Download Shortcomings of Literal Construction in Statutory Interpretation: A Critical Analysis and more Lecture notes Law in PDF only on Docsity!
NATIONAL LAW UNIVERSITY ODISHA
INTERPRETATION OF STATUTES
PROJECT
SHORTCOMINGS OF LITERAL CONSTRUCTION
SUBMITTED TO: SUBMITTED BY:
MR. ABHIK MAJUMDAR NIYATI MAHESHWARI (2016/ BA LLB/
ASSISTANT PROFESSOR OF LAW SMRITI SHARMA (2016/ BBA
LLB/ 057)
MR. SOUBHAGYA SUNDAR NANDA SRIDUTT MISHRA
(2016/BBALLB/046)
RESEARCH ASSOCIATE CUM TEACHING ASSISTANT THIRD YEAR (2016-2021)
SEMESTER-VI
INTERPRETATION OF STATUTES 1 |
RESEARCH METHODOLOGY
SCOPE
The scope of this project has been limited to the Literal Rule of Interpretation, which falls under the ambit of Literal Construction. LIMITATION This project deals with critique of Literal Rule of Interpretation with respect to The Constitution of India, The Income Tax Act, 1961 and various domestic Sales Tax Acts. OBJECTIVES To analyse situations where it is not plausible for the courts to draw the literal construction of a Provision. To understand shortcomings of literal construction with respect to provisions of the Constitution, Sales Tax Acts and the Income Tax Act. To determine that Golden Rule of Interpretation is a more plausible approach than Literal Rule of Interpretation. HYPOTHESIS Literal Rule breeds ambiguity and is restrictive and a rigid means of Statutory Interpretation. Purposive construction or Golden Rule of Interpretation is a better substitute and form of Statutory Interpretation. RESEARCH QUESTIONS What is literal construction and literal rule of interpretation? What are the problem face by courts in the application of the literal rule while interpreting various statutes? Why is there a problem in literally interpreting statutes? INTERPRETATION OF STATUTES 3 |
What is the Golden Rule of Interpretation? Is it a better form of Statutory Interpretation? And, if so then why? METHODOLOGY In order to understand the concept of law and morality, their importance and dependence on each other, the methodology of doctrinal research has been used. The sources referred under this project are both primary as well as secondary. The cases used are the primary source, whereas books and other resources referred are secondary sources. MODE OF CITATION OSCOLA mode of citation has been followed. INTERPRETATION OF STATUTES 4 |
Income Tax Act 1961, s 32(1) (iia).......................................................................................... 16 BOOKS Avatar Singh, Introduction to the Interpretation of Statutes (3rd^ edn, LexisNexis) 49............ 11 Black, H. and Garner, B. (n.d.). Black's law dictionary (17th^ edn, West Group) 308................ 7 Justice GP Singh, Principles of Statutory Interpretation (Justice AK Patnaik, 14th^ edn, LexisNexis 2016)...............................................................................................................6, 7 PJ Fitzgerald, Salmond on Jurisprudence (12th^ edn ULP 2008) 152...................................6, 12 INTERPRETATION OF STATUTES 6 |
INTRODUCTION
A “Statute” is the creation of the Legislature according to which the Government has to function. The executive acts and the Judiciary applies such statutes while administering justice. It is in this course of administration of justice that the courts are more than often called upon to interpret words, phrases and expressions used in the statute and various guidelines have been laid down for the same over the years which are known as Rules of Interpretation. The process of interpretation and construction are those via which Courts ascertain the Legislature’s intent in a statute.^1 Literal Rule is one of the oldest rules of interpretation. It follows the legal maxim, verbis legis non est recelendum i.e, from the words of law there should be no departure. Literal Interpretation is finding out a statute’s true sense by making it its own expositor. According the rule of Literal Construction, words of a statute should be construed as per their ‘literal’ or ‘plain’ meaning. As per Literal Construction, the words of a statute are to be understood in their natural, popular or ordinary sense and sentences or phrases are construed according to their grammatical meaning. The rationale behind such an adopting such an approach is that the court should not doubt the legislative competence and also by literally constructing the statutes, so the courts would be giving effect to the legislative intent^2 and therefore prima facie the words should be construed as they ordinarily mean.^3 The traditional role of this rule forbids the courts to attach any other meaning other than the ordinary one. However, the rule has certain shortcomings. They are of two types: first is Logical defect which comprises inconsistency, ambiguity and incompleteness and the second type is irrationality or absurdity. Ambiguity occurs when a term used in the statute has more than one meaning and it is not clear as to which meaning is represented at which place. In such situations the court due to literal rule will have to stick to the literal meaning of the word even though that might not be the context. Similarly sometimes the ambiguity is “synctactic”^4 and vagueness arises from words like “or”, “and”, “all” etc., and if the statute’s language is clear and unambiguous, the Court cannot depart from the literal meaning of the words despite its leading to injustice.^5 Similarly, if there is some omission or lacuna in a statute, a court is restricted and not allowed to do more than that.Another one of the problems of literal rule is that it breeds absurdity. It may so happen (^1) Justice GP Singh, Principles of Statutory Interpretation (Justice AK Patnaik, 14th (^) edn, LexisNexis 2016). (^2) Justice GP Singh, Principles of Statutory Interpretation (Justice AK Patnaik, 14th (^) edn, LexisNexis 2016). (^3) Oriental Insurance Ltd Co v Sardar Sadhu Singh AIR 1994 Raj 44. (^4) PJ Fitzgerald, Salmond on Jurisprudence (12th (^) edn, ULP 2008) 152. (^5) CIT v TV Sundaram Iyyengar [1975] 101 ITR 764 (SC). INTERPRETATION OF STATUTES 7 |
