SYNOPSIS

OBJECTIVE AND AIM OF THE STUDY:

The main objective of this study is to analyse the entries of list 1 and 2 specified in the 7 th
schedule of the Constitution and also to interpret these lists.

SIGNIFICANCE AND BENEFIT OF THE STUDY:

Significance of this study is to analyse as to how much is the interpretation of these

entries is and how the cases in each instance interpret these entries.

SCOPE OF THE STUDY:

The scope of the study is limited to India.

REVIEW OF LITERATURE:

1. Constitutional provisions of Taxation, CAClubIndia.

2. Relevant provisions of taxation in Constitution of India, Taxxman.

RESEARCH METHODOLOGY:

The method of research is doctrinal research.

HYPOTHESIS:

1. Whether the interpretation of these entries are mad in a way that is beneficial to
the public?

2. Whether the courts have given any stand on the interpretations of these entries?
 INTRODUCTION

Whenever we talk about the constitution of a federal nation, the major characteristics
comes into our mind is the distribution of power between the Union and the State. But as
far as the Indian Constitution is the concern, it is a bit divergent in nature because the
concept of federalism our constitution follows conceivably ensues from the peculiar
needs of our countrymen which subsequently framed a sui generis kind of federalism in
India. In the context of dissemination of legislative powers, the framer of our constitution
did maintain a similarity along with the pattern laid down by the Government of India
Act, 1935 which allowed the predominance to be given to the union parliament over the
state legislature or assemblies. The legislative powers revolve around the scheme of
distribution of powers between the union and state legislature which is provided in the
three lists under the 7th schedule of the constitution which entails.

Union List (List I) (Parliament Legislation):

This list contains 97 items and comprises of the subjects which are of national importance
and admit of uniform laws for the whole of the country. And the legislative powers to
legislate these matters are solely vested in the union parliament. The integral subjects
which falls within the ambit of Union List are: Defence, Foreign Affairs, Currency and
Coinage, War and Peace, Atomic Energy, National Resources, Railways, Post and
Telegraph, Citizenship, Navigation and Shipping, Foreign Trade, Inter-State Trade and
Commerce, Banking, Insurance, National Highways, Census, Election, Institutions of
higher education and others.

In order to decide the very relationship of state and central legislation, Supreme Court in
the case of State of A.P. and Ors. v. Mcdowell & Co. and Ors. observed as follows:

“In view of our finding that the impugned enactment is perfectly within the legislative
competence of the State Legislature and is fully covered by Entry 8 read with Entry 6 of
List II, it is not necessary for us to deal with the arguments based upon Clause (3) of
Article 246 of the Constitution except to say the following: once the impugned enactment
is within the four corners of Entry 8 read with Entry 6, no Central law whether made with
reference to an entry in List I or with reference to an entry in List III can affect the
validity of such State enactment. The argument of the occupied field is totally out of
place in such a context. If a particular matter is within the exclusive competence of the
State Legislature, i.e., in List II that represents the prohibited field for the Union.
Similarly, if any matter is within the exclusive competence of the Union, it becomes a
prohibited field for the States. The concept of occupied field is really relevant in the case
of laws made with reference to entries in List III. In other words, whenever a piece of
legislation is said to be beyond the legislative competence of a State Legislature, what
one must do is to find out, by applying the rule of pith and substance, whether that
legislation falls within any of the entries in List II. If it does, no further question arises;
the attack on the ground of legislative competence shall fail. It cannot be that even in
such a case, Article 246(3) can be employed to invalidate the legislation on the ground of
legislative incompetence of State Legislature. If, on the other hand, the State legislation
in question is relatable to an entry in List III applying the rule of pith and substance, then
also the legislation would be valid, subject to a Parliamentary enactment inconsistent with
it, a situation dealt with by Article 254. Any incidental trenching, as already pointed out,
does not amount to encroaching upon the field reserved for Parliament, though as pointed
out by T.L. Venkatarama Iyer, J. in A.S. Krishna v. State of Madras : 1957 SCR 399, the
extent of trenching beyond the competence of the legislating body may be an element in
determining whether the legislation is colourable. No such question arises here.”

