General Guidelines on Interpretation of Taxing Statutes
A taxing statute consists of many parts. The application of strict construction of taxing statutes is applicable only to the taxing provisions such as the charging provisions or the provisions imposing penalty and not to those parts of the statute which contain the machinery provisions [Commissioner of Income Tax v. National Taj Traders, AIR 1980 SC 485]. Machinery provisions are not generally subject to a rigorous construction and the courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated.
The object of such a statute is primarily to collect revenue for the government and to serve as the main source of revenue generation for the State. It is levied for public purpose and the money so collected is utilised for the welfare activities of the people.
The major principles and guidelines which stand out and must be abided by in regards to the interpretation of taxing statutes are enumerated below:-
1) NO ROOM FOR EXTENSION OR ANALOGY: If something is not explicitly mentioned in a clearly and unambiguously written statute, it is to be understood that the legislature had no intention to mention the same and the wordings, language and meaning of the statute is not to be extended to make room for the inclusion of any such entity that does not figure in the statute at the first place. [Union of India v. Commercial Tax Officer, AIR 1956 SC 202]
2) AVOIDANCE OF TAX IS LAWFUL WHILE EVASION OF TAX IS NOT: Lawful avoidance of tax through proper arrangement and distribution of commercial affairs qualifies to be legal and a taxpayer is entitled to his right of diverting his income without flouting the provisions of Income Tax. However, what does stand illegal and impermissible is tax evasion. [Commissioner of Income Tax, Gujarat v. A. Raman and Company, AIR 1968 SC 49]
3) STRICT INTERPRETATION OF A TAXING STATUTE AS PER THE SET LETTER OF THE LAW WHEN THE LANGUAGE CONTAINED THEREIN IS CLEAR, UNAMBIGUOUS AND DOES NOT LEAD TO MORE THAN ONE INTERPRETATION: The only exception to this principle arises in those specific circumstances where the expressions used in the statute are capable of two reasonable interpretations and that is when the taxing statute should be strictly construed in favour of the assessee. In such a situation, it is obligatory on the court's part to accept the strict construction favouring the assessee irrespective of the consideration of the fact whether the result of such a construction is conducive to the State or not since the remedy for the same lies with the legislature and not with the court. [Baidyanath Ayurved Bhawan v. Excise Commissioner, Uttar Pradesh, AIR 1971 SC 374; Commissioner of Income tax v. Vegetable Products Limited, AIR 1973 SC 927]
4) TO TAKE THE MEANING OF ANY WORD USED IN A TAXING STATUTE IN ITS POPULAR SENSE: When the legislature uses a particular word of everyday use in a statute, the presumption is that it has been used in its popular sense i.e. in its familiar connotation and that popular or familiar meaning itself is to be taken as the correct meaning denoting the ordinary and natural meaning with respect to its day to day references. [Ramavatar v. Assistant Sales Tax Officer, AIR 1961 SC 1325; Motipur Zamindary Company Private Limited v. State of Bihar, AIR 1962 SC 660; State of Uttar Pradesh v. Kores (India) Limited, AIR 1977 SC 132; Dunlop India Limited v. Union of India, AIR 1977 SC 597]
5) WORDS ARE NOT TO BE ADDED OR SUBSTITUTED IN A TAXING STATUTE, NO ROOM FOR IMPLICATIONS EITHER; Anything that does not follow from the plain unambiguous language of the statute is not to be added or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of tax law which in turn are the subject of the tax, the person liable to pay the tax and the rate at which the tax is to be paid, respectively. If any one of these three key ingredients go missing or if there exists any kind of ambiguity in relation to these three aspects in the taxing statute then there ceases to be any tax law at the very first place even. Therefore, in such an extraordinarily discrepant situation, it is not on the court to fix or rectify the same by making any sort of requisite additions or substitutions for the duty to do the needful is on the legislature rather [Mathuram Agarwal v. State of Madhya Pradesh, AIR 2000 SC 109].
Furthermore, no one is to be taxed by implication, a charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he or she cannot be taxed at all [Wealth Tax Commissioner, Ahmedabad v. Ellis Bridge Gymkhana, AIR 1998 SC 120].
6) IN TERMS OF EXEMPTIONS IN TAXING STATUTES, IT IS ALWAYS ON THE ASSESSEE TO SHOW THAT HE COMES WITHIN THE PURVIEW OF THE EXEMPTION: When any provision of a fiscal statute is obscure or there lies an ambiguity in the taxation provision, then the construction which favours the assessee may be adopted but it would always fall on the assessee to prove that the exemption notification has proper and adequate application on him or her [Tata Iron and Steel Company Limited v. State of Jharkhand, AIR 2005 SC 2871].
7) IN TERMS OF EXISTENCE OF AMBIGUITIES IN THE EXEMPTION NOTIFICATION, IT IS TO BE INTERPRETED IN FAVOUR OF THE STATE: Ambiguity in exemption notification is subject to strict interpretation and the benefit is to be strictly interpreted in favour of the State [Commissioner of customs (Import), Mumbai v. M/s. Dilip Kumar and Company and others, AIR 2018 SC 3606].
~ Akash Dey Bhowmick
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