INTERPRETATION OF TAX STATUTES

[Dr. Sanjiv Agarwal]

The adjudicating authority should always to follow the accepted and settled principles of interpretation of tax statutes and should not interprete the provisions to suit the revenue. Consideration of equity is wholly out of place in a taxing statute and only principle of strict interpretation applies to taxing statutes. The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J. in his classic statement:

      “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, (vide Cape Brady Syndicate v. IRC (1921) 1 KB 64 [cited with approval in AIR 1968 S.C. 623.]).

        In A V Fernandez v. State of Kerala, AIR 1957 SC 657, 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”.

        Hence in taxing statutes the language cannot be strained, vide State  of Punjab v. Jullunder Vegetable Syndicate, AIR 1966 S.C. 1295. If the words of a taxing statute fail, so must the tax. The courts cannot, except rarely and in clear cases, help the draftsman by a favourable construction, vide ITO v. Nadar, AIR 1968 S.C. 623.

         Taxation statutes admit of a strict interpretation [CIT v. Narinder Mohan Foundation 2007 -TMI - 33706 – (DELHI HIGH COURT)]

The Supreme Court of India has held that equity is out of place in tax laws, vide CIT v. Firm Muar, AIR 1965 S.C. 1216. In CIT v.  Madho Prasad Jatia, (1976) 4 SCC 92, it held that there could be no   consideration of equity if the language of the provision was plain and clear, but where it was not, and two interpretations were possible, the one in consonance with equity and fairness should be preferred. [CCE, Trichy v. Dalmia Cement (Bharat) Ltd. 2005 -TMI - 47874 – (HIGH COURT OF DELHI)]

In Keshavji Ravji and Company v CIT 1990 -TMI - 5292 – (SUPREME Court), it was observed that as long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature. In Doypack Systems Pvt. Ltd. v. Union of India [1988] 2 SCC 299 ; [1989] 65 Comp Cas I, 9, 16, it was observed-

        ‘The words in the statute must, prima facie, be given their ordinary meanings. Where the grammatical construction is clear and manifest and without doubt, that construction ought to prevail unless there are some strong and obvious reasons to the contrary’.

‘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.’

While interpreting a taxing statute, legal fiction should be kept in mind. It was held that having regard to the contextual interpretation and in view of the fact that the court is dealing with a taxation statute, the legal fiction must be construed having regard to the object it seeks to achieve. [Ishikawajima – Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai 2007 -TMI - 3467 – (SUPREME COURT)]

It is well settled that an agreement has to be read as a whole and not in bits and pieces, in order to understand the true intention of the parties.  In this regard, the assessee place reliance on the judgment in the case of Kultar Singh v Mukhtiar Singh (1964) 7 SCR 790 and Jagannath Deb Roy  v. Byomkesh Roy AIR 1973 Cal 397 wherein the Hon’ble High Court of Calcutta has held as follows:

“8.….One of the well established rule of construction is that the document must be read as a whole. A piecemeal reading of the document either of recital or operative portion or the covenants cannot bring about a fair and proper construction of a document…”

In the case of Super Poly Fabriks Ltd, the Hon’ble Supreme Court has specifically laid down the ratio as under:

“8. There cannot be any doubt whatsoever at a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof: Neither the nomenclature of the documents nor any particular activity undertaken by the parties to the contract would be decisive.”

In addition, it is an established principle of law that commercial documents must be construed in a manner as are understood in commercial parlance. These are business agreements and must be read as a businessman would read them (Refer to W T Suren & Co. (P.) v. CIT 80 ITR 602 at page 616).

It is also well settled that an agreement has to be read as a whole and the intention of the parties is to be gathered from it. Moreover, if the terms used in the agreements are not conclusive and one has to look at the substance rather than the form. In addition, it is equally well settled that a name given to a transaction by the parties does not necessarily decide the nature of the transaction. Thus, it is the substance of the contract that has to be regarded. (Nilkantha Narayan Singh v. CIT 20 ITR 8 at page 14)

 

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