140).
LEGISLATIVE INTENTION: “Object of interpreting a statute is to ascertain the intention
of the Legislature enacting it. (Kartar Singh vs. State of Punjab ) JT (1994) (2 SC 423).
According to Salmond, the duty of the judicature is to act upon the true intention of the
Legislature – Mens or sententia legis. Where the statute is equivocal and open to more than
one interpretation, the court has to adopt that which in its view represents the true intention
of the Legislature also referred to as the “legal meaning” of the provision. This is so, since
the role of the courts is only to expound and interpret and not to legislate. In ascertaining
the intention of the Legislature courts will have to appreciate the background in which a
particular legislation is enacted. In the modern welfare state legislation is actuated by a
policy intended to curb a social evil or achieve a social benefit. This is based on experience,
past and present, and generally decided by words intended to cover similar problems arising
in the future. In the words of the House of Lords “Those who seek to replace the common
law by a statutory code always have to choose between certainty and flexibility”. However,
it does not fall within the realm of human agencies to exhaustively cover all situations and
consequently controversial questions of construction arise. (1969) 3 All. E.R. 39).
“Intention of legislature” covers two aspects viz. “Meaning” and “Purpose
& Object”. The construction of a statute thus combines both literal and purposive
approaches. This requires ascertaining the true or legal meaning of an enactment
in the context of a desirable purpose or object of the statute. As observed by the
Supreme Court, the purposive approach aims at finding out the mischief against
which the statute is directed and the remedy (State vs. Kailashchand Mahajan (AIR 1992
S.C. 1227 See also C.C. Goutham vs. Union of India (1993) 199 ITR 530). The Privy Council in
a decision in Crawford vs. Spooner (4 MIA 179) held that if the legislature intended nearly
the opposite to what it said, it is not for the Judges to invent something which they do not
want within the words of the text. The Courts cannot labour to find out “the supposed
intention” or “the underlying policy”.
The rule of purposive construction known as “the rule in Heyden’s case” and also the
“mischief rule” requires four aspects to be taken into account while construing a constitute.
They are:
i) The law before the making of the statute;
ii) The mischief or defect for which the law did not provide;
iii) The remedy provided under the Act; and
iv) The reasons for the remedy.
Taking these four aspects into account, the Court has to adopt a construction which
suppresses the mischief and advances the remedy (Bengal Immunity Co. Ltd. vs. State) (AIR
1955 S.C. 661) See also K.P. Varghese vs. I.T.O. (131 ITR 597).
STATUTE TO BE READ AS A WHOLE
In Poppatlal Shah vs. State (AIR 1953 S.C. 274), the Supreme Court emphasised the
need to read the statute as a whole in the proper context. This was referred to as a “settled
rule” and reiterated time and again. In R.S. Raghunath vs. State of Karnataka (AIR 1992
S.C.81), the Supreme Court quoted its earlier observation with approval as follows:
“The Court must ascertain the intention of the legislature by directing its
attention not merely to the clauses to be construed but to the entire statute; it
must compare the clause with the other parts of the law and the setting in which
the clause to be interpreted occurs.”
In the words of the Apex Court that interpretation is best which makes “the textual
interpretation match the contextual”.
It is more than a settled position of law that the Courts should adopt the
interpretation which makes the statute workable, and reject a view which would
render it unworkable and a futility. In Municipal Council vs. Narayanan (AIR 1975
2193), the Supreme Court explained the maxim “utres magisvalet quam pevat” to mean
that the Court should adopt a construction which sustains the legislative competence and
lean in favour of its validity. In the words of Justice Farewell “unless the words were so
absolutely senseless that I could do nothing at all with them, I should be bound to find some
meaning, and not to declare them void for uncertainty”. (Tinsukhia Electric Supply Co. Ltd.
vs. State (AIR 1990 S.C. 123).
This principle can be best summarised in the words of Justice Holmes, when he said
“it is not an adequate discharge of duty for Courts to say, we see what you are driving at,
but you have not said it, therefore we shall go on as before”.
This principle has been effectively set out by the Supreme Court in ITO vs.
Damodarbhat (1969) 71 ITR 806 (SC) where the Court rejected the contention
which sought to nullify the provisions of section 297(2)(g) of the I.T. Act, 1961.
BENEFICIAL CONSTRUCTION
A beneficial legislation should receive liberal interpretation which would advance the
purpose and object of the enactment. (Bajaj Tempo Ltd. vs. CIT) (189 ITR). In Oil and Natural
Gas Corporation Ltd. vs. Sawpipes Ltd. (AIR 2003 S.C. 2629), the Supreme Court while
interpreting the phrase “Public Policy of India” in Section 34 of the Arbitration and
Conciliation Act, held that a wider meaning should be given to that expression to ensure that
some of the provisions of the Act do not become nugatory. This is particularly so, since the
expression connotes matters which concern public good and public interest.