In the case of State of West Bengal and Ors. v. Purvi Communication (P) Ltd. and
Ors. the Supreme Court laid down his observation on the validation of State Legislation
over the central and was of the view that:

“It is thus clear that the cable operator, respondent 1 is the exhibitor in this case and also
the provider of the entertainment to the customer. Hence, he alone can be asked to pay
the tax on the entertainment that has resulted from this exhibition. This provision,
therefore, does not cross the bounds of Entry 62 of List II of the Seventh Schedule to the
Constitution and is intra vires. Providing a cable link up to the viewers’ end is the only
role of sub-cable operator. It is, therefore, inconceivable that despite putting forth the
ready entertainment in the form of a signal on the cable line, the cable operator cannot be
said to be providing the entertainment within the meaning of Entry 62 of List II of the
Seventh Schedule of the Constitution. So long as the State Act remains within the ambit
of Entry 62 of List II and is not offending the provisions of Article 286 of the
Constitution or the laws made thereunder, the State Act’s validity is beyond question.
Thus, respondent 1 who is engaged in receiving and providing TV signals to individual
cable operators is liable to pay tax under Clause (ii) of Sub-section (4-a) of Section 4-A
of the Act.”

In the case of G.V. Ramanaiah v. The Superintendent of Central Jail Rajahmundry

and others the appellant was convicted of offenses punishable under Section 489A to
489D of IPC and sentenced to imprisonment for 10 years. On a question whether the
State Government would be competent to remit the sentence of the appellant, this Court
observed as under:

“The question is to be considered in the light of the above criterion. Thus considered, it
will resolve itself into the issue: Are the provisions of Sections 489A to 489D of the
Penal Code, under which the petitioner was convicted, a law relating to a matter to which
the legislative power of the State or the Union extends?

These four Sections were added to the Penal Code under the caption, “Of Currency Notes
and Bank Notes”, by Currency Notes Forgery Act, 1899, in order to make better
provisions for the protection of Currency and Bank Notes against forgery. It is not
disputed; as was done before the High Court in the application under Section 491(1),
Criminal Procedure Code, that this bunch of Sections is a law by itself. “Currency,
coinage and legal tender” are matters, which are expressly included in Entry No. 36 of the
Union List in the Seventh Schedule of the Constitution. Entry No. 93 of the Union List in
the same Schedule specifically confers on the Parliament the power to legislate with
regard to “offenses against laws with respect to any of the matters in the Union List”.
Read together, these entries put it beyond doubt that Currency Notes and Bank Notes, to
which the offenses under Sections 489A to 489D relate, are matters which are exclusively
within the legislative competence of the Union Legislature. It follows therefrom that the
offenses for which the petitioner has been convicted, are offenses relating to a matter to
which the executive power of the Union extends, and the “appropriate Government”
competent to remit the sentence of the petitioner, would be the Central Government and
not the State Government.” This Court went on to observe that the Indian Penal Code is a
compilation of penal laws, providing for offences relating to a variety of matters,
preferable to the various entries in the different lists of the 7th Schedule to the
Constitution and that many of the offences in the Penal Code related to matters which are
specifically covered by entries in the Union list. Since the offenses in question pertained
to subject matter in the Union list, this Court concluded that the Central Government was
the appropriate Government competent to remit the sentence of the appellant. The
decision in G.V. Ramanaiah thus clearly lays down that it is the offense, the sentence in
respect of which is sought to be commuted or remitted, which determines the question as
to which Government is the appropriate Government.

In the case of Union Of India vs V. Sriharan @, Murugan & Ors on 2 December

2015 the apex court on deciding the primacy of the Union or the State over the subject
matter enlisted in List III of 7th Schedule of Indian Constitution came up with the
following observations;

Whether the Union or the State has primacy over the subject- matter enlisted in List III
of the 7th Schedule to the Constitution of India for the exercise of the power of
remission?

Answer: In respect of matters in List III of the 7th Schedule to the Constitution,
ordinarily the executive power of the State alone must extend. To this general principle,
there are two exceptions as stated in Proviso to Articles 73(1) of the Constitution. In the
absence of any express provision in the Constitution itself or in any law made by
Parliament, it is the executive power of the State which alone must extend.”

As noted earlier, the Constitution of India has specifically vested the residuary power as
an exclusive head of power in the Union by entry 97 of List I of the Seventh Schedule
and article 248 of the Constitution. The ad hoe allocation of residuary power by the
Governor-General as in the case of the Government of India Act, 1935 has therefore been
discarded. Though in view of the exhaustive enumeration of subjects in the Lists it was
thought that the role of the residuary power was an extremely limited one, events have
proved that this has not been so the residuary power has been increasingly pressed into
service in connection with the resolution of conflicts of power between the Union and the
States. The chief uses of the residuary power as evidenced by the case-law are dealt with
below.

