Basic of “Principles of Interpretation of Tax laws”: Essential to understand Tax laws for a tax professional

[dipsang vadhel]

Constitution is the foundation and source of powers to legislate all laws in India. Parliament, as well as State Legislatures gets the power to legislate various laws from the Constitution only and therefore every law has to be within the vires of the Constitution.Further, Article 265 of the constitution mandates that no tax shall be levied or-collected except by the authority of law.  It provides that not only levy but also the collection of a tax must be under the authority of some law.

Talking about the taxation laws and the interpretation of taxation laws, every lawyer or a tax professional practicing taxation laws must understand the basic provisions of Constitution relating to taxation including the powers of Parliament and State Legislatures to legislate regarding levy and collection of tax, the restrictions imposed by our Constitution on such powers, entries concerning taxation in Central List i.e List-1 and State List i.e List-2 of Seventh Schedule to Constitution of India.

All laws and executive actions are subordinate to the Constitution. To form clear understanding of the basic concepts relating to taxation laws one must understand the relevant provisions of the Constitution, as the power to levy and collect tax by State Governments or Union Government comes from the Constitution only.

One thing must be kept in mind that there is always an object behind every law and that object ultimately exist to achieve the objects enumerated in the Preamble of our Constitution, which runs as under:

“WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens:

JUSTICE, social, economic and political;

LIBERTY, of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity;

and to promote among them all FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation;

 IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, DO HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION.”

While interpreting every law one has to keep in mind the object behind the law, if any provision of the law or any administrative action or any interpretation of the law defeats the object of such law for which it is being legislated and consequently is not in accordance with the Constitution then it is illegal, void and ultra vires of the Constitution.

In nutshell, all the above articles of the Constitution are very important in relation to taxation and must be deeply understood by every tax professional. Interpretation of every law, validity of subordinate legislation’s and administrative actions must be judged in the background of the provisions of Constitution.

Having, studied the Constitutional validity of the statute, the art of correct interpretation would depend upon the ability to

1. To read plain language
2. Read between the lines
3. Read ‘through’ provision
4. Examining the intent of the legislation
5. Call upon case laws and other aids to interpretation

Tax laws are highly complex, complicated and beyond understanding of a tax-payer.  The words and expressions used are not simple.  Many sections contain sub-sections, clauses, sub-clauses.  Many deeming provisions have been inserted.  Meaning of an expression is extended by way of Explanation and is curtailed by way of proviso, sometimes more than one proviso and explanations meaning differently.

It is the basic principle of construction of statute that the same should be ready as a whole, then chapter by chapter, section by section and words by words.  Recourse to construction or interpretation of statute is necessary when there is ambiguity, obscurity or inconsistency therein and not otherwise.

In case of taxing statutes, there are certain bedrock principles on which the interpretation of the particular statute is done by the courts and Tribunals.  The knowledge of basics of these principles is essential to understand tax statute and implication of its principles.

We shall discuss some important principles of interpretation and its relevancewith respect to scheme of statute with help of decided case laws in the next few articles.