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PROJECT ON:
STRICT CONSTRUCTION OF PENAL & TAXING STATUTES

SUBMITTED TO:
Mr. B.K. SINGH
ASSISTANT PROFESSOR

SUBMITTED BY:
UDIT BHATIA
SEMESTER VII

SCHOOL OF LAW
GURU GHASIDAS UNIVERSITY, BILASPUR
Declaration

I, Udit Bhatia, B.com L.L.B Semester VII of Guru Ghasidas University


do hereby declare that, this project is my original work and I have not
copied this project or any part thereof from any source without due
acknowledgement. I am highly indebted to the authors of the books that
I have referred in my project as well as all the writers of the articles and
owners of the information taken from website for it. It is only because of
their contribution and proper guidance of my faculty advisor M. B.K.
Singh, that I was able to gather light on subject.

UDIT BHATIA
B.COM L.L.B semester VII
Certificate

I am glad to submit this project report on INTERPRETATION OF


STATUTES, as a part of my academic assignment. The project is based
on STRICT CONSTRUCTION OF PENAL & TAXING
STATUTES. I hope this would be significant for academic purposes as
well as prove informative to all readers.
Here through I declare that this paper is an original piece of research and
all the borrowed texts and ideas have been duly acknowledged.

Udit Bhatia Faculty Signature:


B.COM L.L.B 7th semester
ACKNOWLEDGEMENT

I would like to express my earnest and deepest gratitude to, Mr. B.K.
Singh, Faculty for INTERPRETATION OF STATUTES, for giving me
this opportunity to do a project on such a valuable topic of “STRICT
CONSTRUCTION OF PENAL & TAXING STATUTES”. I am
grateful for the assistance, guidance and support that were extended
during the course of excellent research. I am also thankful to the college
administration for providing the resources necessary for the research
work. I thank my parents and friends for their moral support and love
throughout my research work and project preparation. Above all I thank
the God Almighty for blessing me with the health and vitality to
complete this project.

UDIT BHATIA
B.COM L.L.B. Semester 7TH

.
Synopsis
STRICT CONSTRUCTION OF PENAL & TAXING STATUTES:

Introduction............................................................................................i
Strict Interpretation Of Penal..............................................................ii

- Two Interpretation
- Where Strict Construction Not Applicable
- Mens Rea In Statutory Offences
- Vicarious Liability And Statutory Offences
Strict Interpretation Of Taxing Statutes............................................iii
- Rules Of Interpretation
Conclusion..............................................................................................iv
Bibliography...........................................................................................v

Submitted By: Assistant professor:


Udit Bhatia Mr. B.K. Singh
B.Com L.L.B.
7th Semester
INTRODUCTION

The interpretation of laws is confined to courts of law. In course of time, courts


have evolved a large and elaborate body of rules to guide them in construing or
interpreting laws. Most of them have been collected in books on interpretation of
statutes and the draftsman would be well advised to keep these in mind in drafting
Acts. Some Interpretation Acts, like the Canadian one, lay down that every Act
shall be deemed remedial and shall accordingly receive such fair, large and liberal
construction and interpretation as will best ensure the attainment of the object of
the Act according to its true intent, meaning and spirit. The object of all such rules
or principles as aforesaid broadly speaking, is to ascertain the true intent, meaning
and spirit of every statute. A statute is designed to be workable, and the
interpretation thereof by a court should be to secure that object, unless crucial
omission or clear direction makes that unattainable.

The general rule for the construction of a penal statute is that it would be strictly
interpreted, that is, if two possible and reasonable constructions can be put upon a
penal provision, the Court must lean towards that construction which exempts the
subject from penalty rather than the one which imposes a penalty. A penal statute
has to be construed narrowly in favour of the person proceeded against. This
rule implies a preference for the liberty of the subject, in case of ambiguity in the
language of the provision. The courts invariably follow the principle of strict
construction in penal statutes. In constructing a penal Act, if a reasonable
interpretation in a particular case can avoid the penalty the Court adopts that
construction.

Statutes imposing taxes or monetary burdens are to 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. Any kind of intendment or presumption as to tax does not exist. TAX
AND FEE In case of a fee, there is a specific service rendered to the fee payer.
(Quid pro quo), whereas for the tax payer no direct services are rendered but the
service assumes the form of public expenditure rendered to the public at large.

