Interpretation of Taxation Statutes

Taxation laws and penal laws are dealt with differently because of the nature of these laws.
Monetray obligation is done. It is kind of a punishment, Three things should be very clear:
- Who is the person to be taxed?
- What is the tax obligation?
- What is the tax rate?
There shhould not be any ambigyuity in these three things and there is no scope of interpretation
here. Interpretaion by judiciary is not within the scope of judiciary,

Literal Interpretation means interpreting what is given in the statute while on the other hand strict
construction means that in case of ambiguity, you go with the grammatical meaning which the
legislature would have intended. In literal interpretation, you dont go into the different meaning
of the legislation, For strict construction, the menaing closer to the text needs to be seen, the
intent of what the legislature would have intended while using the word.

Strict Construction:
• Principle of strict construction is applied when the language of the statutory provision is
ambiguous.
• In this rule, ambiguous language is given an ordinary and technical menaing without
going into equitable construction,
• Plain, direct, ordinary and clear meaning has to be given.
• There is no scope of intendment or equitable consideration.
• There can be no presumption of the tax by the court, It cannot increase or decrease the
liability.
For example; CSR obligation under section 135 of the Companies Act is given to the children of
the Ambani School. If you go with literal interpretation, the act is lawful. But under strict
construction, the ordinary meaning of welfare will be looked into and the act will fall short of
legality.
In taxation statute, there is a particular section that defines culpability as well as a section that
talks about exception. Exception is the benifit given to the taxpayer. Culpable clauses will be
given strict interpretation, while the exception clauses are given liberal interpretation.

· Taxing statutes are to be strictly construed.

· Lord Simmonds stated that the subject is not to be taxed without clear words for that purpose,
and every Act of Parliament must be read according to the natural construction of its words.
· The Judiciary cannot, by implication, ask a person to bear a tax.
· In CIT v. Calcutta Knitwears, it was held that Courts, while interpreting provisions of a fiscal
statute should neither add nor subtract a word from the provisions.
· In Gurusahai v. CIT, it was held that while fiscal statutes are to be strictly construed,
provisions as to relief and exemption must be construed liberally since they are
remedial provisions. This exemplifies the distinction between charging provisions (strictly
construed) and machinery provisions (liberally construed).
· Every taxing statute must contain three elements – subject of tax, person to be taxed, and rate
of tax.
· It must be a charging section, i.e., penalty must be provided. The section that charges the tax
must have clear words. In Calcutta Jute Manufacturing Co. v. Commercial Tax Officer, the
Supreme Court held that in a case of interpreting a taxing statute, one has to look into what is
clearly stated. There is no room for searching intentions, presumptions, or equity. There exists in
law a concept of equitable construction , but it does not apply in case of taxation statutes.
· Taxation statutes have to be given strict construction and the right to tax should be clearly
established. Equitable construction should not be taken into account. [these two points were
given in Saraswati Sugar Mills v. Haryana State Board]. Intention to impose or increase tax or
duty must be clear and in unambiguous language (example of CSR). Further, if two outcomes
may be there, the interpretation favourable to the assessee must be taken.
· The cardinal principle of tax laws is that the law in force in the assessment year unless
otherwise provided expressly or by necessary implication (procedural provisions).
· No retrospective effect to a fiscal statute is possible, unless the language of the statute is very
clear about the same.
Case talking about necessary implication is Reliance Jute Industries Ltd. v. Commercial Tax
Officer.
· No presumption as to tax can be taken.
· A fiscal statute has to be read as a whole.
· A person is not liable to tax on the spirit of the law, or logic, or reason.
· The tax authorities must consider the legal aspect of a particular transaction for levy of tax.
This is called substance
of the matter’.

Identification of Scope
Case: Ramanath Co. v CIT
Exemption is provided by the staturte in lieu of the nautre of the particular thing exempted.
Deduction is for a particular purpose.

Penal Statute
· Anything that defines a crime, and gives punishment with respect to the same, is a penal
statute.
· The Act has to be very immaculately drafted.
· Judges have to apply the legal text only as is written in the enactment. Once the court has
clear meaning of the text, no further investigation is required. Even then if two reasonable
constructions arise, the one that is favourable to the accused must be chosen.
· Where by strained construction of a penal statute, it is made to include an act which is not
otherwise punishable, it is known as constructive crime .
· The rule that a statute enacting an offence or imposing a penalty is strictly construed is now
only of limited application. The rule was originally evolved to mitigate the rigour of monstrous
sentences for trivial offences. Although that need has now vanished, the difference in approach
continues to persist.
· In Sham Sunder v. State of Haryana, it was held that a clear language is needed to create a
crime, and a statute, enacting an offence of imposing penalty, is strictly construed.
· In Chief Inspector of Mines v. Karam Chand Thapar, it was held that a statute providing for
penal prosecution has to be construed strictly. However, this rule is not of universal application
which must necessarily be observed in every case.
· In State of W.B. v. Swapan Kumar Guha, it was observed that where an ambiguity exists and
it has not been possible for the legislature to express itself clearly, the court exhibits a preference
for the liberty of the subject and resolves the doubt in favour of the subject (accused).
· In W.H. King v. Republic of India, it was observed that a statute which creates an offence and
imposes a penalty of fine and imprisonment must be construed strictly in favour of the subject.
The principle, that no person can be put in peril of his life and liberty on an ambiguity, is well
established.
· To put it in other words, as held in M.V. Joshi v. M.U. Shimpi, the rule of strict construction
requires that the language of a statute should be so construed that no case shall be held to fall
within it which does not come within the reasonable interpretation of the statute.
· As observed in Lalita Jalan v. Bombay Gas Co. Ltd., penal provisions should be construed in a
manner which will suppress the mischief and advance the object which the legislature had in
view.
· It was also held in Collector of Customs v. East Punjab Traders, that the provisions of a penal
statute cannot be presumed to have retrospective operation.
· When there are two possible constructions, the court must lean towards that construction
which exempts the subject from penalty, rather than the one which imposes penalty. The Court
held, in Tolaram Relumal v. State of Bombay, that the court cannot stretch the meaning of an
expression used by the legislature in order to carry out the intention of the legislature.