JAMIA MILLIA ISLAMIA

FACULTY OF LAW

ASSIGNMENT FOR INTERPRETATION OF STATUTES

TOPIC: CONSTRUCTION OF TAXING STATUTES

PRESENTED BY:
NAME: AAMIR RAZA KHAN
ROLL No. : 2
SEMESTER: VI Semester
COURSE: B.A.LLB (Hons.)
 TABLE OF CONTENTS

Sr. No. TOPIC Pg. No.

1. INDEX OF AUTHORITIES 3

2. ACKNOWLEDGEMENT 4

3.  5 - 15

4. CONCLUSION 20

5. BIBLIOGRAPHY 21
 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and assistance from
many people and I am extremely privileged to have got this all along the completion of my
project. All that I have done is only due to such supervision and assistance and I would not
forget to thank them.
I respect and thank PROF. EAKRAMUDDIN SIR, for providing me an opportunity to do the
project and giving me all support and guidance which made me complete the project duly. I
am extremely thankful to him for providing such a nice topic “Construction of Taxing
statutes” on which I could do a profound research and learnt a lot from it . I owe my deep
gratitude to him as he took keen interest in this project work and guided me all along.
I would not forget to remember my fellow mates for their encouragement and more over for
their timely support and guidance till the completion of my project work.
I am thankful to and fortunate enough to get constant encouragement, support and guidance
from all which helped me in successfully completing this project work.

AAMIR RAZA KHAN

 CONSTRUCTION OF TAXING STATUTES

Introduction

Taxation is statutory filed. No tax can be levied and collected except according to the
authority of law. There is fiscal legislation every year much of it prepared in great secrecy
and under server pressured of time, and it directly affects most people. This legislation is
complicated and elaborated because of intricate prepositions it has to express, and the verity
of circumstances and conditions in which it falls to be applied and the refined distinctions it
embodies in order to attempt to cater expressly for them. Consequently, the body of tax
statues as whole is voluminous and complex in structure as well as in concept and expression.
There is another reason for the fiscal legislation being complex and complicated. In fact,
taxes are as complex as life. The moralist calls for just taxes, but taxes cannot just be just, if
we recall the scheme of special bearer bonds for mopping up black money. They cannot
simply be simple. The businessman demands practical taxes, but financially history proves
that it is impracticable to make them practical. Exemption Notifications have to be strictly
construed; if exemption is available on complying with certain conditions, conditions have to
be complied with; plea of 'substantial compliance' depends upon facts of each.

Statues imposing taxes or monetary burdens are strictly construed. 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 unequivocally says so.

Tax Systems – Indian Scenario

The Indian legal system is the product of history. It is rooted in our soil; nurtured and
nourished by our culture, languages and traditions; fostered and sharpened by our genius and
quest for social justice; reinforced by history and heritage inspired and strengthened by
English Law guided and enriched by concepts and precepts of justice, equity and good
conscience which are indeed the hallmarks of the common law.

The tax system of British India reflected characteristics of a traditional agriculture economy.
Revenues of the central government were dominated by custom duties as domestic
requirements for manufactured goods were dominated by custom duties as domestic
requirements for manufactured goods were met mostly from imports, chiefly from Britain
and other commonwealth countries. Import duties were levied on all most all items of imports
whereas major items subject to export duties were jute and tea in which India enjoyed near
monopoly in the world market. Various custom and tariff enactments were passed from time
to time.

Article 265 of the Constitution mandates that no tax shall be levied or-collected except by the
authority of law. It provides that not only levy but also the collection of a tax must be under
the authority of some law.

The Tax Laws- Tax laws are highly complex, complicated and beyond understanding of a
tax-payer. The words and expressions used are not simple. Many sections contain sub-
sections, clauses, sub-clauses. Many deeming provisions have been inserted. Meaning of an
expression is extended by way of Explanation and is curtailed by way of proviso, sometimes
more than one provisos and explanations meaning differently.