STRICT INTERPRETATION OF THE PENAL STATUES

Salmond defines “interpretation” as “a process by which the Court seeks the


meaning of Legislature through the medium of authoritative forms in which it
expresses”. The manner, in which the courts have been interpreting penal statutes,
has been changing over time. There was a point where it was believed that a penal
statute had to be construed strictly in favour of the accused. With the flux of time
tow, contradictory developments have influenced the interpretation of penal
statutes1. A Court of law is bound to proceed upon the assumption that a legislature
is an ideal person that does not make mistake2. It is the duty of the Court to
interpret the language actually employed and to determine the intention of the
legislature from such language and where there is no ambiguity about the language
actually employed, neither the recommendation if the Law Commission, nor the
aims and objects set out in the Statement of Objects and Reasons can be brought in
aid or can be allowed to influence the natural grammatical meaning of the statute
as enacted by the Parliament3. The rule of strict construction of penal statutes is
said to be founded on the tenderness of the law for the rights of individuals and on
the plain principle that the power to define a crime and ordain its punishment is
vested in the legislature and not in the judicial department4. It is a reasonable

1
Seventilal Maneklal Seth v. Commr. Of Income Tax(Central) Bombay, (1968) 2 SCJ 129.
2 Thakur Madho Singh v. Lieut.Kames, R.R.Skinner, AIR 1942 Lahore 243
3 Subhash Ganpat Roy Buty v. maroti, AIR 1975 Bom 244; Indian Chamber of Commerce v. CIT West Bengal AIR 1976 SC 348
4 M.Narayanan Nambiar Vs. State of Kerala,1963 SCR Supl.(2) 724
expectation that legislature will manifest its intention with reasonable clarity in
penal statutes.

According to Maxwell the rule of strict construction of penal statutes manifests


itself in four ways5—

(1) Express language is necessary for the creation of criminal offences; therefore,
no action is to be deemed criminal unless it is clearly made so by words of the
statute concerned. But it is not necessary that a particular penalty is specified in
order that an act or omission may constitute an offence.

(2) The words setting out the elements of an offence are to be strictly construed.
And if there is any reasonable doubt or ambiguity it will be resolved in favour of
the person charged. A reasonable interpretation which will avoid the penalty must
be adopted. If there are two reasonable constructions the court must give the more
lenient one. The court must always see that the person to be penalized comes fairly
and squarely within the plain words of the enactment.

(3) Punishments can be imposed only if the circumstances of the case fall clearly
within the words of the enactment.

(4) Similarly, statutes dealing with jurisdiction and procedure are, if they relate to
the infliction of penalties, strictly construed.

The rule that all penal statutes must be strictly construed has been explained by
Lord Justice James in a case speaking for the Privy Council thus6:

Strict construction of a penal statue means that it is to be construed narrowly in


favour of the person proceeded against. This rule implies a preference for the
liberty of the subject in case of ambiguity in the language of the provision. It is a

5 Lord Evershed, M.R. – Foreword to Maxwell’s Interpretation of Statutes 11th Edition


6
London Railway Co. v Be& N. Eastern Berriman, 1946 , I ALL ER 255, p 270 HL
well-founded principle that if the words used in a criminal statute are reasonably
capable of two constructions, the construction which is favourable to the accused
should be preferred but in constructing the relevant words it is obviously necessary
to have due regard to the context in which they have been used.

In M.U Joshi v M. V Shimpi7 , the appellant was convicted under section 16 of the
Prevention of Food Adulteration Act 1954 for selling adulterated butter. He
contended that it was not buttered within the meaning of the rules made under the
Act because butter means butter made from milk whereas he had sold butter made
from curd. Further, the Act is a penal statute the word butter had to be strictly
construed in favour of the accused

In the case of State of Andhra Pradesh vs. Nagoti Venkatarma8 it has been held by
the supreme court that in the interpretation of penal provisions, Strict construction
is required to be adopted and if any real doubt arises, necessarily the reasonable
benefit of the doubt would be extended to the accused.

