LIBERAL INTERPRETATION IN TAXATION

[Dr. Sanjiv Agarwal]

As a general rule, liberal interpretation is resorted to in remedial statutes whereas penal statutes should be strictly interpreted. The liberal construction must flow from the language used and the rule does not permit placing of an unnatural interpretation on the words contained in the enactment; nor does it permit the raising of any presumption that protection of widest amplitude must be deemed to have been conferred upon those for whose benefit the legislation may have been enacted.

In case of beneficial legislation, liberal interpretation should be applied. Without rewriting or doing violence to the enactments for resolving an ambiguity and the literal construction when the language is clear and explicit cannot be given a go bye.

Judicial assertions for Liberal Interpretation

Following assertions can be drawn from various judicial pronouncements in relation to liberal interpretation:

1. While construing a tax statute, ‘sympathy’ has no role to play.
2. Even a beneficent legislation has to be read reasonably and justly and without inferring such limitations on the right to hold property or other rights which may expose it to the vice of unconstitutionality.
3. If two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty.
4. The duty of the court is to give effect to the purpose as expressed in clear and unambiguous and that obligation is not altered because the Act is penal in character.
5. The court has more freedom in the interpretation of a Constitution than in the interpretation of other laws.
6. The exclusion clause may have to be given a liberal construction if the purpose behind it so requires.
7. Any matter reasonably within the statute’s meaning, may be included within the statute’s scope, unless the language necessarily excludes it.
8. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman’s unskillfulness or ignorance of law except in the case of necessity or the absolute intractability of the language used.
1. In cases, where the literal meaning of the words used in a statutory provision would manifestly defeat its object by making a part of it meaningless and ineffective, it is legitimate and even necessary to adopt the rule of liberal construction so as to give meaning to all parts of the provision and to make the whole of it effective and operative.
10. Liberal construction is that by which the letter or statute is enlarged or restricted so as to more effectually accomplish the purpose intended.
11. Liberal construction does not require that words be accorded a forced, strained, or unnatural meaning, or warrant an extension of the statute to the suppression of supposed evils, or the effectuation of conjectural objects and purposes not referred to nor indicated in any of the terms used.
50. The provisions of transitional enactment should be construed liberally and should be given as comprehensive a scope as its language permits.

Relevant Judicial Pronouncements from Supreme Court

• In Cape Brady Syndicate v. IRC (1921) 1 KB 64 (1968) AIR 623 (Supreme Court), it was held that consideration of equity are wholly out of place in a taxing statute and only principle of strict interpretation applies to taxing statutes.

In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

• In AV FERNANDEZ VERSUS THE STATE OF KERALA  - 1957 (4) TMI 46 - SUPREME COURT, the Supreme Court of India stated the principle as follows:

"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 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 COMMISSIONER OF SALES TAX, UP. VERSUS MODI SUGAR MILLS LTD. - 1960 (10) TMI 65 - SUPREME COURT, it was held that considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity (Ref: STATE BANK OF TRAVANCORE VERSUS COMMISSIONER OF INCOME-TAX, KERALA - 1986 (1) TMI 1 - SUPREME COURT. It has also been said that if taxing provision is "so wanting in clarity that no meaning is reasonably clear, the court will be unable to regard it as of any effect." [Ref: IRC v. Ross & Coulter (1948) 1 All ER 616 (HL); referred to in GURSAHAI SAIGAL VERSUS COMMISSIONER OF INCOME-TAX - 1962 (8) TMI 66 - SUPREME COURT. It has also been held that in interprettng taxing statute, equitable considerations are entirely out of place nor can E taxing statutes be interpreted on any presumptions or assumptions. It must interpret a taxing statute in the light of that is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency. [Also see: COMMISSIONER OF INCOME-TAX, BOMBAY CITY I VERSUS MAHARASHTRA SUGAR MILLS LIMITED - 1971 (8) TMI 14 - SUPREME COURT].

•  In COMMISSIONER OF INCOME-TAX, MADRAS VERSUS V. MR. P. FIRM, MAUR. - 1964 (10) TMI 13 - SUPREME COURT, it was held that Supreme Court of India has held that equity is out of place in tax laws.