It is well-known that the grant of legislative power carries with it all necessary ancillary
powers. In certain cases when the power of the Union was challenged and it could have
been sustained on the doctrine of ancillary powers, the availability of the residuary power
has lent an additional argument to support the Union power.

In Abraham v. Assistant Sales Tax Officer1 the question was whether animals and birds
in captivity (monkeys; mines and parrots in the instant case) could be treated as movable
property and as 'goods' within the meaning of section 2(d) of the Central Sales tax Act,
1956. P.T. Raman Nair J. held that the animals and birds in captivity were 'goods' within
the section 2(d) of the Central Sales Tax Act 1956. Even if it were assumed that animate
things did not come within the definition of article 366(12) of the Constitution, and the
sale in question would not fall within entry 542 of List II or entry 92A3 of List I, it would
come within entry 97 of List I, namely the 'residuary' entry. To levy a tax on such sale
would be within the competence of Parliament. One would suggest that the ratio
decidendi of the decision is to be based on the second holding.

In M/s, Rungta Engineering & Construction Co. ltd v Income Tax Officer4 it was
argued that Parliament had no power to enact the Income Tax Amendment Act, 1954 (33
of 1954) which introduced sub-sections 1--A to 1--D in Section 34 of the Income Tax Act
making escaped income in respect of periods prior to Indian Independence liable to
assessment Bachwat J. held that the tax in question would still be a tax on income within
the meaning of entry 82 of List I. Even if it were assumed that it was not a law with
respect to income tax, since the Act in question was not a law. with respect to any matter
enumerated in the Concurrent List or the State List, the Parliament had the legislative
competence to pass the Act under residuary powers.

Similarly, in Lakshmana v. Additional Income Tax Officer5, the validity of sections

2(6A)(a) and 12(1B) of the Income Tax Act, 1922 (as amended by the Finance Act, 1955)
entry 97 of List I and went on further to state that there was no objection for the
Parliament incorporating the provisions under the Income Tax Act which called for the
exercise of power under two or more entries in List I. This it is respectfully submitted is
bad advice, for, it encourages clumsy legislation. Of course nothing prevents Parliament
from clubbing together provisions regarding preventive detention under entry 9, List I,
1
A.I.R..1960 Ker. 360.
2
Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of
List I.
3
92A- Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes
place in the course of inter-State trade or commerce.
4
A.I.R.1960 Cal. 619.
5
A.I.R.1961 Mad, 146.
and preventive inoculation for inter-State quarantine under entry 81, List I, in one law on
the ground that it has competence under the Constitution; but none should encourage the
practice. These thoughts must have prompted Hidayatullah J. for, in his concurrent
judgment he held that the annuity deposit scheme was in pith and substance referable to
entry 82 relating to taxes on income and incidental matters, and there was no need to
resort to residuary powers and thereafter he made the following observations regarding
the use of residuary powers: "The very frequent reliance on entry No.97 makes me say
these few words. That entry, no doubt, confers residuary powers of legislation or taxation
but it is not an entry to avoid e discussion as to the nature of a law or of a tax with e view
to determining the precise entry under which it can come. Before recourse can be shed to
entry'Ro.97 it met be found as a fact that there is no entry in any of the three Lists under
which the impugned legislation can come. For if the impugned legislation is found to
come under any entry in List II, the residuary entry will not apply. Similarly, if the
impugned legislation falls within any entry in one of the other two Lists recourse to the
residuary entry will hardly be necessary. The entry is not a first step in the discussion of
such problems but the last resort. One cannot avoid the issue by taking its aid unless such
a course is open. It is always necessary to examine the pith and substance of any law
impugned on the ground of want of legislative competence with a view to ascertaining
the precise entry in which it can come. The entries in the three Lists were intended to be
exhaustive and it would be a very remote chance that some entry would not suit the
legislation which is impugned".

A challenge to the validity of the Payment of Bonus Act, 1965 was repelled by the
Supreme Court. It was held that the power of the Parliament to fix minimum bonus
flowed from its jurisdiction over industrial and labour disputes, welfare of labour
including conditions of work and wages. The court did not hold that the fixation of
minimum bonus was legal under any of the above powers. But then it added that if the
above powers were held to be inefficient, the residuary powers of the Parliament must
lend validity to the Act6. One wonders whether this is going to be a refrain in this class of
cases.