In a case arising under the Motor Vehicles Act, the Court reiterated that a
beneficial legislation should be liberally construed so as to provide effective
relief, untrammelled by technicalities (New India Assurance Co. Ltd. vs. C. Padma)
[(2003) 7 SCC 713].
GRAMMATICAL CONSTRUCTION
 The rule of grammatical construction was applied by the Supreme Court in a case
arising under the Service Laws, in Union of India vs. Rajeev Kumar (AIR 2003 6 SCC 516),
where the Court held that since the provision was plain and unambiguous it has to be given
a grammatical construction and nothing can be read into it or deleted there from.
HARMONIOUS CONSTRUCTION
The rule of harmonious construction is the thumb rule to interpretation of any
statute. An interpretation which makes the enactment a consistent whole should be the aim
of the Courts and a construction which avoids inconsistency or repugnancy between the
various sections or parts of the statute should be adopted. The Courts should avoid “a head
on clash”, in the words of the Apex Court , between the different parts of an enactment and
conflict between the various provisions should be sought to be harmonised. The normal
presumption should be consistency and it should not be assumed that what is given with
one hand by the legislature is sought to be taken away by the other. The rule of harmonious
construction has been tersely explained by the Supreme Court thus, “when there are, in an
enactment two provisions which cannot be reconciled with each other, they should be so
interpreted, that if possible, effect should be given to both”. A construction which makes one
portion of the enactment a dead letter should be avoided since harmonisation is not
equivalent to destruction.
It is a settled rule that an interpretation which results in hardship,
injustice, inconvenience or anomaly should be avoided and that which supports
the sense of justice should be adopted. The Court leans in favour of an
interpretation which conforms to justice and fair play and prevents injustice
(Union of India vs. B.S. Aggarwal) (AIR 1998 S.C. 1537).
LIBERAL VS. LITERAL CONSTRUCTION
The normal rule of construction of statutes is the literal rule or strict construction. An
interpretation based on the wordings of the statute cannot be avoided for the mere reason
that it would result in hardship or harsh consequences. It is only if there is ambiguity in the
words of the statute that the Court can exercise its power of interpretation. The Court can
only iron out the creases, but cannot change the texture of the fabric of a statute based on
consequences of its decision (Nazeeruddin vs. Sitaram Agarwal AIR 2003 SC 1543).
Generally, the rule of strict construction is adopted in taxing statutes. The House of Lords in
the case of Top Ten Promotions (1969)3 All E.R 39) observed “In a Taxing Act one has to
look merely at what is clearly said; there is no room for any intent; One can only look fairly
at the language used”. In Maclay vs. Dixon (1944) 1 All E.R 22) Scott L.J. observed “the only
duty of citizens to Parliament is to obey its Act: To beg the question by such a phrase as
“evading the Act” is to indulge in confusion of thought.” The normal rule of interpretation is
that “if the law does not forbid, it allows”.

The rule of strict construction was applied by the Supreme Court in interpreting
certain provisions of the Monopoly and Restrictive Trade Practices Act (Goyal vs. Reliance
Industries Ltd., (2003) 113 Comp. cases 1). In State of Maharashtra vs. Billimoria (2003) 7
SCC 336) the Supreme Court while considering certain provisions of the Urban Land (Ceiling
and Regulation) Act, held that an expropriatory legislation should be strictly construed.
However, in invoking certain exclusionary clauses, the Court adopted a liberal construction;
thus, accepting the position that different portions of the same statute can be interpreted
differently based on the texture, content and object thereof.

A rule of strict construction is not of universal application. While statutes like the
taxing statutes have generally to be interpreted strictly, wherever provisions are remedial or
beneficent in nature they should receive a liberal construction. Remedial legislations are
generally beneficient or social justice oriented. A remedial statute may contain penal
provisions to prevent infringement. While remedial statute has to be liberally construed, the
penal provisions should receive strict construction. The House of Lords in London and North
Eastern Railway Company vs. Berriman (1946) 1 All E.R 255) while interpreting such a
statute, observed “Wherever Legislature prescribes a duty and penalty for breach of it, it
must be assumed that the duty is prescribed in the interest of the community or some part
of it and the penalty is prescribed as a sanction for its performance”. The Supreme Court in
Tolaram vs. State of Bombay (AIR 1954 SC 496) quoted with approval the observation of
Lord Macmillan, “Where penalties for infringement are imposed it is not legitimate to stretch
the language of a Rule, however beneficient its intention, beyond the fair and ordinary
meaning of its language”. In the Berriman case (ibid.,) different notes were struck by the
House of Lords. After two decades, the House of Lords while considering a case under
Factories Act, held that there is no need to construe the Act restrictively, “though equally
there is no need to expand it beyond its natural meaning”. The Supreme Court in Appabalu’s
case (AIR 1993 SC 1126) while considering the Civil Rights Act, held that the Statute has to
be construed in the light of the objective and with a view to implement the mandate of the
Constitution. A perusal of the various decisions of the Supreme Court would show that the
interpretation is guided by the objective of the Act rather than the mere consequences. The
Court aims at promoting the beneficient objective of the Act while being aware that the
breach thereof leads to penal consequences and consequently strict interpretation in
relation to such penal provisions. In the Indian Medical Association case (AIR 1996 SC 550)
the Supreme Court took the view that any repugnancy has to be resolved in favour of the
consumer to achieve the objective of the Act.
