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The concept of interpretation of a Statute cannot be a static one. Though ³Maxwell on

Interpretation of Statutes´ is a virtual Bible for analysing the concept, even still, courts have
departed from the principles laid down therein depending upon the social needs of the
community, economic exigencies of time and several other factors.

It is neither desirable nor permissible to pick out a word or a sentence from the judgement of the
Supreme Court divorced from the context of the question under consideration and treat it to be
the complete law declared by the Court. The judgement must be read as a whole and the
observations from the judgement have to be considered in the light of the questions which were
before the Court.

One of the controversial areas in which courts had to interpret the taxing statute is relating to the
retrospective operation of the statute. This can be viewed with the background of various
amendments made in sections 115J, 115JA and 115JB of the Income-tax Act, 1961. Let us look
at some of the decided cases dealing with interpretation of retrospective nature of an amendment.

a) In  
 , in 1584, it was resolved by the Barons of the Exchequer ³that for the sure
and true interpretation of all statutes in general (be they penal or beneficial, restrictive or
enlarging of the common law) four things are to be discerned and considered: (1) What was the
common law before the making of the Act (2) What was the mischief and defect for which the
common law did not provide, (3) What remedy the Parliament hath resolved and appointed to
cure the disease of the commonwealth, and, (4) The true reason of the remedy; and then the
office of all the Judges is always to make such construction as shall suppress the mischief, and
advance the remedy, and to suppress subtle inventions and evasions for continuance of the
mischief, and pro private commodo, and to add force and life to the cure and remedy, according
to the true intent of the makers of the Act, pro bono publico´. In 1898, Lindley M.R: said: ³In
order properly to interpret any statute it is as necessary now as it was when Lord Coke reported
Heydon¶s Case to consider how the law stood when the statute to be construed, was passed, what
the mischief was for which the old law did not provide, and the remedy provided by the statute to
cure that mischief.´ Although Judges are unlikely to propound formally in their judgements the
four questions in Heydon¶s Case, consideration of the ³mischief´ or object of the enactment is
common, and will often provide the solution to a problem of interpretation.

b) If the choice is between two interpretations, the narrower of which would fail to achieve the
manifest purpose of the legislation, we should avoid a construction which would reduce the
legislation to futility and should rather accept the bolder construction based on the view that
Parliament would legislate only for the purpose of bringing about an effective result´.

c) The construction of a statute must not so strain the words as to include cases plainly omitted
from the natural meaning of the language. Thus an enactment requiring that public houses be
closed at certain hours on Sundays was incapable of being construed as extending to Christmas
Day; and a rule relating to applications for new trials in cases tried by a jury did not extend to
cases tried by an official referee.     
 



 


 

 
 


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$ Previous editions of this work have referred to this
relaxation of strictly literal principles of interpretation as beneficial construction: and the modern
cases provide many instances of the Judges¶ reluctance to stand upon the letter of a statute. They
will not, of course, supply omissions, but where they are faced with a choice between a wide
meaning which carries out what appears to have been the object of the legislature more fully, and
a narrow meaning which carries it out less fully or not at all, they will often choose the former.
Beneficial construction is a tendency, rather than a rule. (Emphasis supplied)

d) In the case of 
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& , Lord Lindley M.R. stated that in interpreting
any statutory enactment regard must be had not only to the words used, but also to the history of
the Act and the reasons which lead to its being passed.

e) In the case of 
$
c   (1957) (32 ITR 615) (SC), it was held by the Apex Court
that unless there is an ambiguity, it would not be open to the Court to depart from the normal rule
of construction which is that the intention of the legislature should be primarily to gather from
the words which are used. It is only when the words used are ambiguous that they would stand to
be examined and considered on surrounding circumstances and constitutionally proposed
practices.

f) Lord Denning in
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1949 (2) AER 155 CA has opined that in some
situations, the Court supplement the words of the statute to give the force and life to the intention
of the legislature and are compelled to perform some judicial services.

