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Taxing Statutes

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Jayaprakash Darabare
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45 views17 pages

Taxing Statutes

Uploaded by

Jayaprakash Darabare
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TAXING STATUTES

AND EVASION OF
STATUTES
• A taxing statute means a statute or an Act making compulsory
imposition of a tax or fee.
• Article 265 of the Constitution provides: No tax shall be levied or
collected except by authority of law Article 366(28) of the Constitution
which defines Taxation and Tax reads:
• Taxation includes the imposition of any tax or impost whether general or
local or special, and 'tax' shall be construed accordingly.
• Any compulsory exaction of money by Government amounts to
imposition of tax which is not permissible except by or under the
authority of a statutory provision
• Taxes are distributed between the Union and States by various entries in
List I and List II of the Constitution. Parliament can under its residuary
power in entry 97 of List I levy a tax not mentioned in these lists.
• There are three components of a taxing statute,
viz.,
• Subject of the tax
• Person liable to pay the tax and
• The rate at which the tax is levied.
• If there be any real ambiguity in respect of any of
these components which is not removable by
reasonable construction there would be no tax in
law till the defect is removed by the legislature.
• In terms of Article 265 all acts relating to the
imposition of tax providing for the point at which
the tax is to be collected, the rate of tax as also the
recovery must be carried out in accordance with
law.
• If a tax has been paid in excess of the tax specified,
save and except the cases involving the principle of
"unjust enrichment", the excess tax realized must
be refunded.
• There are following three stages in the imposition
of tax:
• Declaration of liability in respect of persons or
property;
• Assessment of tax that qualifies the sum which the
person liable has to pay;
• Methods of recovery if the person taxed does not
voluntarily pay.
Interpretation of taxing statute
• A taxing statute is to be strictly construed [Hansraj & Sons v. State of
J&K, (2002)].
• In the words of Lord CAIRNS:
• “If the person sought to be taxed comes within the letter of the law,
he must be taxed, however great the hardship may appear to the
judicial mind to be.
• On the other hand, if the Crown seeking to recover the tax, cannot
bring the subject within the letter of the law, the subject is free,
however apparently within the spirit of law the case might otherwise
appear to be.
• In other words, if there be admissible in any statute, what is called an
equitable construction, certainly, such a construction is not
admissible in a taxing statute where you can simply adhere to the
words of the statute” [Partington v. A.G., (1869)].
• In Article 265 and also in taxing statutes the words
"levy" and "collect" are not used as synonymous
terms.
• Though the term "levy" may include "imposition"
and "assessment", it does not include "collection".
"Exemption" from tax comes later to levy for
"exemption" can only operate when there is a valid
levy; if there was no levy at all, there would be
nothing to exempt.
GENERAL PRINCIPLES OF
STRICT CONSTRUCTION
• [Russell v. Scot (1948)].
• Lord SIMONDS gave this maxim of tax law that, “the
subject is not to be taxed unless the words of the
taxing statute unambiguously impose the tax on him”
• [Commissioner of Wealth Tax, Gujarat v. Ellis Bridge
Gymkhana, AIR 1998].
• The Supreme Court has also stated that before taxing
any person it must be shown that he falls within the
ambit of the charging section by clear words used in
the section
The Supreme Court has enunciated in similar words the principle of interpretation
of taxing laws. [A.V. Farnandez v. State of Kerala, AIR 1957].

• Bhagwati J stated the principle as follows: 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
• Before taxing any person it must be shown that he
falls within the ambit of the charging section by
clear words used in the section. Therefore, if the
words used are ambiguous and reasonably open to
two interpretations benefit of interpretation is
given to the subject.
• If the Legislature fails to express itself clearly and
the taxpayer escapes by not being brought within
the letter of the law, no question of unjustness as
such arises.
• Equitable considerations are not relevant in construing
a taxing statute, and similarly logic or reason cannot be
of much avail in interpreting a taxing statute.
• It is well settled that in the field of taxation, hardship or
equity has no role to play in determining eligibility to
tax and it is for the legislature to determine the same.
• Similarly, hardship or equity is not relevant in
interpreting provisions imposing stamp duty, which is a
tax, and the court should not concern itself with the
intention of the legislature when the language
expressing such intention is plain and unambiguous.
• Taxing statutes cannot be interpreted on any
presumption or assumption.
• A taxing statute has to be interpreted in the light of
what is clearly expressed.
• It cannot import provisions in the statute so as to
supply any deficiency.
• It cannot imply anything which is not expressed.
State of W. B. v. Kesoram Industries
Ltd., (2004)
Before taxing any person it must be shown that he falls
within the ambit of the charging section by clear words
used in the section, and If the words are ambiguous and
open to two interpretations, the benefit of interpretation
is to be given to the subject.
• There is nothing unjust in the tax payer escaping if
the letter of the law fails to catch him on account of
the legislature’s failure to express itself clearly.
Statutes on Evasion of Tax
• A provision of exemption from tax in a fiscal statute
is to be strictly construed [Oxford University Press v.
CIT, (2001): AIR 2001: (2001)].
• It is a well-known principle that a person who claims
an exemption has to establish it and the rule of
strict construction does not negative its application.
• There is ample authority for the view that the
principle applies to exemptions granted in taxing
law as well [CIT v. Ram Krishna Deo, AIR 1959].
There are two options regarding construction of
exemptions:
• One view says that an exemption in case
of ambiguity should be liberally construed
in favor of the subject.
• Second view says that the exemptions
from taxation have a tendency to increase
the burden on the other members of
society and should, therefore, be criticized
and construed in case of doubt against the
subject.
[Collector of Customs v. M.J. Exports Ltd.,
(2001)].

• In interpreting an exemption legislative


intent is also material.
• Where the legislative intent was to grant
exemption to life saving drugs or
medicines or equipment's, only if
imported for being used in India and not
for export, it was held that such
construction could be properly placed on
exemption provision
• In Commissioner of Income-Tax v. Kurti Jina Bhai
Kotecha [AIR 1977] it was noted that the rule of
strict construction does not permit the tax-payer to
take benefit of an illegality. Section 24(2) of the
Income-Tax, 1922, was construed not to permit the
assesses to carry forward the loss of an illegal
speculative business for setting it off against profits
in subsequent years. So even a taxing statute is to
be construed consistent with morality avoiding a
result which gives recognition to continued illegal
activities or benefits attached to it.

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