Principle of Interpretation
Principle of interpretation which have evolved are those based on plain meaning of the words
used and their grammatical meaning and those based on the intention or purpose of the
legislature.

In India tax law provides a useful set of cases for exploring the interpretative approaches of
the judiciary in India. Some general observations made by the courts are first mentioned
before analyzing the cases on different approaches. Interpretation of statute means that the
court has to ascertain the facts and then interpret the law to apply to such facts. It is the
function of the legislature to say what shall be the law and it is for the court to say that what
the law is. Where the language is plain and unambiguous and admits of only one meaning no
question of construction of statute arises for the statute speaks for itself.

The term interpretation means “to give meaning to” there are three bodies which divided
government power namely legislature, the executive and the judiciary. Interpretation of
statutes to render justice is primary function of the judiciary. The most common rule of
interpretation is that every part of the statute must be understood in a harmonious manner by
reading and construing every part of it together.
The maxim “A Verbis legis non est recedendum” means that you must not very the words of
the statute while interpreting it. 

BASIC PRINCIPLES / RULES OF INTERPRETATION of TAXING STATUTE:

I will deal with the special rules of construction governing a taxing statute.

1. Intention of Legislature:

The dominant purpose of construction of any statutory provision is to ascertain the intention
of the legislature and the primary role is to ascertain the same by reference to the language
used. The Supreme Court in Doypack Systems Pvt. Ltd. v/s. UOI1 laid down:

"It has to be reiterated that the object of interpretation of a statute is to discover the intention
of Parliament as expressed in the Act. The dominant purpose in construing a statute is to
ascertain the intention of the legislature as expressed in the statute, considering it as a whole
and in its context that intention, and therefore, the meaning of the statute, is primarily to be
sought in the words used in the statute itself, which must, if they are plain and unambiguous
be applied as they stand". The object of all interpretation is to discover the intention of
Parliament, but the intention of Parliament must be deduced from the language used."

A statute is an edict of the legislature and the conventional way of interpreting or construing a
statute is to seek the ₹intention' of its maker. A statute is to be construed according "to the
intent of them that make it" and "the duty of judicature is to act upon the true intention of the
legislature - "the mens or sententia legis". If a statutory provision is open to more than one
interpretation the court has to choose that interpretation which represents the true intention of
the legislature, which is also referred to as the ₹legal meaning' of the statutory provision.

The intention of the legislature assimilates two aspects:

(1) In one aspect it carries the concept of ₹meaning', i.e. what the words mean.

(2) In another aspect, it conveys the concept of ₹purpose and object' or the ₹reason and spirit'
pervading through the statute.

1
1998 (2) SCC 299
Therefore the process of construction combines both literal and functional approaches. In the
case of GEM Granites v. CIT2 the Hon’ble court observed that what one may believe or think
to be the intention of Parliament cannot prevail if the language of the statute does not support
that view, thus object of the statute has to be gathered from language and not on what one
believes or thinks.

2. Harmonious Interpretation:

The most common rule of interpretation is that every part of the statute must be understood in
a harmonious manner by reading and construing every part of it together. Further, L.J.
Denning in Seaford Court Estates vs. Asher [1949] 2 All ER 155 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.”

Also referred in Nasiruddin v/s. Sita Ram Agarwal3 –

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.

Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of
interpretation is to ascertain the mens legis, i.e., the intention of the law, as evinced in the
statute. The key to the opening of every law is the reason and spirit of law. To be literal in
meaning is to see the body and miss the soul. The judicial key to interpretation is the
composite perception of the Deha (body) and the Dehi (Soul) of the provision.

Wherever it is possible to do so, the provision must be harmoniously constructed by avoiding

a conflict. A construction which reduces the statute to a futility has to be avoided. A statute or
any enabling provision therein must be so construed as to make it effective and operative on
the principle expressed in maxim “UT RES MAGIS VALEAT QUAM PAREAT” i.e. a liberal

2
(2004) 271 ITR 322 (SC)
3
(2003) 2 SCC 577
construction should be put upon written instruments, so as to uphold them, if possible and
carry in to effect the intention of the parties. CIT v. Hindustan Bulk Carrier4.

