NO TAX CAN BE IMPOSED BY INFERENCE OR BY ANALOGY

A taxing statute is to be construed strictly.  Lord Wensleydale said that the subject is not to be taxed without clear words for that purpose.  Every Act of Parliament must be read according to the natural construction of its words.  This has been affirmed by Lord Halsbury and Lord Simonds.  Lord Cains stated that if the person sought to be taxes 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 fiscal legislation a transaction cannot be taxed on any doctrine and ‘the substance of the matter’ as distinguished from its legal signification, for a subject is not liable to tax on supposed ‘spirit of the law’ or ‘by inference or by analogy’. 

In ‘A.V. Fernandez V. State of Kerala’ – 1957 (4) TMI 46 - SUPREME COURT OF INDIA the Supreme Court has held that 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.

In ‘Sales Tax Commissioner V. Modi Sugar Mills’ – 1960 (10) TMI 65 - SUPREME COURT OF INDIA the Supreme Court held that in interpreting a taxing statute, equitable considerations are entirely out of place.   Nor can taxing statutes be interpreted on any presumptions or assumptions.  The Court must look squarely at the words of the statute and interpret them.   It must interpret a taxing statute in the light of what is clearly expressed.  It cannot imply anything which is not expressed.   It cannot import provisions in the statute so as to supply and assumed deficiency.

In ‘Martand Diary and Farm V. Union of India’ – 1975 (4) TMI 100 - SUPREME COURT OF INDIA, the Supreme Court observed that taxation consideration may stem from administrative experience and other factors of life and not artistic visualization or neat logic and so the literal, through pedestrian interpretation must prevail.

In ‘Kapil Mohan V. Commissioner of Income Tax, Delhi’ – 1998 (12) TMI 3 - SUPREME Court , it has been held 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.

In ‘Indo International Industries V. Commissioner of Sales Tax, Uttar Pradesh’ – 1981 (3) TMI 77 - SUPREME COURT OF INDIA the Supreme Court highlighted the object of taxing statute.  The Supreme Court held that primary object of the Sales Tax and the Excise Tax Acts is to raise revenue and for which purpose they classify diverse products, articles and substances, therefore, resorts should not be had to the scientific and technological meaning of the terms or expressions used but to their popular meaning attached to them.  If any term or expression has been defined in the enactment then it must be understood in the sense in which it is defined but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted.

From the above case laws it is vivid that before taxing any person it must be shown that he falls within the ambit of charging section by clear words used in the section.   If the words are ambiguous and reasonably open to two interpretations benefit of interpretation is given to the subject.  But equitable considerations are not relevant in construing a taxing statute and similarly logic or reason cannot be much avail in interpreting a taxing statute.