By N. M. Ranka
Senior Adovcate
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Introduction
In the April and May issues of the BCAJ I had discussed the basic rules of interpretation of tax statutes and have tried to explain some rules with binding precedents. Other rules / concepts are dealt with hereunder and hereafter.
1. Rules of Consistency, Resjudicata & Estoppel :
The principle of consistency is a principle of equity and would not override
the clear provisions of law. It is well accepted that each assessment year is
separate and if a particular aspect was not objected to in one year, it would
not fetter the Assessing Officer from correcting the same in a subsequent year
as the principles of res judicata are not applicable to tax proceedings. In Radhasaomi
Satsang the Supreme Court held that (page 329 of 193-ITR) : “where a
fundamental aspect permeating through the different assessment years has been
found as a fact one way or the other and parties have allowed that position to
be sustained by not challenging the order, it would not be at all appropriate
to allow the position to be changed in a subsequent year”. As is apparent
from the said decision, the rule of consistency has limited application – where
a fundamental aspect permeates through several assessment years; the said
aspect has been found as a fact one way or the other; and the parties have not
challenged the said finding and allowed the position to sustain over the years.
Clearly, the said principle will have no application where the position
canvassed militates against an express provision of law as held by Delhi High
Court in Honey Enterprises vs. C.I.T. (2016) 381-ITR-258 at 278.
1.1. In Radhasaomi itself, the Supreme Court acknowledged that there is
no res judicata, as regards assessment orders, and assessments for one year may
not bind the officer for the next year. This is consistent with the view of the
Supreme Court that there is no such thing as res judicata in income-tax
matters’ (Raja Bahadur Visheshwara Singh vs. CIT (1961) 41-ITR- 685 (SC); AIR
1961 SC 1062). Similarly, erroneous or mistaken views cannot fetter the
authorities into repeating them, by application of a rule such as estoppel, for
the reason that being an equitable principle, it has to yield to the mandate of
law. A deeper reflection would show that blind adherence to the rule of
consistency would lead to anomalous results, for the reason that it would
endanger the unequal application of laws, and direct the tax authorities to
adopt varied interpretations, to suit individual assessees, subjective to their
convenience – a result at once debilitating and destructive of the rule of law.
The rule of consistency cannot be of inflexible application.
1.2. Res judicata does not apply in matters pertaining to tax for different
assessment years because res judicata applies to debar courts from entertaining
issues on the same cause of action whereas the cause of action for each
assessment year is distinct. The courts will generally adopt an earlier
pronouncement of the law or a conclusion of fact unless there is a new ground
urged or a material change in the factual position. The reason why courts have
held parties to the opinion expressed in a decision in one assessment year to
the same opinion in a subsequent year is not because of any principle of res
judicata but because of the theory of precedent or precedential value of the
earlier pronouncement. Where the facts and law in a subsequent assessment year
are the same, no authority whether quasi-judicial or judicial can generally be
permitted to take a different view. This mandate is subject only to the usual
gateways of distinguishing the earlier decision or where the earlier decision
is per incuriam. However, these are fetters only on a co-ordinate Bench, which,
failing the possibility of availing of either of these gateways, may yet differ
with the view expressed and refer the matter to a Bench of superior
jurisdiction. In tax cases relating to a subsequent year involving the same
issues as in the earlier year, the court can differ from the view expressed if
the case is distinguishable as per incuriam, as held by the Apex Court in
Bharat Sanchar Nigam Ltd. vs. Union of India (2006) 282-ITR-273 (SC) at
276-277.
1.3. Estoppel normally means estopped from re agitating same issue. However,
it is settled position in law that there cannot be an estoppel against a
statute. There is no provision in the statute which permits a compromise
assessment. The above position was indicated by the apex court in Union of
India vs. Banwari Lal Agarwal (1999) 238-ITR-461 (S.C.).
2. Actus Curiae Neminem gravabit :
An act of the Court should not prejudice anyone and the maxim actus curiae
neminem gravabit is squarely applicable. It is the duty of the Court to see
that the process of the court is not abused and if the court’s process has been
abused by making a statement and the same court is made aware of it, especially
a writ court, it can always recall its own order, for the concession which
forms the base is erroneous. It is a well settled proposition of law that no
tax payer should suffer on account of inadvertent omission or mistake of an
authority, because to do justice is inherent and dispensation of justice should
not suffer. It is equally well settled that any order on concession has no binding
effect and there is no waiver or estoppel against statue.