• In HIS HIGHNESS YESHWANT RAO GHORPADE VERSUS COMMISSIONER OF WEALTH-TAX, BANGALORE - 1966 (5) TMI 14 - SUPREME COURT, it was held that Courts are not entitled to fill any lacuna in any Act, much less in a Taxing Act, but the Courts will also not stretch a point in favour of the taxpayer to enable him to get by his astuteness the benefit which other taxpayers do not obtain.

•   In THE MARTAND DAIRY AND FARM VERSUS THE UNION OF INDIA AND OTHERS - 1975 (4) TMI 100 - SUPREME COURTit was held that Taxation considerations stem from administrative experience and other factors of life and not from artistic visualisation or neat logic and so the literal, though pedestrian interpretation must prevail.

• In CRAFT INTERIORS PVT. LTD. VERSUS COMMISSIONER OF C. EX., BANGALORE - 2006 (10) TMI 2 - SUPREME COURT, it was held that while interpreting any statute, common parlance meaning or popular meaning shall prevail over dictionary meaning to interpret the words. As stated by K. L. Sarkar in his book 'Mimansa Rules of Interpretation' (see second edition published by Modern Law Publication, Allahabad). 'The popular meaning overpowers the etymological meaning'. To give an example, the word 'pankaja' literally means born in mud. The word 'panka' means 'mud', and the word 'ja' means 'which is born in mud'. Many things can be born in mud e.g. insects, vegetation, water flowers, etc. However, by popular usage the word 'pankaja' has acquired a particular meaning in common parlance i.e., lotus. This meaning will, therefore, prevail over the etymological meanings.

• In AMRIT PAPER VERSUS COMMISSIONER OF CENTRAL EXCISE, LUDHIANA - 2006 (7) TMI 7 - SUPREME COURT; it was held that while interpreting the statute, primacy to notifications over rules need not be given. Such interpretation will render statutory provisions in rules nugatory and redundant.

• In COMMISSIONER OF INCOME TAX, KERALA VERSUS TARA AGENCIES - 2007 (7) TMI 4 - SUPREME COURT it was held that the legal position seems to be clear and consistent that it is the bounden duty and obligation of the court to interpret the statute as it is. It is contrary to all rules of construction to read words into a statute which the legislature in its wisdom has deliberately not incorporated.

• In BANSAL WIRE INDUSTRIES LTD. VERSUS STATE OF UP. - 2011 (4) TMI 77 - SUPREME COURT, it was held that words used in section, rule or notification cannot be rendered redundant and should be given effect to. It observed as follows -

"It is a settled principle of law that the words used in the section, rule or notification should not be rendered redundant and should be given effect to. It is also one of the cardinal principles of interpretation of any statue that some meaning must be given to the words used in the section.

In arriving at the aforesaid conclusion, we find support from the decision of this Court in UNION OF INDIA VERSUS HANSOLI DEVI AND OTHERS - 2002 (9) TMI 799 - SUPREME COURT wherein this Court held that it is a cardinal principle of construction of a statute that when the language of the statute is plain and unambiguous, the court must give effect to the words used in the statute.

Besides, in a taxing Act one has to look merely at what is clearly said and there is no room for any intendment. In a taxing statute nothing is to be read in, nothing is to be implied, one can only look fairly at the language used."

• In M/S TATA SKY LTD. VERSUS STATE OF MP AND OTHERS - 2013 (4) TMI 373 - SUPREME COURT; , it was held that notification cannot enlarge the charging section. If no tax can be levied on an activity under the charging section, no tax can be levied on such activity even after issuance of notification prescribing rate of tax thereon. It is well settled that if collection machinery provided under Act is such that it cannot be applied to an event, it would follow that event is beyond charge created by taxing statute. Valuation provision provides only a measure of tax and it does not create charge. The question of going to measure of tax would arise only if it is found that charge of tax is attracted.

• In BIMAL KISHORE PALIWAL & ORS., RENUKA AGARWAL, MASTER RAHUL, SURENDRA KUMAR, JITENDRA KUMAR (HUF) AND SHYAMLAL (D) BY LRS. VERSUS COMMISSIONER OF WEALTH TAX - 2017 (10) TMI 603 - SUPREME COURT, it was held that the proposition that if two reasonable construction of a taxing statute are possible, that construction which favours the assessee must be adopted, cannot be read to mean that under two methods of valuation, the value which is favourable to assessee should be adopted. In COMMISSIONER OF INCOME-TAX, WEST BENGAL I VERSUS VEGETABLE PRODUCTS LIMITED - 1973 (1) TMI 1 - SUPREME COURT , in paragraph 6 of the judgment has laid down the following:

"There is no doubt that the acceptance of one or the other interpretation sought to be placed on section 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well accepted rule of construction recognised by this court in several of its decisions. Hence all that we have to see is, what is the true- effect of the language employed in section 271 (1) (a) (i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty."

