2. No tax can be levied and collected except according to the authority
of law. There is fiscal legislation every year much of it prepared in
great secrecy and under server pressure of time, and it directly
affects most people.
This legislation is complicated and elaborated because of intricate
prepositions it has to express, and the verity of circumstances and
conditions in which it falls to be applied and the refined distinctions it
embodies in order to attempt to cater expressly for them
3. Statues imposing taxes or monetary burdens are strictly construed.
The logic behind this principle is that imposition of taxes are a kind
of imposition of burden which can only be imposed if the language of
the statute unequivocally says so. Taxation laws are generally
complete codes in themselves.
4. There are three components of a taxing statute,
1. subject of the tax,
2. person liable to pay the tax and
3. the rate at which the tax is levied.
In case there is 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.
5. PRINCIPLE OF STRICT
CONSTRUCTION
The manner in which the Income-Tax Act has been drafted leaves great scope
for litigation. For this, principles of interpretation have to be applied. These
principles themselves are not infallible and would depend on the facts of each
case.
The two well-settled principles of interpretation of taxing statutes, are:
1. There is no equity in tax, and the principle of strict or literal construction
applies in interpreting tax statutes.
2. If there are two reasonable interpretations of taxing statutes, the one that
favors the assesse has to be accepted.
6. NO EXTENSION BY ANALOGY:
GEORGE BANEERJI V. EMPEROR
(1917) 18 CR.L. J. 45
WALSH, J. - In this case the Sessions Judge of Allahabad has referred
to this Court an order of the first class Magistrate which came before
him by way of revision. As the first class Magistrate says, this is really
a test case to decide how certain vehicles should be taxed. The
complaint was made by the Municipal Board against Mr. G. Banerji of
Canning Road for using a bicycle with a motor-wheel attachment
without a license.
The question is one of taxation and, as the Sessions Judge rightly
says in his order of reference, enactments which render the public
liable to pay taxes or charges of this nature must be construed
strictly; or in other words, unless the language under which they are
sought to be charged is perfectly clear, the charging authorities are
not entitled to assess a charge inasmuch as the public have a right to
know what exactly are the charges imposed upon them.
7. Now in this case there are three classes of vehicles which are material
(1) a motor car.
(2) a motor bicycle.
(3) a bicycle.
The vehicle in question is of modern invention, that is to say, it is an ordinary bicycle with
a motor-wheel which may be affixed to or detached from the bicycle itself as the rider
chooses, but which when attached provides a motor power which enables the rider to
propel the machine by motor power. Now that is really not a motor car, neither in the
ordinary nor in the commercial sense of the word; and there is a definition of motor car in
the notification of the Municipality itself which does not include the bicycle in question.
Secondly, it is not, in my opinion a motor bicycle, which in the ordinary commercial use of
the term must be understood to mean a bicycle which is propelled entirely by motor. A
motor bicycle means a motor.
8. The vehicle in question is a vehicle with two wheels which is propelled
sometimes by motor and sometimes without.
It is built and constructed and designed for the purpose of being
used and propelled both by mechanical power and by human agency.
The motor which is only contained in the extra motor-wheel or auto-
wheel, as it is called is a temporary attachment and is no part of the
vehicle itself.
A bicycle may be propelled presumably in various ways besides that
of ordinary propulsion by human agency from the paddle, e. g., it
may be propelled before a wind with a sail that is merely a temporary
aid or attachment which is independent of the original construction
and design of the vehicle.
9. The vehicle was undoubtedly a bicycle, and Mr. Banerji has never
disputed his liability to have it treated as such. If the Municipal
authorities have the right and desire to impose a further burden upon
him, they must obtain a notification which in clear terms will bring it
within the definition and impose an additional liability by way of tax.
The result is that I accept the recommendation of the Sessions Judge
and set aside the conviction and direct that the fine, if paid, be
refunded. Conviction quashed.
10. BROWN V. STATE OF MARYLAND
[(1827) 12 WHEAT 419, 442]:
. Chief Justice Marshall dealing with the word “importation” said, “The
practice of most commercial nations conforms to this idea. Duties,
according to that practice, are charged on those articles only which
are intended for sale or consumption in the country. Thus sea-stores,
goods imported and re-exported in the same vessel, goods landed
and carried over land for the purpose of being reexported from some
other port, goods forced in by stress of weather, and landed, but not
for sale are exempted from the payment of duties. The whole course
of legislation on the subject shows that in the opinion of the
legislature the right to sell is connected with the payment of the
duties.”
Continuing the learned Chief Justice at p. 447 observed: “Sale is the
object of importation, and is an essential ingredient of that
intercourse, of which importation constitutes a part. It is as essential
11. THE EMPRESS MILLS, NAGPUR V. THE
MUNICIPAL COMMITTEE, WARDHA
1958 SCR 1102 : AIR 1958 SC 341
It was held that the terminal tax under Section 66(1)(o) of of the C.P.