In Seksaria Cotton Mill Limited Company v State of Bombay[9], as per a


notification issued under the Essential Supplies Act 1946, every manufacturer was
required to submit true and accurate information about his dealings; and delivery
was defined to mean actual physical delivery. The appellant, who had sold some
bales to the purchaser who did not take delivery because of some dispute with the
appellant, asked his agent to keep the bales in godown pending settlement. The
appellant entered those bales as delivered in his return book. The appellant was
convicted by the High Court for not giving actual physical delivery. Allowing the
appeal, the Supreme Court said that when two reasonable interpretations are
possible of a penal statute, that which favours the accused should be accepted. It
was held that since the goods were actually delivered to the agent, the requirements
under the Act were fulfilled without straining the language.

7
AIR 1961 SC 1494
8 1996(6) SCC 409
Chinubhai vs State of Bombay9, is an important case in this respect. In this case,
several workers in a factory died by inhaling poisonous gas when they entered into
a pit in the factory premises to stop the leakage of the gas from a machine. The
question was whether the employer violated section 3 of the Factories Act, which
says that no person in any factory shall be permitted to enter any confined space in
which dangerous fumes are likely to be present. The Supreme Court, while
construing the provision strictly, held that the section does not impose an absolute
duty on the employer to prevent workers from going into such area. It further
observed that the fact that some workers were present in the confined space does
not prove that the employer permitted them to go there. The prosecution must first
prove that the workers were permitted to enter the space to convict the accused.

TWO INTERPRETATION:

When there are two possible constructions, the court must lean towards that
construction which exempts the subject from penalty, rather than the one which
imposes penalty.

It is not competent to the court to stretch the meaning of an expression used by the
legislature in order to carry out the intention of the legislature10.

The effect of the rule of strict construction might almost be summed up in the
remark that, where an equivocal word or an ambiguous sentence leaves a
reasonable doubt of its meaning which the canons of interpretation fails to solve,
the benefit of the doubt should be given to the subject and against the legislature
which has failed to explain itself.

WHERE STRICT CONSTRUCTION NOT APPLICABLE:

Even though the settled rule is that penal statutes must be construed strictly, certain
statutes must be understood in their plain language and with reference to their
meaning in commom perlance. These are the provisions relating to human
behaviour and therefore cannot be given such a narrower meaning, which would

9 1954 SCA 299


10
Tolaram relumal v. State of Bombay (1954)
defeat the very purpose of the provisions of the act. Of course, these are penal
provisions and must receive strict construction. But, even the rule of strict
construction requires that the provisions have to be read in conjunction with other
relevant provisions and scheme of the act. Further, the interpretation given should
be one which would avoid absurd results on the one hand and would further the
object and cause of the law, so enacted, on the other11.

MENS REA IN STATUTORY OFFENCES:

Act and intention together make a crime. This has been expressed in the well
known latin maxim, “actus non facit nisi mens rea”. Mens rea is a state of mind in
a human being.

Crimes involving mens rea are of two types,

1. Crimes of basic intent


2. Crimes of specific intent

In crimes of basic instinct, mens rea does not go beyond the actus reus, while in
crimes of specific intent, mens rea goes beyond the contemplation of the prohibited
act foresight of its consequences and has a purposive element. Mens rea refers to
the criminality of the act. It may mean different things in relation to different types
of crimes. In general, actus reus and mens rea mean the conduct of the accused and
his state of mind at the time of committing the crime. The parliament applies this
principle to a statutory offence.

Where offences under the act are really acts prohibited by the police powers of the
state in the interest of public health and well-being and prohibition is backed by the
sanction of a penalty, the offences are strictly statutory offences and intention or
mental state is irrelevant. Such acts prescribe a strict liability.

VICARIOUS LIABILITY AND STATUTORY OFFENCES:

The maxim “qui facit per alium facit per se” and “respondent superior” find no
place in criminal law. Criminal liability flows from authorisation and not simply
from relationship of master and servant. However, parliament can create a liability
in those, who have no mens rea, or in those who have not committed any actus
reus. The supreme court in hira lal hari lal Bhagwati v. cbi (2003) stated that unless
statutorily provided, there is no vicarious liability inder penal law.

11
Ashok Kumar v. state of Haryana (2010)
STRICT INTERPRETATION OF TAXING STATUTES

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.
RULES OF INTERPRETATION

Charging Section:

The section that charges the tax must have clear words. Before taxing any
individual it must be clearly established that the person to be taxed falls within the
purview of the charging section by clear words. There is no implication of the law.
If a person cannot be brought within the four corners of the law, he is free from tax
liability. In Calcutta Jute Manufacturing Co. v Commercial Tax officer, the
Supreme Court held that in case of interpreting a taxing statute, one has to look
into what is clearly stated. There is no room for searching the intentions,
presumptions or equity. In Mathuram Agarwal v State of Madhya Pradesh, the
Supreme Court held that words cannot be added or substituted to find a meaning in
a statute so as to serve the intention of the legislature. Every taxing statute must
contain three aspects; subject of tax, person to be taxed and the rate of tax.