6
Jalan Trading Co. v. Mill Mazdoor Sabha, A.I.R. 1967 S.C. 691.
In L.C Golaknath v. State of Punjab7 Supreme Court had held that the power of the
Parliament to amend the Constitution was derived from article 248 read with. entry 97 of
List I and that article 368 dealt only with the procedure for amendment. However, in view
of the 24th Amendment of the Constitution and the Supreme Court's pronouncement in
Kesavanand Bharathi v State of Kerala ,8 article 368 should be held to include both the
power and procedure for amendment and there is no case for invoking a residuary power
for constitutional amendment. It is also doubtful whether the residuary power can be
relied upon by Parliament to call a new Constituent Assembly for the purpose of
constitutional revision.

BASIC PRINCIPLES OF 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. UOI [1998
(2) SCC 299] 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

7
A.I.R. 1957 S.C. 1543.
8
A.I.R. 1973 S.C. 1461.
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.

Therefore the process of construction combines both literal and functional approaches. In
the case of GEM Granites v. CIT9 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. Asher10 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 Agarwal11 The art of correct interpretation
would depend on the ability to read what is stated in plain language, read between the

9
(2004) 271 ITR 322 (SC)
10
[1949] 2 All ER 155

11
(2003) 2 SCC 577
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 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 Carrier12

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. Sankaranarayanan Bhattathirpad v/s. ITO – [(1985) 153 ITR 562, 567 –
68 (Ker)]

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. Amin – [(1971) 82 ITR 194 (Guj)]

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 Ltd. – [(1993) 203 ITR 422, 430 (Cal)].

12
(2003) 259 ITR 449 (SC)
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. UOI13 .

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. UOI14 .

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.

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
ACIT15.

It is not permissible to construe any provision of a statute, much less a taxing provision,
by reading into it more words than its contains. CIT v/s. Vadilal Lallubhai16 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 Waterhouse, (1997) 90 Comp. Case 113, 140, 141 (SC)

State of West Bengal vs. Scene Seven P. Ltd. AIR 2000 SC 3089, 3094

Harbajan Singh vs. Press Council of India (2002) 3 SCC 722, 727.

District Registrar and Collector v. Canara Bank, (2005) 1 SCC 496.

13
(2004) 267 ITR 460 (All.)
14
(2004) 266 ITR 429 (Cal.)
15
[(2005) 278 ITR 521 (Bom)]
16
[(1972) 86 ITR 2 (SC)]
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;

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. (1966 ) 60 ITR 392 (SC)

Classic Builders & Developers vs. UOI (2001) 251 ITR 492, 497 (MP)

Reckitt Colman of India Ltd. vs. ACIT (2001) 252 ITR 550 (Cal.).

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. State17
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 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. CIT (1990) 183 ITR 1 (SC)

CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC)

Vikrant Tyres Ltd vs. ITO (2001) 247 ITR 821, 826 (SC)

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

17
A.I.R. 1988 Supreme Court 1883
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. CIT18.

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

CIT vs. Provident Inv. Co. Ltd. (1954) 32 ITR 190 (SC)

J.K. Steel Ltd. vs. UOI AIR 1970 SC 1173

CIT vs. Indo Oceanic Shipping Co. Ltd. (2001) 247 ITR 247 (Bom)

Hansraj & Sons vs. State of J & K (2002) 6 SCC 227, 237-39

In A.V. Fernandez v/s. State if Kerala19.

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 Officer20, 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

18
[(1994) 206 ITR 688, 691 (SC)].

19
[(1994) 206 ITR 688, 691 (SC)].

20
AIR 1981 SC 1887
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.

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 Ltd21.

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.

21
(2003) 263 ITR 550 (SC)
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) (2008) 300 ITR 339 (All.)

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 Jain AIR 1979 SC 65

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

LEGISLATIVE HISTORY AND BACKGROUND

For determining the purpose or object of the legislation, it is permissible to look into the
circumstances which prevailed at the time when the law was passed and which
necessitated the passing of that law. For the limited purpose of appreciating the
background and the antecedent factual matrix leading to the legislation, it is permissible
to look into the Statement of Objects and Reasons of the Bill which actuated the step to
provide a remedy for the then existing malady.