The provisions of two enactments must be read harmoniously so as not to subject them to any
strained construction giving rise to an artificial inconsistency or repugnance.  Every clause of
a statute should be construed with reference to the context and other clauses of the statute so
as, as far as possible, to make a consistent enactment of the whole statute CIT v/s. R. M.
Amin5–

Parliament is normally presumed to legislate in the knowledge of, and having regard to,
relevant judicial decisions. If, therefore, Parliament has a subsequent opportunity to alter the
effect of a decision on the legal meaning of an enactment, but refrains from doing so, the
implication is that Parliament approves of that decision and adopts it. That was amply
demonstrated by the amendment of Sec. 36 (1) (viii) made in 1985. CIT v/s. West Bengal
Industrial Development Corporation Ltd6. –

3. Literal rule : Language of Statute should be read as it is :

The first and the most elementary rule of construction is that it is to be assumed that the
words and phrases of legislation are used in their technical meaning if they have acquired
one, or otherwise in their ordinary meaning, and the second is that the phrases and sentences
are to be construed according to the rules of grammar. Krishi Utpadan Mandi Samiti v. UOI7.

Pure, simple and grammatical sense of language used by Legislature is best way of
understanding as to what Legislature intended. Coal Mines Officers’ Association of India v.
UOI8.

If the language of the statute is clear and unambiguous, words must be understood in their
plain meaning. The wordings of the Act must be construed according to its literal and
grammatical meaning, whatever the result may be.

4
(2003) 259 ITR 449 (SC)
5
(1971) 82 ITR 194 (Guj)
6
(1993) 203 ITR 422, 430 (Cal).
7
(2004) 267 ITR 460 (All.)
8
(2004) 266 ITR 429 (Cal.)
While interpreting tax statute, the function of the court of law is not to give words in the
statute a strained and unnatural meaning to cover and extent its applicability to the areas not
intended to be covered under the said statute. Vidarbha Irrigation Dev. Corpn. v/s ACIT9.

It is not permissible to construe any provision of a statute, much less a taxing provision, by
reading into it more words than it contains. CIT v/s. Vadilal Lallubhai10

Literal construction means that there is no room for any intendment. Nothing is to be read in,
nothing is to be implied. One can only look fairly at the language used.

ICAI vs. Price Waterhouse11

State of West Bengal vs. Scene Seven P. Ltd12

Harbajan Singh vs. Press Council of India13

District Registrar and Collector v. Canara Bank14.

4. The Mischief Rule of Interpretation (Heyden’s rule)

A statute is to be construed so as to suppress the mischief in the law and advance the remedy.
This was set out in Heydon’s case (1584) 3 Co. Rep. 7a. Under this rule the judge will look at
the Act to see what was its purpose and what mischief in the common law it was designed to
prevent.

Broadly speaking, the rule means that where a statute has been passed to remedy a weakness
in the law, the interpretation which will correct that weakness is the one to be adopted. This
rule is also one of the cardinal rules of interpretation when the words of a taxing statute are
ambiguous and incapable of a literal interpretation and generally takes into account four
parameters, namely

i) What was the Law prior to enactment of the statute in question;

9
(2005) 278 ITR 521 (Bom)
10
(1972) 86 ITR 2 (SC)
11
(1997) 90 Comp. Case 113, 140, 141 (SC)
12
AIR 2000 SC 3089, 3094
13
(2002) 3 SCC 722, 727
14
(2005) 1 SCC 496
ii) What was the defect or mischief for which the earlier law did not provide;

iii) What remedy had the Legislature intended to remedy the defect;

iv) The true Legislative intent behind the remedy.

