Interpretation wrt the Subject matter

Cover the following:

1. Taxing statute
2. Penal statute.
3. Welfare legislations
4. Substantive and Adjective enactments
 Interpretation of Taxing Statutes

Sovereignties raise revenue through various fiscal

measures. Fiscal statues comprise of statutes imposing
taxes (income, wealth, sales, gift etc), fees, duties etc.

Tax imposed for raising revenue for state coffers.

Fee imposed for rendering services & bears a broad
co-relationship with the services rendered. Every fee
need not satisfy the test of quid pro quo, eg. Licence fee
regulatory in nature where no quid pro quo need be
established.
The power to levy taxes is derived from the Seventh
Schedule to the Constitution. Taxes are specifically
named and distributed between Union and states by
various Entries in List I and II.
Parliament can under its residuary power in Entry 97 of
List I, levy a tax not mentioned in either of these Lists.
The power to levy fee is conferred by the last Entry in
each list in general terms in respect of any of the matters
in the List.
A taxing legislation is therefore controlled by FR & other
provisions of the Constitution.
Taxing Statutes.
1. Taxation laws are generally complete codes in themselves
and comprises of:
a) Charging sections and machinery provisions
b) provisions laying down the procedure to assess the tax; &
c) penalties & methods of their collection and may contain
provisions to prevent pilferage of revenue.
2. There are three components of a taxing statute, viz
a) subject of the tax
b) persons liable to pay the tax, &
c) the rate at which the tax is levied.
3. In taxing statute one has to look at what is clearly said.
These must state with utmost clarity what and whom and
in what manner they are taxing.
In Commissioner of Wealth Tax, Gujarat v. Ellis Bridge
Gymkhana, AIR 1998 SC 120, the SC has stated that
before taxing any person it must be shown that he falls
within the ambit of the charging section by clear words
used in the section.
In St of WB v. Kesoram industries Ltd, (2004) 10 SCC
201, it was said that there is nothing unjust in the
taxpayer escaping if the letter of the law fails to catch
him on account of the legislatures failure to express itself
clearly.
Stages in imposition of a tax. Three stages, namely
1. declaration of liability in r/o persons or property,
2. assessment of tax that quantifies the sum which the
person liable has to pay; and
3. the method of recovery if the person does not
voluntarily pay.
In Ghatge & Patil Concerns Employees Union v.
G&P Transporters, AIR 1968 SC 503, the SC has
observed, a person is free to arrange his business in
such a way so that he is able to avoid a law & its evil
consequences so long as he does not break that or any
other law.
 Rules of Interpretation

1. Statutes imposing taxes or monetary burdens fall in

category of statutes imposing pecuniary burdens. The
charging sections are to be strictly construed, reason
being that imposition of taxes is also a kind of
imposition of penalty which can only be imposed if the
language of the statute unequivocally so says.
Before taxing any person it must be shown that he
falls within the ambit of the charging section by clear
words used in the section.
2. Intention of legislature to tax must be gathered from the
natural meaning of the words by which it has expressed
itself. Any kind of intendment, equity, presumption or
implication as to tax does not exist. Courts cannot create
or supply a casus omissus.
eg. If the Crown seeking to recover tax, cannot
bring the subject within the letter of the law, the subject is
free, however apparently within the spirit of the law the
case might otherwise appear to be.
3. Equitable construction is not admissible in a taxing
statute, where you simply adhere to the words of the
statute [per Lord Cairns in Partington v. Attorney Gen,
(1869) LR 4 HL].

4. Cannons of constructions do not vary with the type of

statute to be construed. Thus all the basic rules of
interpretation are applicable in construing a taxing
statute.
5. Gen words must be construed according to their popular
meaning. Technical words should receive their technical
meaning.
When construing entries of goods In Excise,
Customs, Octroi or Sales Tax Act resort should normally
be had not to their scientific or technical meaning but to
their popular meaning.
In Birla Cement Works v. CBDT, AIR (2001) SC 1080, it
was held that the interpretation favouring the assessee
which has been acted upon and accepted by the
revenue for a long period should not be disturbed except
for compelling reasons.
6. The Charging and Computation provisions together
constitute an integrated code. If in a particular case the
computation provisions cannot apply at all, it can be
concluded that the case was not intended to be brought
within the charging section. [CIT v. BC Srinivasa Setty,
AIR (1981) SC 972].
7. While construing a machinery provision an important
consideration is that it should be so construed as to
effectuate the liability imposed by the charging sec and
to make the machinery workable- ut res magis valeat
quam pereat.[NB Sanjana v. Elphinston Spg & Wvg
Mills, AIR (1971)SC 2039]
8. Avoidance of Double Taxation. The principle applied to IT
legislations is that if the words of the Act on one
construction results in double taxation of the same
income, that result will be avoided by adopting another
construction which may reasonably be open[IRC v. FS
Securities Ltd, (1964) 2 All ER 691 HL].
This is based on the premise the legislature does not
intend to penalize particular forms of income by doubly
taxing them. Thus, the rule that several heads of
income are mutually exclusive and a particular income
can cover only one of the heads.
This principle of avoidance of double taxation is merely a
rule of construction and does not apply when the
legislature expressly enacts a law which results in
double taxation of the same income.
In Municipal Council, Kota v. DCM Co Ltd, AIR
(2001) SC 1060, it has been held that in absence of
clear provisions stipulating double or multiple levies, the
Courts would lean in favour of a construction avoiding
double taxation.
 Exemption & Evasion

Exemption
It is like an exception, it spells freedom from liability, tax
or duty. Exemption cannot be claimed by way of analogy,
for instance, exemption of rice does not warrant
exemption of idlies & dosas from sales tax: MA
Gangapathy Iyer v. St of Hyderabad, AIR (1954) Hyd 94.

Other exemptions in the shape of : tax holiday to new

units, concessional rate of tax to goods or persons for
limited period or specified objective etc.
 Exemptions may be either absolute or conditional - it
may make the tax eligible at a later stage in a different
form or method [UoI v. Jajyan Udyog, AIR (1994) SC 88]

Evasion.
Evasion, indicates attempt to avoid compliance with the
provision of law. In Punjab Distilling Industries v. CIT,
[AIR(1965) SC 1862] it was stated per Subbarao,J: Tax
can be evaded by breaking the law or avoided in terms
of the law.
Construction giving rise to evasion of tax is to be avoided
by the courts. A strict adherence to the letter of the law
would sometimes result in evasion of law.

The distinction between acceptable tax mitigation and

unacceptable tax avoidance needs to be carefully
understood.
Acceptable tax mitigation involves tax planning within the
framework of law so as to minimize the incidence of tax
 Unacceptable tax avoidance typically involves the
creation of complex artificial structures by which, the tax
payer, as though by wave of a magic wand conjures out
of thin air a loss, or a gain or expenditure or whatever it
may be which otherwise would never have existed.