Author Name:   NikhilP_ilnu

Taxation is statutory filed. No tax can be leavied and collected excepte according to the authority of law. There is fiscal legislation every year much of it prepared in great secrecy and under server presure of time...

Interpretation of Taxing Statute as Strict Construction and Exemptions

Taxation is statutory filed. 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 pressured 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. Consequently, the body of tax statues as whole is voluminous and complex in structure as well as in concept and expression. There is another reason for the fiscal legislation being complex and complicated. In fact, taxes are as complex as life. The moralist calls for just taxes, but taxes cannot just be just, if we recall the scheme of special bearer bonds for mopping up black money. They cannot simply be simple. The businessman demands practical taxes, but financially history proves that it is impracticable to make them practical. Exemption Notifications have to be strictly construed; if exemption is available on complying with certain conditions, conditions have to be complied with; plea of 'substantial compliance' depends upon facts of each

Statues imposing taxes or monetary burdens are strictly construed. The logic behind this principle is that imposition of taxes is also a kind of imposition of penalty which can only be imposed if the language of the statute unequivocally says so

Tax Systems in India
The tax system of British India reflected characteristics of a traditional agriculture economy. Revenues of the central government were dominated by custom duties as domestic requirements for manufactured goods were dominated by custom duties as domestic requirements for manufactured goods were met mostly from imports, chiefly from Britain and other commonwealth countries. Import duties were levied on all most all items of imports whereas major items subject to export duties were jute and tea in which India enjoyed near monopoly in the world market. Various custom and tariff enactments were passed from time to time.

Principle of Interpretation
Principle of interpretation which have evolved are those based on plain meaning of the words used and their grammatical meaning and those based on the intention or purpose of the legislature.

In India tax law provides a useful set of cases for exploring the interpretative approaches of the judiciary in India. Some general observations made by the courts are first mentioned before analyzing the cases on different approaches. Interpretation of statute means that the court has to ascertain the facts and then interpret the law to apply to such facts. It is the function of the legislature to say what shall be the law and it is for the court to say that what the law is. Where the language is plain and unambiguous and admits of only one meaning no question of construction of statute arises for the statute speaks for itself.

The term interpretation means “to give meaning to” there are three bodies which divided government power namely legislature, the executive and the judiciary. Interpretation of statutes to render justice is primary function of the judiciary. The most common rule of interpretation is that every part of the statute must be understood in a harmonious manner by reading and construing every part of it together.

The maxim “A Verbis legis non est recedendum” means that you must not very the words of the statute while interpreting it.

2.3 Principle of Strict Construction
The manner in which the Income-Tax Act has been drafted leaves great scope for litigation. For this purpose, 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, as applicable in taxing statutes, are:

(1) There is no equity in tax, and the principle of strict or literal construction applies in interpreting tax statutes. Hence, on the plain language of the statute, if the assessee is entitled to two benefits, he has to be granted both these benefits; and

(2) If there are two reasonable interpretations of taxing statutes, the one that favors the assessee has to be accepted.

The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J. in his classic statement in Cape Brandy Syndicate v I.R.C. (1 KB 64, 71): "In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used." In the revenue satisfied 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 covered within the four corners of the provision of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intention of the legislature and by considering what was the substance of the matter. Tax relief application is a mandatory requirement for refund purpose. It is well settled principle that tax exemptions are strictly against taxpayers. Tax refunds in the nature of tax exemption, are resolved strictly against the claimant.

Recently, in the case of Manila North Tollways Corporation vs. Commissioner of Internal Revenue,
The Court of Tax Appeals (CTA) had an occasion to apply again this principle of strict construction of tax exemption and reiterated its position that an application for tax treaty relief must be filed prior to any availment of tax treaty provision.

The claimant in this case simultaneously filed both its application for relief from double taxation and its claim for refund with the International Tax Affairs Division (ITAD) more than one year from the payment of its dividends to stockholders. The court noted that the claimant did not comply clearly with the requirement provided under Revenue
Memorandum Order (RMO) No. 1-2000 that the availment of tax treaty relief should be preceded by such application at least 15 days before the payment of dividend. Consequently, the court denied the claimant’s application for tax refund for failure to comply with such conditions.

It is a strict principle of interpretation that a statute should be read in its ordinary, natural and grammatical sense.