This rule would come into play only if the words of the taxing statute were silent or
ambiguous on an issue and the General Clauses Act also did not throw light on the
interpretation

CIT vs. Shahzada Nand & Sons.15

Classic Builders & Developers vs. UOI16

Reckitt Colman of India Ltd. vs. ACIT17.

5) The Golden Rule : Purposive interpretation

This rule is to some extent an extension of the literal rule and Mischief Rule and under it the
words of a statute will as far as possible be construed according to their ordinary, plain, and
natural meaning, unless this leads to an absurd result. It is used by the courts where a
statutory provision is capable of more than one literal meaning and leads the judge to select
the one which avoids absurdity, or where a study of the statute as a whole reveals that the
conclusion reached by applying the literal rule is contrary to the intention of Parliament. One
of the principle laid down by the courts is that regard should be given to the object and
purpose of the introduction of a particular provision in the Income-tax Act. It emerges that
this rule of interpretation has been often applied in India.

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. State18gave a go-by to
the golden rule by which statutes were to be interpreted according to the grammatical and
ordinary sense of the word.
15
(1966 ) 60 ITR 392 (SC)
16
(2001) 251 ITR 492, 497 (MP)
17
(2001) 252 ITR 550 (Cal.)
18
(1883) AIR 1988 SC
The Golden rule implies that if a strict interpretation of a statute would lead to an absurd
result then the meaning of the words should be so construed so as to lead to the avoidance of
such absurdity. A further corollary to this rule is that in case there are multiple constructions
to effect the Golden rule the one which favours the assessee should always be taken. This rule
is also known as the Rule of Reasonable Construction. However the application of this rule in
the interpretation of taxing statutes is rather limited since the literal rule is more often
applicable and it is oft remarked that equity and taxation are strangers.

A construction which would defeat the very object of the legislature should be avoided.

Keshavji Ravji & Co. vs. CIT19

CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd.20

Vikrant Tyres Ltd vs. ITO21

6) Strict construction:

A tax is imposed for public purpose for raising general revenue of the state. A taxing statute
is to be strictly construed. Lord Hasbury and Lord Simonds stated : "The subject is not to be
taxed without clear words for that purpose; and also that every Act of Parliament must be
read according to the natural construction of its words."

It is settled law that a taxation statute in particular has to be strictly construed and there is no
equity in a taxing provision. H.H. Lakshmi Bai v/s. CIT 22 -.

“The subject is not to be taxed without clear words for that purpose …..”

CIT vs. Provident Inv. Co. Ltd.23

J.K. Steel Ltd. vs. UOI24

CIT vs. Indo Oceanic Shipping Co. Ltd.25

19
(1990) 183 ITR 1 (SC)
20
(1992) 196 ITR 149 (SC)
21
(2001) 247 ITR 821, 826 (SC)
22
(1994) 206 ITR 688, 691 (SC)
23
(1954) 32 ITR 190 (SC)
24
AIR 1970 SC 1173
25
(2001) 247 ITR 247 (Bom)
Hansraj & Sons vs. State of J & K26

In A.V. Fernandez v/s. State of Kerala27, His Lordship Bhagwati J. has stated the principle of
taxing laws as follows:

“In construing fiscal statutes and in determining the liability of a subject to tax one must have
regard to the strict letter of law. If the revenue satisfies the court that the case falls strictly
within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not
covered within the four corners of the provisions of the taxing statute, no tax can be imposed
by inference or by analogy or by trying to probe into the intentions of the legislature and by
considering what was the substance of the matter."

In Associated Cement Co. Ltd. Vs. Commercial Tax Officer 28, E.S. Venkataramiah J. of the
Supreme Court, speaking for the majority said

"Tax, interest and penalty are three different concepts. Tax becomes payable by an assessee
by virtue of the charging provision in a taxing statute. Penalty ordinarily becomes payable
when it is found that an assessee has wilfully violated any of the provisions of the taxing
statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax
payable by him and it is always calculated at the prescribed rate on the basis of the actual
amount of tax withheld and the extent of delay in paying it. It may not to be wrong to say that
such interest is compensatory in character and not penal."

