RULES OF CONSTRUCTION OF TAXING STATUTES- Tax Can Be Levied Only by Authority of Law

TANMOY MUKHERJEE INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherjee

Advocate

RULES OF CONSTRUCTION OF TAXING STATUTES- Tax Can Be Levied Only by Authority of Law

 

Tanmoy Mukherjee

Advocate

Article 265 of the Indian Constitution mandates:

“No tax shall be levied or collected except by authority of law.”

This constitutional mandate governs interpretation of taxing statutes.

Reference Cases-

A.V. Fernandez v. State of Kerala (1957) – Taxing statute must strictly comply with constitutional requirements.

Bennett Coleman & Co. v. Union of India (1972) – Taxing power must be exercised strictly within statutory limits.

Rule of Strict Construction-

Taxing statutes must be construed strictly, especially charging provisions.

Aspects:

→Nothing can be added by inference.

→No tax by implication.

→Legislative intent must be clear from words used.

Reference. cases:

Cape Brandy Syndicate v. IRC (1921) – “No room for intendment.”

Partington v. Attorney General (1869) – Subject not to be taxed unless statute clearly says so.

CIT v. Kasturi & Sons Ltd. (1999) – Courts cannot enlarge scope of charging section.

No Equity, No Presumption, No Intendment in Taxation-

Equitable or moral considerations are irrelevant.

Reference Cases:

CIT v. Ajax Products Ltd. (1965) – Equity has no place in tax law.

Mathuram Agrawal v. State of M.P. (1999) – No presumption as to tax.

Federation of A.P. Chambers of Commerce v. State of A.P. (2000) – Court cannot fill legislative gaps.

Charging Section – Backbone of Tax Liability

Tax liability arises only from charging provision.

Essential elements must be clear:

→Taxable event

→Person liable

→Rate of tax

→Measure of tax

Reference. Cases:

Govind Saran Ganga Saran v. CST (1985) – All components must be present.

CIT v. B.C. Srinivasa Setty (1981) – Failure of computation provision nullifies charge.

CIT v. Eli Lilly & Co. (2009) – Charging section must be strictly interpreted.

Machinery Provisions – Liberal Interpretation-

Machinery provisions are construed liberally to give effect to charging section.

Reference Cases:

CIT v. Mahaliram Ramjidas (1940) – Machinery provisions are aids to charge.

CIT v. National Taj Traders (1980) – Procedural provisions should advance object of statute.

Indian Aluminium Co. v. Thane Municipal Corporation (1991) – Machinery sections cannot override charging provisions.

Ambiguity – Benefit to the Assessee (Charging Provisions)-

If two interpretations are possible, the one favourable to the assessee must be adopted.

Reference Cases:

CIT v. Vegetable Products Ltd. (1973) – Benefit of doubt to assessee.

CIT v. Naga Hills Tea Co. Ltd. (1973) – Ambiguity resolved in favour of taxpayer.

State of Jharkhand v. Ambay Cements (2005) – Taxing provisions must be clear and certain.

Exemption, Deduction & Concession Provisions – Strict Interpretation-

Exemptions are exceptions to the general rule of taxation.

Rules:

→Burden of proof on assessee.

→Ambiguity benefits revenue.

Reference. Cases:

Novopan India Ltd. v. CCE (1994) – Strict interpretation of exemptions.

Dilip Kumar & Co. v. Commissioner of Customs (2018) (Constitution Bench) – Ambiguity in exemption → revenue wins.

Union of India v. Wood Papers Ltd. (1990) – Once eligibility is established, exemption should be liberally applied.

Literal Rule – Primary Rule in Taxation

Words must be given ordinary grammatical meaning.

Reference. Cases:

IRC v. Duke of Westminster (1936) – Literal interpretation is mandatory.

A.V. Fernandez v. State of Kerala (1957) – Nothing can be implied.

State of Tamil Nadu v. Kodaikanal Motor Union (1986) – Commercial terms to be understood in trade sense.

Trade, Commercial & Technical Meaning

Where words have trade meaning, that meaning must prevail.

Reference. Cases:

Ramavatar Budhaiprasad v. Assistant STO (1961) – Common parlance test.

Commissioner of Sales Tax v. Jaswant Singh Charan Singh (1967) – Popular meaning preferred over technical meaning.

Penal Provisions in Tax Statutes – Strictest Interpretation

Penalty provisions must be construed more strictly than charging provisions.

Reference Cases:

Hindustan Steel Ltd. v. State of Orissa (1970) – Penalty not automatic.

CIT v. Anwar Ali (1970) – Burden on revenue to prove mens rea (earlier law).

Union of India v. Dharmendra Textile Processors (2008) – Civil penalties do not require mens rea (post-amendment).

Substance over Form & Tax Avoidance

Courts discourage colourable devices.

Reference. Cases:

McDowell & Co. v. CTO (1985) – Tax evasion through colourable devices is impermissible.

Vodafone International Holdings v. UOI (2012) – Legitimate tax planning allowed.

Azadi Bachao Andolan v. Union of India (2003) – Treaty shopping permissible if legal.

Retrospective Operation of Taxing Statutes

Tax statutes are presumed prospective.

Refeference Cases:

CIT v. Vatika Township Pvt. Ltd. (2014) – No retrospective tax burden unless expressly stated.

Jawaharlal v. State of Rajasthan (1966) – Retrospective tax must be explicit.

Rai Ramkrishna v. State of Bihar (1963) – Retrospective taxation constitutionally valid if reasonable.

Casus Omissus – No Supply by Courts

Courts cannot supply omissions.

Reference. Cases:

Padmasundara Rao v. State of T.N. (2002) – Casus omissus cannot be supplied.

Union of India v. Deoki Nandan Aggarwal (1992) – Court cannot rewrite tax law.

Harmonious Construction in Tax Statutes

Provisions must be read together.

Reference Cases:

CIT v. Hindustan Bulk Carriers (2003) – Harmonious construction applicable.

Rajasthan State Electricity Board v. Mohan Lal (1967) – Avoid conflict between provisions.

Doctrine of Strict Interpretation vs Purpose

Purpose cannot override clear language.

Reference Cases:

CIT v. Calcutta Knitwears (2014) – Procedural compliance essential.

Sundaram Pillai v. Pattabiraman (1985) – Purpose relevant only where ambiguity exists.

The construction of taxing statutes is governed by certainty, clarity, and strict legality. Courts consistently hold that:

→Tax liability must be clearly imposed,

→No equity or intendment applies, and

→Ambiguity in charging provisions benefits the assessee, while

→Ambiguity in exemption provisions benefits the revenue.

These principles ensure balance between sovereign taxing power and taxpayer protection, forming the backbone of Indian tax jurisprudence.