In Innamuri Gopalam and Maddala Nagendrudu v State of A. P., the exemption was denied to the assessee on the ground that the intention of the notification was to avoid double taxation, and as this was not a case of double taxation no exemption could be granted.

The Supreme Court held that on the plain language of the notification, the assessee was entitled to exemption, and since the intention was not reflected in plain words, it could not be taken into consideration.

As observed by the apex court: "In construing a statutory provision the first and foremost rule of construction is the literary construction. All that the court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision the legislative intent is clear, the court need not call into aid the other rules of construction of statutes. The other rules of construction are called into aid only when the legislative intent is not clear."

In the case of C.I.T. v B. M. Kharwar,
The assessee transferred some machinery of a firm to a private limited company. He sought to avoid the liability to be taxed on the excess realised over the written down value of the machinery on the plea that the substance of the transaction was only a step to readjust the business relation of the partners inter se. The Supreme Court rejected this contention holding that while the taxing authorities were entitled to determine the true legal relation resulting from a transaction to unravel the device adopted by a party, the legal effect of a transaction could not be displaced by probing the "substance of the transaction".

In case of Steel Authority of India Ltd. v C.C.E
The question was whether raw naphtha intended for use in the manufacture of fertilisers was exempted although it was not actually used.

It was held that the exemption notification only required proof that the raw naphtha was intended for use in the manufacture of fertilisers, and there was no further requirement that it was actually so used. Hence, if it was purchased with the intention to be used for the manufacture of fertilizers, it was exempt, even though it could not be used for some reason subsequently.

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. Such a defense cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. 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.

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.

Exemption Clause - Strict Construction
Exemption Clause - Strict Construction The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption.

In Hansraj Gordhandas v. H.H. Dave held that such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e., by the plain terms of the exemption. some of the provisions of an exemption notification may be directory in nature and some are of mandatory in nature. A distinction between provisions of statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished. The principles as regard construction of an exemption notification are no longer res integra. Whereas the eligibility clause in relation to an exemption notification is given strict meaning where for the notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed literally.

2.6 Exemption from Custom Duty
Exemptions from custom duties are provided through provision of customs act, while some are provided under Custom Tariff Act. Besides, Central government can grant partial or full exemption from duty under section 25 of Customs Act.

Section 25(1) of custom act, 1962 authorizes Central Government to issue notifications granting exemptions from duty. Such exemption may be unconditional or subject to conditions. Such conditions may be required to be fulfilled before or after clearance. Government can also grant exemption by special order in exceptional circumstance. The exemption notification should be published in gazette. The notification can be issued only in ‘public interest’.

Conclusion
As discussed in the Introduction and after going through whole project and research work at last I conclude that the hypothesis which I mentioned earlier is proven to be correct because in my hypothesis I mentioned that Exemption Notifications have to be strictly construed; if exemption is available on complying with certain conditions, conditions have to be complied with which is true because if the condition for taking exemption for tax relief is not fulfill then exemption will not be granted, exemption or tax relief will be granted only when the essential condition which are complying with must be fulfilled. In this last chapter I also conclude that the taxing statute is also strictly constructed as all statutes are interpreted strictly because each and every statute should be interpreted in a strict manner. There is another thing that for taking exemption or tax relief one must have fulfilled the tax relief application. It is well settled principle that tax exemptions are strictly against taxpayers. Tax refunds in the nature of tax exemption, are resolved strictly against the claimant. Taxing enactment should be strictly construed and the right to tax should be clearly established that is strict and favorable construction equitable construction should not be taken into account. Courts should not strain words and find unnatural meaning to fill loopholes.
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# Dr. Chaturvedi, K.N., ‘Interpretation of Taxing Statutes’ ’, Taxmann Allied Services Pvt. Ltd.
# httpwww.thehindubusinessline.in20050430stories2005043000171000.htm
# Supra note 2
# http://www.baniquedlaw.com/downloads/taxAlerts/Tax Alert - 2011
# CTA Case No. 7864, April 12, 2011.
# 14 STC 742; SC
# 72 I.T.R. 603; SC
# AIR 1996 SC 2544
# 2002-TIOL-351-SC-CX
# Datey V.S., “Indirect Taxes, Law and Practice, 30th Edition, Taxmann Publications (P) Ltd.
# Section 25(1) of Custom Act 1962

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