Remedial statutes are known as welfare, beneficial or social justice oriented legislations.
Penal statutes, on the other hand, are those which provide for penalties for contravention of
the law and are directed against the offender in relation to the state by making him liable to
imprisonment, fine, forfeiture or other penalty.

A remedial statute receives a liberal construction, whereas a penal statute is strictly

construed. In case of remedial statutes the doubt is resolved in favour of the class of persons
for whose benefit the statute is enacted; whereas in case of penal statutes the doubt is
resolved in favour of the alleged offender.

26
(2002) 6 SCC 227, 237-39
27
AIR 1957 SC 657
28
AIR 1981 SC 1887
The principle applied in constructing a penal act is that if, in construing the relevant
provisions, “there appears any reasonable doubt or ambiguity”, it will be resolved in favour
of the person who would be liable to the penalty. If there are two reasonable constructions we
must give the more lenient one. The court must always see that the person to be penalised
comes fairly and squarely within the plain words of the enactment. It is not enough that what
he has done comes substantially within the mischief aimed at by the statute.

A penal provision has to be construed strictly. ACIT v. Velliappa Textiles Ltd.29

7) Ejusdem generis rule :

Under this rule where general words follow particular words the general words are construed
as being limited to persons or things within the class outlined by particular words. The words
used together should be understood as deriving colour and sense from each other. They
should be read together as one.

The true scope of the rule of ‘ejusdem generis’ is that the words of general nature following
specific and particular words should be construed as limited to things which are of the same
nature as those specified. When the particular words pertaining to a class, category or genus
are followed by general words, the general words are construed as limited to the things of the
same kind as those specified. The phrase “any other person” in rule 6D(2) of the Income-tax
Rules, 1962, would draw its colour from the preceding word, namely, “employee”. Held
accordingly, that a trustee was not an employee or not akin to an employee and the amounts
paid to trustees by the trust could not be disallowed under rule 6D(2). CIT v. Shivalik Drug
(Family Trust)30

The rule of ejusdem generis is to be applied “with caution” and “not pushed too far”. It may
not be interpreted too narrowly or unnecessarily if broad based genus could be found so as to
avoid cutting down words to dwarf size.

—  U.P. State Electricity Board vs. Hari Shanker Jain31

— Rohit Pulp & Paper Mills Ltd. vs. Collector of Central Exciseṅ32

29
(2003) 263 ITR 550 (SC)
30
(2008) 300 ITR 339 (All).
31
AIR 1979 SC 65
32
AIR 1991 SC 754
8) Expressio unius est exclusio alterius:

The expression of the thing implies the exclusion of another. It conveys an important rule of
interpretation to signify the circumstances where the express mention of one person or thing
results in totality the exclusion of another. In other words, in any particular provision where
the statutory language is plain or straight and its meaning is apparently clear, there is no
scope of applying the rule. However, this maxim could be accepted as a valuable servant but
it is definitely a dangerous master in the construction of statutes and documents. It is used
when there is imperfect enactment of statutory language.

Coming corollary to this maxim is expressum facit cessare facitum which states that when
there is express mention of certain things, then anything not mentioned is excluded.

Principle of Strict Construction

The manner in which the Income-Tax Act has been drafted leaves great scope for litigation.
For this purpose, principles of interpretation have to be applied. These principles themselves
are not infallible and would depend on the facts of each case. The two well-settled principles
of interpretation, as applicable in taxing statutes, are:

(1) There is no equity in tax, and the principle of strict or literal construction applies in
interpreting tax statutes. Hence, on the plain language of the statute, if the assessee is entitled
to two benefits, he has to be granted both these benefits; and

(2) If there are two reasonable interpretations of taxing statutes, the one that favours the
assessee has to be accepted.