• In M/S. SOUTHERN MOTORS VERSUS STATE OF KARNATAKA AND OTHERS - 2017 (1) TMI 958 - SUPREME COURT, it was held that though words in a statute must, to start with, be extended their ordinary meanings, but if the literal construction thereof results in anomaly or absurdity, the courts must seek to find out the underlying intention of the legislature and in the said pursuit, can within permissible limits strain the language so as to avoid such unintended mischief.

• In COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY & ORS. - 2018 (7) TMI 1826 - SUPREME COURT it was held that interpretation of taxing statute imposing tax liability on assessee. Burden to prove tax liability of an assessee is on Revenue. In case of any ambiguity in a taxing statute imposing tax liability on the assessee, benefit of doubt to be given to assessee.

• In ALD AUTOMOTIVE PVT. LTD. VERSUS THE COMMERCIAL TAX OFFICER NOW UPGRADED AS THE ASSISTANT COMMISSIONER (CT) & ORS. - 2018 (10) TMI 814 - SUPREME COURT, it was held that taxing statute has to be strictly construed. Nothing is to be read in or implied. Language used has to be looked into fairly. Benefits envisaged in taxing statute had to be extended as per stipulated restrictions/conditions.

• In COMMERCIAL TAXES OFFICER VERSUS M/S. BOMBAY MACHINERY STORE - 2020 (4) TMI 769 - SUPREME COURT, it was observed that tax Administration cannot interpret legislative provisions based on their own perception of trade practice. They cannot supply words to legislative provisions to cure omissions of legislature. If they felt assessee/dealer was taking unintended benefit of legislative provisions, proper course would be legislative amendment.

• In COMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUS M/S UNIVERSAL FERRO & ALLIED CHEMICALS LTD. & ANR. - 2020 (3) TMI 375 - SUPREME COURT, it was held that while interpretating statute plain and literal interpretation must be adhered to. The court observed that it is also equally well-settled that the first principle of interpretation of plain and literal interpretation has to be adhered to. We are therefore of the considered view, that the narrower scope of the term ‘sale’ as found in the Sale of Goods Act, 1930 cannot be applied in the present case. The term ‘sale’ and ‘purchase’ under the Central Excise Act, 1944, if construed literally, it would give a wider scope and also include transfer of possession for valuable consideration under the definition of the term ‘sale’.

• In NIRMAL KUMAR PARSAN VERSUS COMMISSIONER OF COMMERCIAL TAXES & OTHERS AND PARSAN BROTHERS AND ANOTHER VERSUS ASSISTANT COMMISSIONER OF COMMERCIAL TAXES & OTHERS - 2020 (1) TMI 800 - SUPREME COURT, it was held that taxation statutes have to be strictly interpreted.

• In M/S CANON INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF CUSTOMS - 2021 (3) TMI 384 - SUPREME COURT, it was held that where the statute confers the same power to perform an act on different officers, as in this case, the two officers, especially when they belong to different departments, cannot exercise their powers in the same case. Where one officer has exercised his powers of assessment, the power to order reassessment must also be exercised by the same officer or his successor and not by another officer of another department though he is designated to be an officer of the same rank. In our view, this would result into an anarchical and unruly operation of a statute which is not contemplated by any canon of construction of statute. It was further observed and held that it is well known that when a statute directs that the things be done in a certain way, it must be done in that way alone. As in this case, when the statute directs that ‘the proper officer’ can determine duty not levied/not paid, it does not mean any proper officer but that proper officer alone. We find it completely impermissible to allow an officer, who has not passed the original order of assessment, to re-open the assessment on the grounds that the duty was not paid/not levied, by the original officer who had decided to clear the goods and who was competent and authorised to make the assessment. The nature of the power conferred by Section 28(4) of Customs Act to recover duties which have escaped assessment is in the nature of an administrative review of an act. The section must therefore be construed as conferring the power of such review on the same officer or his successor or any other officer who has been assigned the function of assessment. In other words, an officer who did the assessment, could only undertake reassessment [which is involved in Section 28(4)].