3. Same word in different statues :
In interpreting a taxing statute, the doctrine of “aspect”
legislation must be kept in mind. It is a basic canon of interpretation that
each statute defines the expressions used in it and that definition should not
be used for interpreting any other statute unless in any other cognate statute
there is no definition, and the extrapolation would be justified as held by
Kerala High Court in All Kerala Chartered Accountants’ Association vs. Union of
India & Others (2002) 258-ITR-679 at 680. “A particular word occurring
in one section of the Act having a particular object, cannot carry the same
meaning when used in a different section of the same Act, which is enacted for
a different purpose. In other words, one word occurring in different sections
of the same Act can have different meanings, if the objects of the two sections
are different and they operate in different fields as held by the Supreme Court
in J.C.I.T. vs. Saheli Leasing and Industries Ltd. (2010) 324-ITR-170 at 171.
“The words and expressions defined in one statute as judicially
interpreted do not afford a guide to the construction of the same words or
expressions in another statute unless both the statutes are pari materia
legislations or it is specifically provided in one statute to give the same
meaning to the words as defined in another satute as held in Jagatram Ahuja vs.
C.I.T. (2000) 246-ITR-609 at 610 (SC).
4. Rules to yield to the Act :
Rules are made by the prescribed authority, while Act is enacted by the
Legislature, hence rules are subservient to the Act and cannot override the
Act. If there is conflict the Act would prevail over the rules. Rules are
subordinate legislation. Subordinate legislation does not carry the same degree
of immunity as enjoyed by a statute passed by a competent Legislature.
Subordinate legislation may be questioned on any of the grounds on which
plenary legislation is questioned; in addition, it may also be questioned on
the ground that it does not conform to the statute under which it is made. It
may further be questioned in the ground that it is inconsistent with the
provisions of the Act, or that it is contrary to some other statute applicable
in the same subject-matter. It may be struck down as arbitrary or contrary to
the statute if it fails to take into account vital facts which expressly or by
necessary implication are required to be taken into account by the statute or
the Constitution. Subordinate legislation can also be questioned on the ground
that it is manifestly arbitrary and unjust. It can also be questioned on the
ground that it violates article 14 of the Constitution of India as held in J.
K. Industries Ltd. and Another vs. Union of India (2008) 297-ITR-176 at
178-179.
5. Literal Interpretation & Casus Omissus :
The principles of interpretation are well-settled :
(i) a statute has to be read as a whole and the effort should be to give full
effect to all the provisions;
(ii) interpretation should not render any provision redundant or nugatory;
(iii) the provisions should be read harmoniously so as to give effect to all
the provisions;
(iv) if some provision specifically deals with a subject-matter, the general
provision or a residual provision cannot be invoked for that subject as held in
C.I.T. vs. Roadmaster Industries of India (P) Ltd. (2009) 315-ITR-66 (P&H).
Except where there is a specific provision of the Income-tax Act which
derogates from any other statutory law or personal law, the provision will have
to be considered in the light of the relevant branches of law as held in C.I.T.
vs. Bagyalakshmi & Co. (1965) 55-ITR-660 (SC).
5.1. When the language of a statute is clear and unambiguous, the courts are to
interpret the same in its literal sense and not to give a meaning which would
cause violence to the provisions of the statute, as held in Britania Industries
Ltd. vs. C.I.T. (2005) 278-ITR-546 at 547 (SC). It is a well settled principle
of law that the court cannot read anything into a statutory provision or a
stipulated condition which is plain and unambiguous. A statute is an edict of
the Legislature. The language employed in a statute is the determinative factor
of legislative intention. While interpreting a provision the court only
interprets the law and cannot legislate it. If a provision of law is misused
and subjected to the abuse of process of law, it is for the Legislature to
amend, modify or repeal it, if deemed necessary. Legislative casus omissus
cannot be supplied by judicial interpretative process.