Strict and favourable construction:

Taxing enactment should be strictly construed and the right to tax should be clearly
established. Equitable construction should not be taken into account. Courts should
not strain words and find unnatural meaning to fill loopholes. If the provision can
be interpreted in two ways, then the one favoring the assessee must be taken into
consideration. In Saraswati Sugar mills v Haryana State Board, The Supreme Court
held that every Act of the parliament must be read according to the strict natural
construction of its words.

Clear Intention to impose or increase tax:

The intention to impose or increase tax or duty must be clear and in unambiguous
language.
Prospective operation:

The cardinal principle of tax laws is that the law to be applied to assessee is the law
in force in the assessment year unless otherwise provided expressly or by
necessary implication. No retrospective effect to fiscal statute is possible unless the
language of the language of the statute is very clear and plain. In Reliance Jute
Industries Ltd v Commercial Tax officer, Fiscal Statute are generally not
retrospective otherwise expressly provide by necessary implications.

Meaning in common parlance:

In finding out the meaning of a taxing statute, the meaning in common usage,
parlance special in commercial and trade circles must be considered.

Machinery provision:

Machinery provision means the procedure foe calculation and collection of tax.
The person who claims an exemption has to establish it. In National Tag Traders v
Commissioner of Income Tax, the Supreme Court held that a fiscal statute must be
construed strictly.

No presumption as to tax

As regards to imposition of tax, no presumption exists. It cannot be drawn by


implication or analogical extensions. The presumption for equality and against
partiality of taxation exists. In Mohammed Ali Khan v Commissioner of Wealth
Tax, it was held that no tax can be imposed by inference, analogy or probing into
the intention of the legislature.
Fiscal statute to be read as a whole.

The entire provisions of a fiscal statute has to be read as a whole and not in
piecemeal to find out the intent of the legislature.

No spirit of law.

A person is no liable to tax on the spirit of law or logic or reason.

Substance of matter.

The tax authorities must consider the legal aspect of a particular transaction for
levy of tax. This is called ‘substance of the matter’.
Court fee Act If the court fee is high, then it affects the right of the aggrieved
person to seek remedy. In interpreting the court fee Act, the benefit of doubt
always goes to the assessee. Double taxation In interpreting a fiscal statute, if one
meaning gives rise to double taxation and other meaning gives rise to single
taxation, then the interpretation must be in favour of single taxation. Delayed
payment of tax. Interest is levied by tax authorities on delayed payment of tax. If
provision exists, such delayed payment is valid. Penalty- no criminal Act The
penalty provision cannot be equated with a criminal statute as a criminal act
requires mens rea.
CONCLUSION

A statute may in certain aspects be a penal enactment and in certain others a


counteractive one. In respect of those provisions which are approved on the pain of
punishment for a crime, the rule of strict construction in the limited sense may be
applied. At any rate, as undue effort to construe such a provision liberally to
encourage the beneficent purpose behind it may be effectively counterbalanced on
deliberation that a breach thereof leads to penal consequences.

In short the general rule of construction is that in case of doubt, it is decided in


favour of the tax payer even if such a decision is detrimental to the government.
BIBLIOGRAPHY

1. Principles Of Statutory Interpretation By Justice G.P. SINGH.


2. https://lawnotes.wordpress.com/category/interpretation-of-statutes/
3. http://lawdessertation.blogspot.com/2015/09/strict-construction-of-penal-
statutes.html
4. https://www.legalbites.in/rules-of-construction/
5. http://www.legalservicesindia.com/article/1470/Remedial-and-Penal-
Statutes.html
6. http://interpretationofstatutes.lawnotes16mrks.com/IOS/Penal%20Statutes.ht
ml
7. http://www.legalservicesindia.com/article/1451/Interpretation-of-taxing-
statute-as-strict-construction-and-exemption.html
8. https://lawnotes.wordpress.com/2015/05/18/strict-construction-of-taxing-
statutes

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