Report No. 29
107. Interpretation of taxing Act.-We may also refer to the principles adopted regarding interpretation of taxing Acts. The following observations of Lord Cairns1-2 may be referred to in this connection:-
".............as I understand the principle of all fiscal legislation, it is this:
If the person sought to be taxed 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 the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute."
1. Partington v. Attorney General, (1869) LR 4 HL 100 (122).
2. See further, Craies Statute Law, (1963), pp. 113-116.
108. Other decisions on the subject are collected in a recent case of the Andhra Pradesh High Court1. The following observations of the Supreme Court may also be referred to:
"Sub-section (2) of section 21 (of the Bombay Sales-tax Act 3 of 1953) is a penal provision contained in a taxing statute and the Court cannot speculate contrary to the plain intendment of the words used about the object of the Legislature. If the Legislature has failed to clarify its meaning by the use of appropriate language, the benefit thereof must go to the taxpayer. It is settled law that in case of doubt, that interpretation of a taxing statute which is beneficial to the taxpayer must be adopted."2
1. Ramakrishna v. State of Andhra Pradesh, AIR 1965 AP 420 (423) (November).
2. State of Bombay v. Automobile and Agricultural Industries Corpn., (1961) 12 STC 122 (SC) (Kapur, Hidayatullah and Shah JJ.).
109. Legislation passed in England during and after the Second World War illustrates the increasing efforts made by the legislature to check avoidance of tax1.
1. See for example, section 35(1), Excess Profits Tax Act, 1941 (U.K.).
110. Avoidance not always fraudulent.-As regards tax avoidance, it has been recognised in the U.S.A., that every transaction which results in tax avoidance is not always entered into with the sole object of avoidance of tax. As an example, we may cite the American institution of "foundation". An individual, a family or a corporation may donate a proportion of his or its assets to a permanent institution "established for officially recognised charitable purposes", the donor usually being the controller of an industrial or business empire1. Such donations are exempt from gift tax, and are deductible for purposes of estate tax. So far as the donee organisations are concerned, they would ordinarily be exempt from income-tax, property tax and other taxes. Further, the donor gets a deduction in taxes in respect of the charitable gift inter vivos (within certain limits). By transferring the capital and annual income from his personal estate, the donor thus reduces his liability to tax.At the same time, the donor sanctifies his name and gives a public proof of his social responsibility through the establishment of a charitable institution2.
1. See Friedmann Law in a Changing Society, (1959), pp. 86, 290 to 293.
2. See also Report of the Select Committee to investigate foundations (House of Representatives, Report No. 2514, 82nd Congress, 2nd Session 1953).