To sustain the presumption of constitutionality, consideration may be had even to matters

of common knowledge, the history of the times and every conceivable state of facts
existing at the time of legislation which can be assumed. Even though for the purpose of
construing the meaning of the enacted provision, it is not permissible to use these aids,
yet it is permissible to look into the historical facts and surrounding circumstances for
ascertaining the evil sought to be remedied.. [Shashikant Laxman Kale vs. Union of
India 185 ITR 104 (SC)]

“The Court may consider the general history of the statute, including its derivation, that
is, the various steps leading up to and attending its enactment in its effort to ascertain the
intention of the Legislature where it is in doubt”. [S.P. Gupta vs. Union of India and
Another (1982) AIR 149 (SC)]

“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, would, therefore give the meaning of the statute and 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.” [(1988) 2 SCC 299 Doypack Systems P. Ltd.]

SPECIAL LAW OVERRIDES GENERAL LAW

The accepted rule of interpretation is that special provisions will prevail when there is a
conflict between the two :

This rule of interpretation has been highlighted in CIT v. Shahzada Nand & Sons 60
ITR 32 (SC)

However, as the name suggests, it is a general law and will always be overridden or
superseded by a special law as per the canons of judicial interpretation. The Latin
maxim “Generalia specialibus non derogant” is one of the cardinal maxims of
interpretation and means that a general law will always be superseded by a special law.
(State of Gujarat vs. Ramjibhai AIR 1979 SC 1098)
Thus since taxing statutes are always special laws and most often self contained
enactments which even oust the jurisdiction of Courts in many cases, they would most
definitely prevail over the General Clauses Act, 1897, when they define the scope of
terms or procedures.

However the general rule would apply wherever the special statute does not define the
scope or restricts the scope, the general rule would apply as controlled or cut down by the
special rule. (South India Corporation Pvt. Ltd. vs. Board of Revenue AIR 1964 SC
207)

CHARGING SECTION SHOULD BE STRICTLY CONSTRUED WHILE THE

PROCEDURAL SECTIONS SHOULD BE LIBERALLY INTERPRETED .

This is also a very practical rule in the interpretation of taxing statutes and the charging
section should be liberally construed while the procedure should have the widest possible
ambit so as to ensure that no one has a vested right of procedure.

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 industrialisation, infrastructure development etc. A provision for appeal should
also be liberally construed.

(a) CIT vs. Naga Hills Tea Co. Ltd. 89 ITR 236, 240 (SC); CIT vs. Contr ED vs.
Kanakasabai 89 ITR 251, 257(SC)

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”. Gursahai Saigal vs. CIT
48 ITR (SC) 1

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.
Principle for interpretation of exemption notification and exception thereto – Held, an
exemption notification under an enactment has to be construed strictly – However, an
exemption notification issued for implementing an industrial policy of the State, which
had promised tax exemption for setting up new industries in backward area, held, should
be construed not strictly but liberally keeping in view the objects of such policy.

State of Jharkhand & Ors. v. Tata Cummins Ltd. & Anr. (2006) 4 SCC 57

THE STATUTE MUST BE READ AS A WHOLE :

An interpretation clause, which extends the meaning of a word, does not take away its
ordinary meaning. It should be borne in mind that an interpretation clause is not meant to
prevent the word receiving its ordinary, popular and natural sense whenever that would
be properly applicable. However it is to enable the word as used in the Act, when there is
nothing in the context or the subject-matter to the contrary, to be applied to some things
to which it would not ordinarily be applicable.

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.

RESIDUARY TAXING POWERS

The maximum use of the residuary powers has been made in the field of taxing powers.
Since taxing powers have been specifically mentioned in the Lists such e power cannot
be inferred as ancillary or incidental to any other entry relating to legislation. Again,
taxing powers have been given only in the exclusive fields and there is no taxing power
in the concurrent field. These factors seem to have made the resort to the residuary power
for sustaining the validity of taxing measures. The chief uses of residuary powers in these
fields are discussed below.
Gift Tax:

The competence of the Parliament to enact the Gift max Act, 1958 (18 of 1958) for
levying a tax on gifts of agricultural land was sustained by the Kerela 22 and Madras High
Courts, on the basis of the residuary powers. Both these High Courts held that the power
to impose a tax on gift of agricultural land could not be hold to be incidental to the power
to legislate with respect to land under entry 18 of List II. Nor could that power be
comprehended within entry 47 of List II relating to duties in respect of successions
agricultural land. In Shyam Sunder v. Gift Tax Officer23 on a similar reasoning, the
Allahabad High Court held that a tax on land and buildings was distinctly different from a
tax on gift of land, and that legislation in respect of a tax on gift of land and buildings
would not fall under entry 49 of List II, namely, tax on land and buildings. The Gift Tax
Act was validly passed by Parliament under article 248 read with entry 97 of List I.

