STRICT CONSTRUCTION OF TAXING STATUTES

INTRODUCTION

Statutes imposing taxes or monetary burdens are to strictly construed. The logic behind this principle is that imposition of taxes is also a kind of imposition of penalty which can only be imposed if the language of the statute unequivocally says so. Any kind of intendment or presumption as to tax does not exist. TAX AND FEE In case of a fee, there is a specific service rendered to the fee payer. (Quid pro quo), whereas for the tax payer no direct services are rendered but the service assumes the form of public expenditure rendered to the public at large.

Rules of interpretation

Charging Section

The section that charges the tax must have clear words. Before taxing any individual it must be clearly established that the person to be taxed falls within the purview of the charging section by clear words. There is no implication of the law. If a person cannot be brought within the four corners of the law, he is free from tax liability. In Calcutta Jute Manufacturing Co. v Commercial Tax officer, the Supreme Court held that in case of interpreting a taxing statute, one has to look into what is clearly stated. There is no room for searching the intentions, presumptions or equity. In Mathuram Agarwal v State of Madhya Pradesh, the Supreme Court held that words cannot be added or substituted to find a meaning in a statute so as to serve the intention of the legislature. Every taxing statute must contain three aspects; subject of tax, person to be taxed and the rate of tax.

Strict and favourable construction

Taxing enactment should be strictly construed and the right to tax should be clearly established. Equitable construction should not be taken into account. Courts should not strain words and find unnatural meaning to fill loopholes. If the provision can be interpreted in two ways, then the one favoring the assessee must be taken into consideration. In Saraswati Sugar mills v Haryana State Board, The Supreme Court held that every Act of the parliament must be read according to the strict natural construction of its words.

Clear Intention to impose or increase tax

The intention to impose or increase tax or duty must be clear and in unambiguous language.

Prospective operation

The cardinal principle of tax laws is that the law to be applied to assessee is the law in force in the assessment year unless otherwise provided expressly or by necessary implication. No retrospective effect to fiscal statute is possible unless the language of the language of the statute is very clear and plain. In Reliance Jute Industries Ltd v Commercial Tax officer, Fiscal Statute are generally not retrospective otherwise expressly provide by necessary implications.

Meaning in common parlance.

In finding out the meaning of a taxing statute, the meaning in common usage, parlance special in commercial and trade circles must be considered.

Machinery provision

Machinery provision means the procedure foe calculation and collection of tax. The person who claims an exemption has to establish it. In National Tag Traders v Commissioner of Income Tax, the Supreme Court held that a fiscal statute must be construed strictly.

No presumption as to tax

As regards to imposition of tax, no presumption exists. It cannot be drawn by implication or analogical extensions. The presumption for equality and against partiality of taxation exists. In Mohammed Ali Khan v Commissioner of Wealth Tax, it was held that no tax can be imposed by inference, analogy or probing into the intention of the legislature.

Fiscal statute to be read as a whole.

The entire provisions of a fiscal statute has to be read as a whole and not in piecemeal to find out the intent of the legislature.

No spirit of law.

A person is no liable to tax on the spirit of law or logic or reason.

Substance of matter.

The tax authorities must consider the legal aspect of a particular transaction for levy of tax. This is called ‘substance of the matter’.
Court fee Act If the court fee is high, then it affects the right of the aggrieved person to seek remedy. In interpreting the court fee Act, the benefit of doubt always goes to the assessee. Double taxation In interpreting a fiscal statute, if one meaning gives rise to double taxation and other meaning gives rise to single taxation, then the interpretation must be in favour of single taxation. Delayed payment of tax. Interest is levied by tax authorities on delayed payment of tax. If provision exists, such delayed payment is valid. Penalty- no criminal Act The penalty provision cannot be equated with a criminal statute as a criminal act requires mens rea.
In short the general rule of construction is that in case of doubt, it is decided in favour of the tax payer even if such a decision is detrimental to the government.