|
Should courts interpret
laws according to a uniform set of rules, or
should they use different tools for interpreting different
statutes?
This simple question is increasingly at the heart of statutory
interpretation scholarship and jurisprudence. If the latter
position is
correct--if different laws require different interpretive
methods--generalizations about statutory interpretation may be of
only
limited value and the search for a unified theory of
interpretation may
be a misguided quest. But the lure of uniformity remains great,
particularly for appellate courts, which must interpret a
multiplicity
of statutes and need at least some guiding principles to do so.
This project is being divided into two parts, the first part deals
with
the interpretation of tax statutes & the second part deals with
the
interpretation of tax treaties
THE THREE basic rules for the interpretation of statutes are the
primary
rule of construction, secondary rule of construction and the rule
of
harmonious construction.
Primary rule of construction:
The steps to be followed while applying this rule are:
* Read and analyze a section
* Ascertain the primary meaning of the words used
* Ascertain the grammatical, literal and plain meaning of the
words used
in the section.
Maxwell terms this rule as
"the Golden Rule".
Secondary rule of construction:
This rule is concerned with the application of the eleven canons
of
theory of interpretation of statutes.
These are: The preamble to a statute is a part of the statute and
should
be read together with the object of the Act, title, marginal notes
and
legislative history and cannot control or restrict the operation
of a
main section but they can be used as a guiding factor to know the
general drift of a section.
The main part of the section lays down the substantive law and
reflects
the intention of Parliament. For example, section 12 of the
Companies
Act, 1956 provides for the mode and manner of forming an
incorporated
company by laying down a detailed procedure.
A proviso is appended to a main section which restricts the main
section. It cannot travel beyond the domain of main section to
which it
is appended.
In the case of
CIT v Indo Mercantile Bank , the Supreme Court has
explained, "the territory of a proviso, therefore, is to carve out
an
explanation to the main enactment and exclude something which
otherwise
would have been under the section."
The definition defines the meaning of the words used. It could be
a
'mean type' or an 'inclusive type'. If when defining, the word
'means'
is used and the word is restricted to the scope indicated in the
definition, it is the 'mean type'.
An example of this kind of definition is found in the definition
of
"company" given in section 2 (17) of the Income Tax Act, 1961 (I-T
Act).
The 'inclusive type' is when defining, the word 'includes' is
used.
It can include items other than those enumerated in the section.
Example
of this type is found in the definition of 'person' given in
section
2(31) of the I-T Act.
An explanation section does not enlarge the scope of the main
section
but explains it. The I-T Act contains a plethora of explanations.
An
example is the four explanations to section 43B, which provides
that
certain deductions are to be allowed only on actual payment.
In the case of a conflict between a special provision and a
general
provision, then the special section would override the general
section.
A special section confers a special power and a general section
confers a general power.
The striking example of general and special, is found in the
definition
of `body corporate' given under section 2(7) of the Companies Act,
1956
and that given for the purposes of section 43A(1).
There can be a `deeming fiction, where the Legislature can deem
something to be something else. In the case of
CIT v Express News
Papers
I , the Supreme Court held that-"It (the deeming clause in section
12
(B) only introduces a limited fiction, namely that the capital
gains
accrued will be deemed to be income of previous year, in which the
sale
was effected. The fiction does not make them the profits and gains
of
business."
It is well settled that a legal fiction is limited to the purpose
for
which it is created and should not be extended beyond its
legitimate
fields.
An example of deeming fiction is found in section 115 J of the I-T
Act
which was operative for assessment years ?88-89 to ?90-91, where
if the
company's total income is less than 30 per cent of its book
profit, 30
per cent of the book profits deemed to be the total income.
Retrospective operation and prospective operation is another
indicator.
All statutes are prospective in nature. But an Act or a particular
section can be given retrospective effect by express statement or
by
necessary implication.
If the enactment is expressed in language which is fairly capable
of
either interpretation, it ought to be constructed as prospective
only.
It must be borne in mind that the rule regarding retrospective
operation
governs substantive sections only and not procedural sections. The
example with regard to retrospective operation of a procedural law
was
Rule 1 BB of the Wealth Tax Rules, 1957, laying down the manner of
valuation of a house.
The Supreme Court in the case of
CWT v Sharvan Kumar Swarup & Sons
has held that Rule 1BB is procedural in nature and, therefore,
applicable to all pending proceedings.
The transforming amendments of substantive sections are always
prospective in nature except where they are made retrospective in
operation by specific statement or by necessary implication.
Again, a procedural amendment can be retrospective in operation.
Further, the classificatory amendments are used only in those
cases to
find out the meaning of earlier sections.
When there is a provision that has two possible interpretations,
the one
which casts a lesser burden on the subject must be adopted.
In the case of CIT v M K Vaidya , the Karnataka High Court held
that
"...if reasonably two meanings are attributable to a word used in
the
fiscal law, the meaning which is more beneficial to the tax payers
will
be applied, specially it is so, when the state itself at one point
of
time clearly acted as if the wider meaning was not attributable
without
adding further words".