However, in D H. Nazareth v. Gift Tax Officer24, the Mysore High Court held that the
power to levy a gift tax on lends and buildings, particularly on agricultural land (gift of
coffee plantation in the instant case) was reserved to the State Legislature under entries
18 and 49 of List II, and that Parliament had no power to do so under entry 97 of List I.
On appeal by the Government, the Supreme Court rovers the decision of the Mysore High
Court. Hidayatullah C.J. held that the entries in the Lists did not follow a logical
classification or dichotomy, and met be regarded as enumeration simplex of broad
categories bound to overlap occasionally.

It was usual to examine the pith and substance of the legislation in solving questions
about legislative competence. If the legislation was not covered by any entry when
examined in that fashion, it would belong to the residuary power.

Irregular sugarcane cess levied by State :

The residuary powers have been pressed into service even for sustaining, though
indirectly, the irregular exercise of taxing powers by the. In Diamond Sugar Hills
Limited v State of U.P25 that the premises of a factory was not a "local area" within the
meaning of entry 5220! List II. The Uttar Pradesh Sugarcane Cass Act, 1956 which had

22
M.T. Joseph v Gift Tax Officer, A.I.R 1962 KER 97.
23
A.I.R. 1967 All. 19.
24
A.I.R. 1962 Mysore 269.
25
A.I.R. 1961 S.C. 652.
levied cess on the entry of cane into the premises of a factory for use, consumption or
sale therein on the basis that the premises of a factory was a ‘local area‘ was therefore
struck down. On the basis of this decision, the M.P. High Court struck down the LP.
Sugarcane Regulation of Supply and Purchase Act, 1958 (No.1 of 1959) which had levied
a similar cess. The Central Act, the Sugarcane Cess (Validation Act) 1961 (No.38 of
1961) was passed which by section 3 validated levy of a cess on sugarcane under 10 Acts
in 7 States including the one under the M.P.Act.

In Jaora Sugar Lille v. State of M.P26. the validity of the central legislation was
questioned. Gajendra gadker C.J. delivering the judgment of the Supreme Court held that
section 3 of the Central Act did not merely validate the invalid State Acts, because it
would not have been competent for Parliament to confer Jurisdiction on State
Legislatures in that way, but had included all the States and Notifications in the Central
Act at all material times by virtue of section 3. Parliament had the power to levy the cess
as had been levied in the invalid State Acts, under article 248 read with entry 97 of the
List II.

Irregular sugarcane cess levied by State :

The residuary powers have been pressed into service even for sustaining, though
indirectly, the irregular exercise it may be recalled, the Supreme court held of taxing
power by the States. In Diamond Sugar Hills Limited v State of U.P27 that the premises
of a factory was not a "local area" within the meaning of entry 52 of List II. The Uttar
Pradesh Sugarcane Cass Act, 1956 which had levied cess on the entry of cane into the
premises of a factory for use, consumption or sale therein on the basis that the premises
of a factory was a ‘local area‘ was therefore struck down. On the basis of this decision,
the M.P. High Court struck down the MP. Sugarcane Regulation of Supply and Purchase
Act, 1958 (No.1 of 1959) which had levied a similar cess. The Central Act, the Sugarcane
Cess (Validation Act) 1961 (No.38 of 1961) was passed which by section 3 validated
levy of a cess on sugarcane under 10 Acts in 7 States including the one under the M..P.
Act.

26
A.I.R 1966 S.C. 416.
27
50. A.I.R. 1961 S.O. 652.
 CONCLUSION

In interpreting the scope of legislative entries in the three Lists, Courts have to keep in
mind that while, on one hand, it is desirable that an entry in each of the Lists should
receive the broadest interpretation, it is quite important, on the other hand, that the three
Lists should be read together harmoniously. Wherever legislative powers are distributed
between the Union and the States, a situation may arise where the two legislative fields
might apparently overlap.
It is the duty of the Courts to ascertain to what degree and to what extent the authority to
deal with matters falling within these classes of subjects exists in each Legislature and to
define, in any particular case before them, the limits of the respective powers.