"Interpretation of Taxing statutes"

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Interpretation of Taxing Statutes                Page  of

 

Interpretation of Taxing Statutes

(Term Paper towards partial fulfillment of the assessment in the subject of

 Direct Taxation)

Submitted by:                                                          Submitted to:

Abhishek Kodap                                                       Mr. Manoj Kumar Singh

Roll No.349                                                              Faculty of Law

VIIIth Semester          

National Law University, Jodhpur

Winter Session

(January – May 2009)

ACKNOWLEDGMENTS

I take this opportunity to express my gratitude and personal regards to Mr. Manoj Kumar Singh, for making this research possible. His support, guidance and advice throughout the research project are greatly appreciated.

I would like to thank my parents, for encouraging throughout my all semesters and for bringing me into such a position to undertake such a term-paper.

My batch mates, for encouraging me to work hard and extending their kind support. Also I am thankful to all those people who helped me in preparing this project.

Yours Sincerely

Abhishek Kodap

Table Of Contents

-Chapter 01-

Taxing Statutes: Introduction

As per Article 265 of the Constitution

“No tax shall be levied or collected except by the authority of law”

Article 366(28) of the Constitution which reads 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.”

There are three components of a taxing statute, viz., subject of the tax, person liable to pay the tax and the rate at which tax is levied. There are three stages in the imposition of tax

(1)        declaration of liability in respect of persons and property

(2)        assessment of tax that quantifies the sum which the person liable has to pay

(3)        methods of recovery if the person taxed does not voluntarily pay

The constitution makes a distinction between tax and fee which are both impositions made by a state for raising revenue of the state. A fee in contrast is imposed for rendering services and bears a broad co relationship with the services rendered. Taxes are specifically named and distributed between the Union and States by various entries in List I and List II of the Constitution. A tax not so mentioned can be levied by the Union under Parliament’s residuary power in entry 97 of List 1. Power to levy fee is conferred by the last entry in each list in general terms in respect of any matter in the list. A taxing statute is meant any Act making compulsory imposition of tax or fee.

The nature of the tax imposed by a statute has to be determined by examining the pith and substance of the statute and by paying more attention to the charging section than to the basis or machinery adopted for assessment or collection of tax. 

-Chapter 02-

General Principles of Strict Construction:

  1.  A taxing statute is to be construed strictly

In the case of Re Micklethwait  it was held by Lord Wenslaydale “The subject is not to be taxed without clear words for that purpose; and also that every act of parliament must be read according to the natural construction of the words.”

Lord Cairns has stated the principle that “if the person sought to be taxed comes within the letter of law he must be taxed, however great the hardship may appear to the 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 law, the subject is free         however apparently within the spirit of law might otherwise appear to be. In other words, if there is admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing stature where you can simply adhere to the words of the statute.”

The supreme court of India has also illustrated the principle. J. Bhagwati has stated that “ In construing a fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of 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 under 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 subject matter.”

J. Shah has formulated the principle thus: “In interpreting a taxing statute equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The courts must look squarely at the word of the statutes and interpret them. It must interpret a taxing statute in what is clearly expressed; it cannot import provision in the statute so as to supply and assume deficiency. 

J. K.Iyer observed: “Taxation consideration may stem from administrative experience and other factors of life and not artistic visualization or neat logic and so the literal though pedestrian interpretation must prevail.”

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As a general rule, taxing provisions, as opposed to exemption provisions, are to be construed liberally in favor of the taxpayer, and strictly against the government. Doubts as to their interpretation and application are to be resolved against the government and in favor of the taxpayer.  On the other hand, it has been declared that provisions in aid of the collection of revenues are to be liberally construed and applied, within reason, so as to favor the government. 

  1. Principle of avoidance ...

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