In the case of CIT v New Shorrock Spinning & Manufacturing , the
Bombay
High Court held that "the question of accepting the principle of
beneficial interpretation would arise only in case where two views
are
reasonably possible in the opinion of the court deciding the point
at
issue. If this is not the case, the court should not tilt in
favour of
the assessee.
Another interpretational canon is reference to the speech in
Parliament,
at the time of introduction of the bill and is only permissible
when the
court finds the provisions of the Act vague and ambiguous Another
tool
for interpretation is reference to the memorandum, explaining the
provisions of the Finance Act or a circular issued by a competent
authority, like the Central Board of Direct Taxes. Generally, the memorandum explaining the provisions of the Act or
such
circular can not be relied upon for interpreting a particular
provision
of the Act as they can not curtail or modify the clear provisions
of
law.
The statement of objects and reasons in the Bill, can not be
relied upon
to interpret a particular provision of the Act. The recent
decision of
the Karnataka High Court in the case of Union Home Products v
Union of
India supports this view.
Rule of harmonious construction: It is true that every statute
must be
interpreted on the basis of aforesaid primary and secondary rules
of
construction.
However, they should not conflict with the principle of harmonious
construction. Every effort should be made to ensure that all the
three
rules are simultaneously satisfied.
Maxwell in
"Interpretation of Statutes (Twelfth Edition)"
states
that
the words of statute, when there is doubt about their meaning are
to be
understood in the sense in which they best harmonize with the
subject of
the enactment and the object which the legislature had in view. An interpretation of fiscal statute which has been reiterated in a
recent judgment by the Supreme Court in the case of
Commissioner
of
Customs v Tullow India Operations Ltd is that no
interpretation should lead to absurd results. It is strange that
the Supreme Court had to once again repeat this fundamental
proposition, but this was necessary because a decision by the
commissioner of Customs in this particular case had led to an
absurd conclusion. An importer was denied an exemption because he
was not able to produce a certificate, which was necessary at the
time of import. The certificate was, however, produced at a later
stage. The Supreme Court set aside the order of the commissioner
of Customs on the ground that it would lead to an absurd result,
besides many other reasons. Even earlier, on a similar issue of
how to understand the expression, at the time of importation,
the
tribunal had given a decision that if this was interpreted too
literally, it would lead to absurd results.
The tribunal said
at
the
time of importation literally meant at the time when the
ship entered India. It would lead to an absurd situation since
nobody could claim exemption at that time. The tribunal extended
the meaning of at
the
time of importation to at the time of clearance of goods. The
crux of
the matter is that depending on the situation of importation, the
meaning must lead to a practical result and not an absurd
situation.
The same principle was reiterated by the Supreme Court in the case
of
ACC v Commissioner of Customs in this case, the question was about
valuation of a drawing and design. The Supreme Court observed that
it
would be absurd to value such articles or similar articles like
paintings for the purpose of Customs duty merely on the basis of
the
cost of the canvass or the cost of the oil paints. In another
judgment,
in CCE v Acer India Ltd. the Supreme Court observed in relation to
the value of operating software that the principle of purposive
construction should be adhered to when a literal meaning may
result in
absurdity. In the case of TCS v State of Andhra Pradesh , where
the
issue was chargeability of computer software in canned form to
sales
tax, the Supreme Court quoted the above judgment of
ACC v
Commissioner
of Customs with approval. In one of the latest judgments in the
case
of Compack Pvt Ltd v CCE , the Supreme Court observed in relation
to
availing of Modvat credit that if it was not written very clearly
in a notification that the final product had to be made
only or purely
from certain inputs, the exemption cannot be denied because it has
used
other inputs as well. That sort of interpretation would create an
absurd
situation. The Supreme Court, therefore, observed that a
notification
had to be construed in terms of the language used, unless the
literal
meaning led to an anomaly or absurdity. If there is no such
absurdity in
the literal interpretation, there is no need to go for the
intention or
the purpose of the notification.
The conclusion is that we have to
first resort to literal interpretation of the statute or
expression.
However, if that leads to an absurd result, we have to look for
the
intention or the purpose of the legislation so that the
legislation
itself does not become invalid. The high courts and the Supreme
Court
have always chosen interpretations which do not lead to an anomaly
over
the one which leads to an anomaly or an absurdity.
Conclusion:
The interpretation of tax statutes, emphasizing the role of
legislative
purpose in the interpretive process. Although conceding the
importance
of legislative purpose, upon close examination, most tax cases
are--and
should be--decided by a practical reason method, balancing text,
legislative history, and practical considerations in a manner not
terribly different than that used to interpret other statutes. The question of specificity is particularly acute for tax
statutes.
Scholars have long suggested that the unique features of tax law,
including its high level of detail, frequent revision, and largely
self-contained nature, require a special set of interpretive
tools. In
particular, scholars have argued that the underlying structure or
"purpose" of the Code may dictate results that are difficult or
impossible to reach using non-tax interpretive methods.
|
Interpretation of Fiscal Statutes
More
Articles:
The
author can be reached at:
AashishSrivastava@legalserviceindia.com /