A casus omissus ought not to be created by interpretation, save in some case of
strong necessity” as held in Union of India vs. Dharmendra Textiles
Processors and Others (2008) 306-ITR-277 at page 278 (SC).
5.2. I f the construction of a statutory provision on its plain reading leads
to a clear meaning, such a construction has to be adopted without any external
aid as held in C.I.T. vs. Rajasthan Financial Corporation (2007) 295-ITR-195
(Raj F.B.). A taxing statute is to be construed strictly : in a taxing statute
one has to look merely at what is said in the relevant provision. There is no
presumption as to a tax. Nothing is to be read in, nothing is to be implied.
There is no room for any intendment. There is no equity about a tax. In
interpreting a taxing statute the court must look squarely at the words of the
statute and interpret them. Considerations of hardship, injustice and equity
are entirely out of place in interpreting a taxing statute as held in Ajmera
Housing Corporation and Another vs. C.I.T. (2010) 326-ITR-642 (SC).
5.3. In construing a contract, the terms and conditions thereof are to be read
as a whole. A contract must be construed keeping in view the intention of the
parties. No doubt, the applicability of the tax laws would depend upon the
nature of the contract, but the same should not be construed keeping in view
the taxing provisions as held in Ishikawajima – Harima Heavy Industries Ltd.
vs. Director of Income-tax (2007) 288-ITR-408 (SC). The provisions of a section
have to be interpreted on their plain language and not on the basis of
apprehension of the Department. A statute is normally not construed to provide
for a double benefit unless it is specifically so stipulated or is clear from
the scheme of the Act as held in Catholic Syrian Bank Ltd. vs. C.I.T. (2012)
343-ITR-270 (SC). Where any deduction is admissible under two Sections and
there is no specific provision of denial of double deduction, deduction under
both the sections can be claimed and deserves to be allowed.
5.4. It is cardinal principle of interpretation that a construction resulting
in unreasonably harsh and absurd results must be avoided. The cardinal
principle of tax law that the law to be applied has to be the law in force in
the assessment year is qualified by an exception when it is provided expressly
or by necessary implication. That the law which is in force in the assessment
year would prevail is not an absolute principle and exception can be either
express or implied by necessary implication as held in C.I.T. vs. Sarkar
Builders (2015) 375-ITR-392 (SC)
5.5. The cardinal rule of construction of statutes is to read the statute
literally that is, by giving to the words used by legislature their ordinary
natural and grammatical meaning. If, however, such a reading leads to absurdity
and the words are susceptible of another meaning the Court may adopt the same.
But if no such alternative construction is possible, the Court must adopt the
ordinary rule of literal interpretation. It is well known rule of
interpretation of statutes that the text and the context of the entire Act must
be looked into while interpreting any of the expressions used in a statute The
Courts must look to the object, which the statute seeks to achieve while interpreting
any of the provisions of the Act. A purposive approach for interpreting the Act
is necessary.
5.6. It is a settled principle of rule of interpretation that the Court cannot
read any words which are not mentioned in the Section nor can substitute any
words in place of those mentioned in the section and at the same time cannot
ignore the words mentioned in the section. Equally well settled rule of
interpretation is that if the language of statute is plain, simple, clear and
unambiguous then the words of statute have to be interpreted by giving them
their natural meaning as observed in Smita Subhash Sawant vs. Jagdeshwari
Jagdish Amin AIR 2016 S.C. 1409 at 1416.
6. Interpretations – favourable to the tax payer to be adopted.
It is
well settled, if two interpretations are possible, then invariably the court
would adopt that interpretation which is in favour of the taxpayer and against
the Revenue as held in Pradip J. Mehta vs. C.I.T. (2008) 300-ITR-231 (SC).
While dealing with a taxing provision, the principle of ‘strict interpretation’
should be applied. The court shall not interpret the statutory provision in
such a manner which would create an additional fiscal burden on a person. It
would never be done by invoking the provisions of another Act, which are not
attracted. It is also trite that while two interpretations are possible, the
court ordinarily would interpret the provisions in favour of a taxpayer and
against the Revenue as held in Sneh Enterprises vs. Commissioner of Customs
(2006) 7-SCC-714.
