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Dr. Sanjiv Agarwal By: Dr. Sanjiv Agarwal
May 2, 2023
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It is a settled law that a taxing statute has to be strictly constructed.  ‘Strict interpretation’ of statutes relating to crime means this: “Such statutes are to reach no further in meaning than their words. No person is to be made subject to them by implication, and all doubts concerning their interpretation are to preponderate in favour of the accused. Only those transactions are covered by them which are within both their spirit and their letter”.

Supreme Court in COMMISSIONER OF INCOME-TAX VERSUS NC BUDHARAJA AND CO. AND ANOTHER - 1993 (9) TMI 6 - SUPREME COURT, it was held that liberal interpretation, however, cannot be carried to the extent of doing violence to the plain and simple language used in the enactment. It would not be reasonable or permissible for the court to re-write the section or substitute words employed by the legislature in the name of giving effect to the supposed underlying subject. After all the underlying object of any provision has to be gathered on a reasonable interpretation of the employed by the legislature.

Judicial assertions for Strict Interpretation

The following assertions can be drawn from various judicial pronouncements with respect to strict interpretation or construction of taxing statutes. 

  1. The subject is not to be taxed without clear words for that purpose and that every act of Parliament ought to be read according to the natural construction of the underlying words.
  2. If a person sought to be taxed comes within the letter of law, he has to be taxed, however great the hardship may be.
  3. Conversely, if the tax authorities want to recover the tax from a subject which cannot be taxed within the letter of law, no tax can be recovered.
  4. In a taxing statute, one has to look merely at what is clearly said.
  5. There is no equity about tax.
  6. There is no presumption as to tax
  7. Nothing has to be implied
  8. One has to look clearly and fairly at the language used
  9. Fiscal measures are not built upon any theory of taxation
  10. A transaction cannot be taxed on any doctrine of “the substance of the matter” as distinguished from its legal signification, for a subject is not liable to tax on supposed “spirit of the law” or “by inference or by analogy”.
  11. In interpreting a section in a taxing statute, the question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely hits.
  12. The proper course in construing revenue Acts is to give a fair and reasonable construction to their language without leaning to one side or the other but keeping in mind that no tax can be imposed without words clearly showing an intention to lay the burden and that equitable construction of the words is not permissible.
  13. Considerations of hardship, injustice or anomalies do not play and useful role in construing taxing statutes unless there be some real ambiguity.
  14. In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.
  15. Taxation consideration may stem from administrative experience and other factors of life and not artistic visualization or neat logic and so that literal, though pedestrian interpretation must prevail.
  16. The principle of avoidance of double taxation under the same Act may be noticed. There is no such general principle.
  17. In a tax statute, the principle of charging section is relevant and important to tax a subject, it should fall within charging section.
  18. A penalty provision does not attract the rule of presumption of mens rea.
  19. The principle of strict construction applicable to taxing statutes does not, however, mean that where the subject falls clearly within the letter of the law, the court can avoid the tax by putting a restricted construction on some supposed hardship.
  20. No question of strict construction arises when the statutory provision is reasonably open to only one meaning.
  21. The rule that where a literal interpretation leads to absurd or unintended results, the language of the statute can be modified to accord with the legislative intention and to avoid absurdity also applies in interpreting a taxing statute.
  22. Though equity and taxation are often strangers, attempts should be made that they do not remain always so and if a construction results in equity rather than in injustice, then such  a construction should be preferred to the literal construction.
  23. The rule of strict construction does not negative the application of the well known principle that a person who claims an exemption or concession has to establish it, and there is ample authority for the view that this principle applies to exemptions or concessions granted in taxing laws as well.
  24. The rule of strict construction does not permit the tax payer to take the benefit of an illegality.
  25. The rule that a taxing Act is to be construed with strictness, is based on the principle that inasmuch as there was not any a priori liability in a subject to pay any particular tax, nor any antecedent relationship between the tax-payer and the taxing authority no reasoning founded upon any supposed relationship of the tax payer and the taxing authority could be brought to bear upon the construction of the Act.
  26. Whatever may be said of the rule of strict construction it cannot provide a substitute for commonsense, precedent, and legislative history.
  27. If the language of a provision of a statute is clear and unambiguous, it should be strictly construed.
  28. Whether the language of a statute is clear and explicit, effect should be given to it regardless of the consequences, unless the absurdity is such that it amounts to repugnance.
  29. Any statue purporting to interfere with the established state of law must receive a strict interpretation.
  30. For interpreting a beneficial legislation, it is a settled principle that there is no room for taking a narrow view and one needs to be generous towards the person to whom such benefit is conferred.
  31. Penal statutes have to be construed strictly if two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty.



By: Dr. Sanjiv Agarwal - May 2, 2023



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