Doctrine of Substantial Compliance

The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to
avoid hardship in cases where a party does all that can reasonably expected of it, but failed or
faulted in some minor or inconsequent aspects which cannot be described as the "essence" or
the "substance" of the requirements. Like the concept of "reasonableness", the acceptance or
otherwise of a plea of "substantial compliance" depends upon the facts and circumstances of
each case and the purpose and object to be achieved and the context of the prerequisites
which are essential to achieve the object and purpose of the rule or the regulation. Such a
defense cannot be pleaded if a clear statutory prerequisite which effectuates the object and the
purpose of the statute has not been met. Certainly, it means that the Court should determine
whether the statute has been followed sufficiently so as to carry out the intent for which the
statute was enacted and not a mirror image type of strict compliance. Substantial compliance
means "actual compliance in respect to the substance essential to every reasonable objective
of the statute" and the court should determine whether the statute has been followed
sufficiently so as to carry out the intent of the statute and accomplish the reasonable
objectives for which it was passed. The doctrine of substantial compliance seeks to preserve
the need to comply strictly with the conditions or requirements that are important to invoke a
tax or duty exemption and to forgive non-compliance for either unimportant and tangential
requirements or requirements that are so confusingly or incorrectly written that an earnest
effort at compliance should be accepted.

Exemption Clause - Strict Construction

The law is well settled that a person who claims exemption or concession has to establish that
he is entitled to that exemption or concession. A provision providing for an exemption,
concession or exception, as the case may be, has to be construed strictly with certain
exceptions depending upon the settings on which the provision has been placed in the Statute
and the object and purpose to be achieved. If exemption is available on complying with
certain conditions, the conditions have to be complied with. The mandatory requirements of
those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be
shown, if there is a failure to comply with some requirements which are directory in nature,
the non-compliance of which would not affect the essence or substance of the notification
granting exemption.

In Hansraj Gordhandas v. H.H. Dave33 held that such a notification has to be interpreted in

the light of the words employed by it and not on any other basis. This was so held in the
context of the principle that in a taxing statute, there is no room for any intendment, that
regard must be had to the clear meaning of the words and that the matter should be governed
wholly by the language of the notification, i.e., by the plain terms of the exemption. some of
the provisions of an exemption notification may be directory in nature and some are of
mandatory in nature. A distinction between provisions of statute which are of substantive
33
(1970) AIR 755,1969 SCR (2)343
character and were built in with certain specific objectives of policy, on the one hand, and
those which are merely procedural and technical in their nature, on the other, must be kept
clearly distinguished. The principles as regard construction of an exemption notification are
no longer res integra. Whereas the eligibility clause in relation to an exemption notification is
given strict meaning where for the notification has to be interpreted in terms of its language,
once an assessee satisfies the eligibility clause, the exemption clause therein may be
construed literally.
Conclusion
As discussed in the Introduction and after going through whole project and research work at
last I conclude that the hypothesis which I mentioned earlier is proven to be correct because
in my hypothesis I mentioned that Exemption Notifications have to be strictly construed; if
exemption is available on complying with certain conditions, conditions have to be complied
with which is true because if the condition for taking exemption for tax relief is not fulfill
then exemption will not be granted, exemption or tax relief will be granted only when the
essential condition which are complying with must be fulfilled. In this last chapter I also
conclude that the taxing statute is also strictly constructed as all statutes are interpreted
strictly because each and every statute should be interpreted in a strict manner. There is
another thing that for taking exemption or tax relief one must have fulfilled the tax relief
application. It is well settled principle that tax exemptions are strictly against taxpayers. Tax
refunds in the nature of tax exemption, are resolved strictly against the claimant. Taxing
enactment should be strictly construed and the right to tax should be clearly established that
is strict and favourable construction equitable construction should not be taken into account.
Courts should not strain words and find unnatural meaning to fill loopholes.