For raising its general revenue Tax is imposed by the State. Taxing statutes are
those which impose taxes on income or other kind of transactions. Enforced by
the government, Taxing Statutes or Fiscal Statutes are a legal framework
consisting of the tax code or tax law that requires individuals, businesses, or
entities to pay taxes. The regulations, referred to as tax codes, provide
guidelines for the assessment, collection, and enforcement processes, along with
the rates and rules. Without these taxing statutes, a government cannot generate
revenue to fund public services and functions, making them absolutely crucial
for any government to have.
Taxing statutes, or fiscal statutes, must be interpreted with great strictness.
The wording of a taxing statute must be taken literally, regardless of the
outcomes. Inferring or applying taxes based on analogy is prohibited. The
language employed in taxing statutes must be clear and easily comprehensible,
reflecting the lawmakers' intended purpose. Illustrations of such statutes
include the Income Tax Act of 1951, the Wealth Tax Act of 1957, and the Customs
Act of 1961. It is well known that the power to tax cannot be inferred by
implication. There must be a charging section that will specifically empower the
state to collect taxes.
Rules of Interpretation of Taxing Statutes:
- Statutes relating to taxation are required to undergo strict interpretation. When a person clearly falls within the scope of a taxing provision, he should not be allowed to escape but if he does not, he should not be drawn into the net by assigning an extended meaning to the language or otherwise.
- Interpretation must be done in such a way that it prevents tax evasion.
- In case of two possible interpretations of a taxing statute, the interpretation favorable to the taxpayer should be preferred.
- It is the responsibility of the taxpayer to prove any tax exemption by bearing the burden of proof.
In India, there exists the Income Tax Act of 1961, and one of the sections
within it is 80C. This particular section outlines a variety of expenses and
investments that qualify for deductions. An example of a valid expense that can
be deducted is the premium payments made towards life insurance policies issued
solely by Indian insurers.
Now, suppose there's a dispute about whether a policy issued by a foreign
insurer also qualifies for this deduction. The taxing statute, in this case,
doesn't explicitly mention foreign insurers, creating an ambiguity.
To determine legislative intent in an event as such, the court would take it
upon itself to interpret the statute. Assuming the statute's purpose is to
promote savings and investing, rather than to unfairly target foreign insurers,
the court may decide to broaden the interpretation to incorporate foreign
insurers. Consequently, taxpayers would then be able to claim deductions for
both Indian and foreign insurance company premiums.
The tax system is made consistent and fair through the practice of harmonious
construction, as stated in this particular interpretation.
- The citizen shall receive the benefit of any ambiguity or conflict in different provisions of statute, as was affirmed in the case of Canara Bank v. District Registrar and Collector, Hyderabad, (2005) 1 SCC 496.
- The case of Tata Iron & Steel Company v. Central Excise Collector, 1995 ECR 523 Tri Delhi, 1995 ELT 602, established the essential requirement of having a legal basis or statutory authority for the imposition of taxes. This decision underscored the importance of a clear and specific statutory foundation when levying taxes, ensuring that taxation is legally justified and aligned with the framework of the law.
- In the case of Geo Mitter and Coy. Pvt Ltd. v. State of M.P., the court ruled that when an individual falls within the scope of the law as written, they are liable to be taxed.
- If there are two possible perspectives, the one that benefits the taxpayer should be favored, as held in the case of Union of India v. Onkar S. Kanwar (2002) 7 SCC 591.
- Tata Iron and Steel Company v. State of Jharkhand, (2014) 1 SCC 536, set a precedent that places the burden of proof on the assessee (tax payer) when it comes to exemption notifications. This order mandates that the assessee must prove that they meet the requirements for exemption.
- Every tax-payer is entitled to reduce their tax liability through legal devices, such as a genuine transaction not prohibited by law. This was affirmed in the case of C.I.T. v. Sivakasi Match Exporting Co. AIR 1964 SC 1813, which determined that such actions do not constitute an attempt to evade tax. Rather, they are lawful means of decreasing one's taxes.
- The petitioner company in the case of Mangalore Chemicals and Fertilisers Ltd. v. Deputy Commissioner of Commercial Taxes, AIR 1991 SC 152, 1991 SCR (3) 336, requested the withdrawal of a tax exemption notification issued by the government of Karnataka. However, the court declared that the previously issued notification regarding sales tax exemption could not be revoked.
- In the case of Calcutta Knitwears v. C.I.T. (2014) 6 SCC 444: AIR 2014 SC 2970, the strict interpretation of a taxing statute was emphasized. There is no room for common sense, justice, logic, ethics or morality. Only the language of the statute should be evaluated, nothing should be assumed or added. A fair assessment of language is the only factor to consider.
- It has been noted in the case of Natha Ram Agarwal v. State of M.P., AIR 1979 SC 888, 1979 SCR (3) 41 that the intention of the legislature in a taxing statute can be deduced from the language used, specifically when the language is unambiguous and straightforward.
- The liability to pay tax must be clearly expressed in the enactment, according to the decision in the case of Fernandes v. State of Kerala, AIR 1957 SC 657, 1957 SCR 837. It was affirmed that an individual may not be taxed unless they fall under both the letter and spirit of the law.
- The question in the case of AIR 1961 SC 1325, Ramavathar v. Assistant Sales Tax Officer, was whether sales tax exemption is applicable to betel leaves, considering them as vegetables. However, the court ruled that betel leaves do not qualify as vegetables and, as such, are not eligible for exemption from tax.
- In Grasim Industries Limited v. State of M.P., AIR 2000 SC 66, as per the Supreme Court's ruling, it was emphasized that exemption notifications related to a statute should be given in their entirety and not partially.
- In the case of Motipur Zamindary Company Private Limited v. State of Bihar, AIR 1962 SC 660, as per the Supreme Court's decision, a question arose regarding the classification of sugarcane as a vegetable. The Court ruled that sugarcane does not fall under the category of vegetables and is not eligible for tax exemption.
Understanding and implementing the legal provisions governing taxation is an
important process that involves interpreting taxing statutes. The legislative
intent must be discerned from the language used in the statutes with a primary
focus on clear and unambiguous wording. This serves the purpose of guaranteeing
that both taxpayers and tax authorities can depend on the statute's wording to
establish their respective rights and obligations.
Interpretation is crucial in tax law as it influences taxation and economic
behavior. Courts highlight the importance of avoiding inconsistencies and
promoting fairness in taxing statutes, which ensures equitable distribution of
the tax burden among taxpayers while supporting the government's fiscal needs.
Written By: Md.Imran Wahab
- Interpretation of Statutes, P. Krishnaswamy, Asia Law House
- Interpretation of Statues, D.N. Mathur, Central Law Publications
, IPS, IGP, Provisioning, West Bengal
Email: [email protected]
, Ph no: 9836576565