& Berar Municipalities Act is not leviable on goods which are in
transit and are only carried across the limits of the Wardha City
Municipality. Because goods coming from some other city addressed
to some are not intended to be sold in Wardha city. So no terminal
tax can be imposed.
12. BAIDYANATH AYURVED BHAWAN V
EXCISE COMMISSIONER, UTTAR
PRADESH
Certain medicines containing tincture and spirit etc were
manufactured by appellant company. Since tincture and spirit
contained alcohol, the appellant was asked to pay duties under the
Medical and Toilet Preparation (Excise Duties) Act 1955. The
appellant argued that alcohol under the Act means pure alcohol and
that since pure alcohol was not used in the preparation of medicines,
no duty could be imposed. The appellant pleaded for construing the
word alcohol strictly in favour of the subject as it was an
interpretation of a taxing statute which was involved.
13. The Supreme Court rejected the contention of the appellant and held
that the principle of strict construction of taxing statutes means that
the subject was bound to pay tax only when he was asked to do so
within the letter of the law and that if there were two reasonable
interpretations possible that which helps the subject should be
accepted. The word ‘alcohol’ does not have two interpretations. It has
a clear and unambiguous meaning. If a medicine or a toilet
preparation contains alcohol, it is subject to duties under the Act. It is
therefore irrelevant whether the medicine contains pure alcohol or
14. A taxing statute should be strictly construed in favour of the assessee
in such cases only where the expression used in the statute is capable
of two reasonable interpretations. That being not the situation here,
the appellant is bound to pay the duties under the Act.
15. SUBSTANCE IS IMPORTANT
Court fees legislations are covered in the category of fiscal
enactments and must be construed strictly. At the same time it is an
established principle that court fees is payable on the substance of
the relief asked for, and that, even though the plaintiff might try to
conceal the real relief which he seeks and has framed his relief in a
manner which might attract the provision of the Court Fees Act under
which a lesser court fee is payable, the court is entitled to look to the
substance and not the mere form of the relief.
16. STATE OF UTTAR PRADESH V
KORES ( INDIA) LIMITED
The question was whether carbon paper was paper within the meaning of a
notification issued by the appellant under Section 3-A of the U.P Sales Tax
Act 1948. The Supreme Court held that carbon paper was not a paper within
the meaning of the notification. The term paper should be understood in its
popular sense. Its ordinary and natural meaning is that it is used for writing,
printing or packaging purposes. The context of the Act and the notification
issued there under do not indicate any other meaning. The carbon paper is
used for making carbon copies of written or typed matter and has to be
manufactured through a different complicated process. The meaning is quite
clear and there is no need of interpreting it in favour or against anyone.
17. DUNLOP INDIA LIMITED V UNION OF
INDIA
the question was whether the commodity known as V.P Latex comes
within the meaning of rubber. The Supreme Court said that while
using a word in a taxing statute the legislature always keeps in mind
the popular meaning of that word as understood in trade and
commerce circles. So interpreted, there is no doubt that V.P Latex is
rubber . The natural and popular sense of the term has no ambiguity
and the legislature while using the term had this meaning in mind.
18. DOCTRINE OF SUBSTANTIAL
COMPLIANCE
The doctrine of substantial compliance is a judicial invention,
equitable in nature, designed to avoid hardship in cases where
a party does all that can reasonably expected of it, but failed or
faulted in some minor or inconsequent aspects which cannot be
described as the "essence" or the "substance" of the
requirements.
Like the concept of "reasonableness", the acceptance or
otherwise of a plea of "substantial compliance" depends upon
the facts and circumstances of each case and the purpose and
object to be achieved and the context of the prerequisites
which are essential to achieve the object and purpose of the
rule or the regulation.
19. Substantial compliance means "actual compliance in
respect to the substance essential to every reasonable
objective of the statute" and the court should
determine whether the statute has been followed
sufficiently so as to carry out the intent of the statute
and accomplish the reasonable objectives for which it
was passed.
Fiscal statute generally seeks to preserve the need to
comply strictly with regulatory requirements that are
important, especially when a party seeks the benefits
of an exemption clause that are important.
20. The doctrine of substantial compliance seeks to
preserve the need to comply strictly with the
conditions or requirements that are important
to invoke a tax or duty exemption and to
forgive non-compliance for either unimportant
and tangential requirements or requirements
that are so confusingly or incorrectly written
that an earnest effort at compliance should be
accepted.
21. EXEMPTION CLAUSE - STRICT
CONSTRUCTION
Exemption provision cannot be unduly extended to produce
unintended results in derogation of the plain meaning.
Full effect should be given to exemption notification.
In Motiram Tolaram v. Union of India- it was held that ambiguity or
doubt in exemption provision, it should be resolved in favour of
revenue and not in favour of an assesse.