7. Doctrine of Ejusdem generis :
Birds of the same feather fly to-gether. The rule of ejusdem generis is applied
where the words or language of which in a section is in continuation and where
the general words are followed by specific words that relates to a specific
class or category. The Supreme Court in the case of C.I.T. vs. Mcdowel and
Company Ltd. (2010 AIR SCW 2634) held : “The principle of statutory
interpretation is well known and well settled that when particular words
pertaining to a class, category or genus are followed by general words are
construed as limited to things of the same kind as those specified. This rule
is known as the rule of ejusdem generis. It applies when :
(1) the statute contains an enumeration of specific words;
(2) the subjects of enumeration constitute a class or category;
(3) that class or category is not exhausted by the enumeration;
(4) the general terms follow the enumeration; and
(5) there is no indication of a different legislative intent. The maxim ejusdem
generis is attracted where the words preceding the general words pertain to
class genus and not a heterogeneous collection of items as held in the case of
Housing Board, Haryana (AIR 1996 SC 434). Same view has been iterated in Union
of India vs. Alok Kumar AIR 2010 S.C. 2735.
7.1. General words in a statute must receive general construction. This is,
however, subject to the exception that if the subject-matter of the statute or
the context in which the words are used, so requires a restrictive meaning is
in permissible to the words to know the intention of the Legislature. When a
restrictive meaning is given to general words, the two rules often applied are
noscitur a sociis and ejusdem generis. Noscitur a sociis literally means that
the meaning of the word is to be judged by the company it keeps. When two or
more words which are susceptible of analogous meaning are coupled together,
they are understood to be used in their cognate sense. The expression ejusdem
generis – “of the same kind or nature” – signifies a principle of
construction whereby words in a statute which are otherwise wide but are
associated in the text with more limited words are, by implication given a
restricted operation and are limited to matters of the same class of genus as preceding
them.
8. “Mutatis Mutandis” & “As if” :
Earl Jowitt’s ‘The Dictionary of English Law 1959) defines ‘mutatis mutandis’
as ‘with the necessary changes in points of detail’. Black’s Law Dictionary
(Revised 4th Edn, 1968) defines ‘mutatis mutandis’ as ‘with the necessary
changes in points of detail, meaning that matters or things are generally the
same, but to be altered when necessary, as to names, offices, and the like…..
‘Extension of an earlier Act mutatis mutandis to a later Act, brings in the idea
of adaptation, but so far only as it is necessary for the purpose, making a
change without altering the essential nature of the things changed, subject of
course to express provisions made in the later Act. It is necessary to read and
to construe the two Acts together as if the two Acts are one and while doing so
to give effect to the provisions of the Act which is a later one in preference
to the provisions of the Principal Act wherever the Act has manifested an
intention to modify the Principal Act.
8.1. “The expression “mutatis mutandis” itself implies
applicability of any provision with necessary changes in points of detail. The
phrase “mutatis mutandis” implies that a provision contained in other
part of the statute or other statutes would have application as it is with
certain changes in points of detail as held in R.S.I.D.I. Corpn. vs. Diamond
and Gen Development Corporation Ltd. AIR 2013 SC 1241.
8.2. The expression “as if”, is used to make one applicable in
respect of the other. The words “as if” create a legal fiction. By
it, when a person is “deemed to be” something, the only meaning
possible is that, while in reality he is not that something, but for the
purposes of the Act of legislature he is required to be treated that something,
and not otherwise. It is a well settled rule of interpretation that, in
construing the scope of a legal fiction, it would be proper and even necessary,
to assume all those facts on the basis of which alone, such fiction can
operate. The words “as if”, in fact show the distinction between two
things and, such words must be used only for a limited purpose. They further
show that a legal fiction must be limited to the purpose for which it was
created. “The statute says that you must imagine a certain state of affairs;
it does not say that having done so, you must cause or permit your imagination
to boggle when it comes to the inevitable corollaries of that state of
affairs”. “It is now axiomatic that when a legal fiction is
incorporated in a statute, the court has to ascertain for what purpose the
fiction is created. After ascertaining the purpose, full effect must be given
to the statutory fiction and it should be carried to its logical conclusion.