SUBSIDIARY RULES
In dealing with rules of interpretation it must be remembered that there are various
subsidiary rules of interpretation, some of which are dealt with below:
(i) CASUS OMISSUS
Normally the Court cannot supply any assumed omission in the statute except in case
of necessity, within the four corners of the statute. ( Union of India –vs. Rajiv Kumar (AIR
2003 SC 2917)
(ii) CONJUNCTION DISJUNCTION
The word “or” is generally used disjunctively while “and” is used conjunctively. In
certain situations however, these words may be interchanged. In the words of Lord Halsbury
these words cannot be interchanged unless the clear intent of the statute requires that to be
done. The Supreme Court considered this issue in the leading case of Chamarbaugwala (AIR
1957 S.C. 699) with a view to give effect to the clear intention of the Legislature as
evidenced from the statute as a whole.
(iii) RULE OF EJUSDEM GENERIS
The Supreme Court in the case of Kavalappara vs. State (AIR 1960 SC 1080)
explained the principle of Ejusdem Generis to mean that general words following a particular
class, category or genes should be construed as limited to the same kind as those specified.
In the words of the Supreme Court the Rule is intended to reconcile incompatibility between
specific and general terms and applies only when specific words falling within a class or
genes is followed by a general term. It is also relevant that the legislative intent should not
point to a different interpretation.
This rule can be invoked only if there is a distinct genus which comprises more than
one species. Where the items specified belong to different classes or categories, the
principle of Ejusdem Generis cannot be invoked.
WORDS OF RANK
Allied to the rule of Ejusdem Generis is the rule relating to Words of Rank. Where a
statute refers to persons or things of a particular specified rank and is followed by general
words, such general words cannot cover persons and things of higher rank.
REDDENDO SINGULA SINGULIS
This is also a rule allied to the rule of Ejusdem Generis. The rule applies where
general words of description follow a list of particular things. In such a case, the general
words are to be construed distributively to things to which such general words can be
applied. An illustration of the above rule is the expression “if one shall draw or load a sword
or gun”. Applying the above rule to interpret the above statement, the word “draw” should
refer to “sword”, while “load” would refer to “gun”. The Supreme Court applied the above
rule while interpreting the proviso to Article 304 of the Constitution in Koteswar Vittal
Kamath vs. K. Rangappa Baliga & Co. (AIR 1969 SC 504).
DEEMING PROVISION
Deeming provisions or legal fictions abound in many statutes. While giving effect to
legal fictions, all facts and circumstances incidental thereto and inevitable corollaries thereof
have to be assumed.
READING DOWN
The rule of Reading Down is adopted by Courts to iron out creases and smoothen the
crudities in a statute to make it workable. The Court exercises a limited power under this
Rule, if the statute as such cannot be enforced and would lead to unworkable results. In
such a situation the Court reads down the provision for making it workable, keeping in view
the scheme and object of the Act [Goutham’s case (supra); Calcutta Gujarathi Education
Society vs. Calcutta Municipal Corporation (2003) 10 SCC 533].
EXPRESSION UNIUS
Under this Rule, where a particular thing is specifically expressed, it does not
necessarily mean that all other circumstances are excluded. The normal rule of
interpretation is that the mere expression of one term does not necessarily mean that all
other situations cannot co-exist. The above Rule was applied by the Supreme Court in Union
of India vs. Shiv Dayal & Sons (AIR 2003 SC 1877).
GENERALIA SPECIALIBUS
This Rule is invoked where there are two conflicting provisions of law in operation in
the same field. Where a statute or rule specifically operates in a field, general rule would not
apply to the circumstances and situations covered by the special statute. (D.R. Yadav vs.
R.K. Singh) [(2003) 7 SCC 110].
Some of the important Rules as well as Subsidiary Rules of Interpretation have been
referred to herein before. To conclude, the object of Interpretation of Statutes is to arrive at
the true intent of the law maker and the best interpretation is that which focuses the spirit
of law.