g) In the case of 
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   (1980) (121 ITR 535), it has been held by the
Supreme Court that it is permissible for the Courts to modify any of the statutes if the literal
construction or its clause leads to manifestly absurd anomalous results which could not have
been intended by the legislature.

h) In the case of 
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)   
* "
%$ (1973) (88 ITR) 192 Y. Mahindra &
Mahindra Ltd. (1983) (144 ITR 225) it has been held by the Supreme Court that if any of the
taxing provision is ambiguous or capable of more meaning than the one used, then the courts can
take the interpretation which favours the assessee, more particularly so, when the provision
relates to imposing taxes or levy of penalty.

i) The Supreme Court in the case of 
$
$
$
+ (1985) (156 ITR 323) has held that for
equity and taxation are often strangers and attempts should be made that these do not always
remain so and if construction results in equity rather than injustice such construction. should be
preferred to the literal construction.

In view of the aforesaid discussion, the expression loss brought forward appearing in
Explanation (iii) of Section 115JB would mean loss brought forward without adjustments made
pursuant to High Court order sanctioning compromise or arrangement.

A perennial controversy arising for interpretation of a taxing statute concerns with the preference
of form over substance or vice versa.
Thus, interpretation of statutes is keenly debated in taxing matters, as there are several ways of
interpretation which cannot be covered in a single article. However, we can look to one more
battle scene in which the courts have debated at length viz. whether while interpreting the taxing
statute courts must look into at the plain language of the statute or must also yield to equity.

It is very often said that equity and taxation are strange bed fellows but even while accepting this
dictum which forbids the courts to read the plain language of the statute, the courts have tried to
avoid interpretation which leads to absurd results. The Supreme Court in the case of

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(  (1992) (198 ITR 297) (SC) held as follows:

³It is neither desirable nor permissible to pick out a word or a sentence from the judgement of the
Supreme Court divorced from the context of the question under consideration and treat it to be
the complete law declared by the Court. The judgement must be read as a whole and the
observations from the judgement have to be considered in the light of the questions which were
before the Court. A decision of the Supreme Court takes its colour from the questions involved
in the case in which it is rendered and, while applying the decision to a later case, courts must
carefully try to ascertain the true principle laid down by the decision.´

The Supreme Court, again in the case of & 
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 AIR 1971 SC
530 at page 533 held as under:

³Precedence ± It is not proper to regard a word a clause or a sentence occurring in a judgement

of the Supreme Court, divorced from its context, as containing a full exposition of the law on a
question when the question did not even fall to be answered in that judgement´.

This judgement was delivered by the Constitution Bench consisting of 11 Judges. As early as in
(1949) 17 ITR at page 493, the Chief Justice Chhagla has held that the courts should as far as
possible try to avoid interpretation which leads to absurd results.

While dealing with a very ingenuous argument advanced by R.J. Kolah on the interpretation of
Section 23A which applies to short declaration of dividend, he argued that the provisions will not
apply to the case if no dividends are declared at all. The High Court held that this would lead to
absurd results in rendering a person who declares dividend not as per requirement of the statute
but would absolve a person who commits total default in not declaring dividend.

Similar conflict arises in the court¶s mind in determining the priority or form over substance and
vice versa. There are number of judgments and notable amongst them are: - 
$

(1946) 14 ITR 336 which was overruled by Supreme Court in 
$
.  (1969) 72 ITR
603 (SC). This controversy of ³form over substance´ on many cases culminated in the Supreme
Court¶s judgement in &" 
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0 (1985) 154 ITR 148 which again disapproved
B.M. Kharwar¶s case.

These controversies appear to be unending in view of the latest judgement of Supreme Court in
the case of Union of India vs. 1
20
0% (2003) 263 ITR 706.
Suffice it to say that the tenor of the Judicial pronouncements lead to a position where form is
important and it has to be discarded only if it is an artifact or tax saving device.