The court has to assume all the facts and consequences which are incidental or
inevitable corollaries to giving effect to the fiction. The legal effect of the
words ‘as if he were’ in the definition of owner in section 3(n) of the
Nationalisation Act read with section 2(1) of the Mines Act is that although
the petitioners were not the owners, they being the contractors for the working
of the mine in question, were to be treated as such though, in fact, they were
not so”, as held in Rajasthan State Industrial Development and Investment
Corporation vs. Diamond and Gem Development Corporation Ltd. AIR-2013-1241 at
1251.
9. Approbate and Reprobate :
A party cannot be permitted to “blow hot-blow cold”, “fast and
loose” or “approbate and reprobate”. Where one knowingly accepts
the benefits of a contract, or conveyance, or of an order, he is estopped from
denying the validity of, or the binding effect of such contract, or conveyance,
or order upon himself. This rule is applied to ensure equity, however, it must
not be applied in such a manner, so as to violate the principles of, what is
right and, of good conscience. It is evident that the doctrine of election is
based on the rule of estoppel the principle that one cannot approbate and
reprobate is inherent in it. The doctrine of estoppel by election is one among
the species of estoppels in pais (or equitable estoppel), which is a rule of
equity. By this law, a person may be precluded, by way of his actions, or
conduct, or silence when it is his duty to speak, from asserting a right which
he would have otherwise had.
10. Legal Fiction – Deeming Provision :
Legislature is competent to create a legal fiction, for the purpose of assuming
existence of a fact which does not really exist. In interpreting the provision
creating a legal fiction, the Court is to ascertain for what purpose the
fiction is created and after ascertaining this, the Court is to assume all
those facts and consequences which are incidental or inevitable corollaries to
the giving effect to the fiction. This Court in Delhi Cloth and General Mills
Company Limited vs. State of Rajasthan : (AIR 1996 SC 2930) held that what can
be deemed to exist under a legal fiction are facts and not legal consequences
which do not flow from the law as it stands. When a statute enacts that
something shall be deemed to have been done, which in fact and in truth was not
done, the Court is entitled and bound to ascertain for what purposes and
between what persons the statutory fiction is to be resorted to.
10.1. It would be quite wrong to carry this fiction beyond its originally
intended purpose so as to deem a person in fact lawfully here not to be here at
all. The intention of a deeming provision, in laying down a hypothesis shall be
carried so far as necessary to achieve the legislative purpose but no further.
“When a Statute enacts that something shall be deemed to have been done,
which, in fact and truth was not done, the Court is entitled and bound to
ascertain for what purposes and between what persons the statutory fiction is
to be resorted to”. “If you are bidden to treat an imaginary state of
affairs as real, you must surely, unless prohibited from doing so, also imagine
as real the consequences and incidents, which, if the putative state of affairs
had in fact existed, must inevitably have flowed from or accompanied it…. The Statute
says that you must imagine a certain state of affairs; it does not say that
having done so, you must cause or permit your imagination to boggle when it
comes to the inevitable corollaries of that state of affairs”. In The
Bengal immunity Co.Ltd. vs. State of Bihar and Others AIR 1955 SC 661, the
majority in the Constitution Bench have opined that legal fictions are created
only for some definite purpose.
10.2. In State of Tamil Nadu vs. Arooran Sugars Ltd. AIR 1997 SC 1815 : the
Constitution Bench, while dealing with the deeming provision in a statute,
ruled that the role of a provision in a statute creating legal fiction is well
settled, and eventually, it was held that when a statute creates a legal
fiction saying that something shall be deemed to have been done which in fact
and truth has not been done, the Court has to examine and ascertain as to for
what purpose and between which persons such a statutory fiction is to be
resorted to and thereafter, the courts have to give full effect to such a statutory
fiction and it has to be carried to its logical conclusion. The principle that
can be culled out is that it is the bounden duty of the court to ascertain for
what purpose the legal fiction has been created. It is also the duty of the
court to imagine the fiction with all real consequences and instances unless
prohibited from doing so. That apart, the use of the term ‘deemed’ has to be
read in its context and further the fullest logical purpose and import are to
be understood. It is because in modern legislation, the term ‘deemed’ has been
used for manifold purposes. The object of the legislature has to be kept in
mind.