SHORTCOMINGS OF LITERAL CONSTRUCTION UNDER THE CONSTITUTION
Interpretation of the constitution has always been a tricky task for the judiciary as well as several jurists and academicians. In the early days, it was a simple task for judges to go to the drafters to enquire what they meant regarding the language of the provision, which was ambiguous or contradictory, but that practice is long dead.^9 Use of internal aids such as the preamble has been made to interpret the constitution and it has since been recognised as part of the basic structure as well.^10 The external aids to interpretation such as the Constitutional Assembly Debates have time and again been used for the purpose of interpreting the ambiguous and unclear provisions of the constitution.^11 This highlights the importance of use of aids to interpretation in situations where the plain meaning of an Article is not satisfactory, or might just result in ambiguity. Clear and simple language has at times been so ambiguous in analysis, as to present great difficulty in construction. To analyse the shortcomings of the literal construction, Article 105 of the constitution may be analysed: “Article 105 - Powers, privileges, etc. of the Houses of Parliament and of the members and committees thereof (1) Subject to the provisions of this constitution and the rules and standing orders regulating the procedure of Parliament, there shall be freedom of speech in Parliament (2) No member of Parliament shall be liable to any proceedings in any court in respect of anything said or any vote given by him in Parliament or any committee thereof, and no person shall be so liable in respect of the publication by or under the authority of either House of Parliament of any report, paper, votes or proceedings (3) In other respects, the powers, privileges and immunities of each House of Parliament, and of the members and the committees of each House, shall be such as may from time to time be defined by Parliament by law, and, until so defined shall be those of that House and of its members and committees immediately before the coming into force of Section 15 of the Constitution (Forty fourth Amendment) Act 1978 (4) The provisions of clauses ( 1 ), ( 2 ) and ( 3 ) shall apply in relation to persons who by virtue of this constitution have the right to speak in, and otherwise to take part in the (^9) Justice GP Singh, Principles of Statutory Interpretation (Justice AK Patnaik, 14th (^) edn, LexisNexis 2016). (^10) Kesavananda Bharati v State of Kerala (1973) 4 SCC 225. (^11) In Re Gujarat Assembly Election Matter (2002) 8 SCC 273. INTERPRETATION OF STATUTES 9 |
proceedings of, a House of Parliament or any committee thereof as they apply in relation to members of Parliament.” Regarding the clause 2 of Article 105, the Supreme Court in Tej Kiran Jain v N. Sanjeeva Reddy^12 held that the Article means what it says in language which could not be plainer. Highlighting the fact that literal construction was sufficient to interpret the meaning of ‘member of parliament’ in clause 2. Tej Kiran Jain v N. Sanjeeva Reddy was decided in 1971, 27 years after which the Supreme Court itself in the case of P.V Narsimha Rao v. State (Central Bureau of Investigation)^13 created a sharp divergence from the previous case. When Mr. P.V. Narsimha Rao was the Prime Minister, the government faced a no-confidence movement, which was defeated later on. However, there were a few members who were accused of the offence of bribery and the President of Rashtriya Mukti Morcha filed a complaint, against P.V. Narsimha Rao, alleging charges of corruption, with the Central Bureau of Investigation. The five-judge bench was in agreement on the fact that a member who had taken a bribe but had not voted in the parliament can be prosecuted under the Prevention of Corruption Act 1988. However, it was held by a majority of three judges that a member who voted in Parliament after receipt of bribe cannot be prosecuted as their prosecution would be a proceeding in respect of a vote given by them and hence barred by Article 105(2). The minority judgement by the two judges was in favour of the prosecution of the members of parliament who had voted after taking bribe, thus interpreting Article 105(2) so as to not include members who have been involved in bribery.In 2018, Chief Justice Dipak Misra in State (NCT of Delhi) v Union of India and Ors ,^14 highlighted that the purposive approach of constitutional interpretation has overtaken the literal construction. The Courts should not shy away from taking a pragmatic approach to the interpretation. The rules of interpretation can serve as a guide to interpret the constitution, but the primary work of the judiciary shall be to solve the problem with pragmatism. SHORTCOMINGS OF LITERAL RULE IN STATUTES UNDER SALES TAX ACTS (INDIRECT TAXATION) Literal rule has many shortcomings. One of the major shortcomings is the Logical defect which comprises inconsistency, ambiguity and incompleteness and the second type is (^12) Tej Kiran Jain v N. Sanjeeva Reddy (1971) 1 SCR 612. (^13) P.V Narsimha Rao v. State (Central Bureau of Investigation) (1998) 4 SCC 626. (^14) State (NCT of Delhi) v Union of India and Ors (2018) 8 SCC 501. INTERPRETATION OF STATUTES 10 |
‘chicks’ despite the literal meaning of animals referring to any and every animate object.Another one of the problems of literal rule is that it breeds absurdity. It may so happen sometimes that while rigidly interpreting the meaning of words in a statute, the court may ascertain a meaning completely different from what the legislature might have intended, and the literal rule forbids the court to attach any meaning other than the ordinary one. In the context of Sales Tax Acts, the courts have time and again departed from the literal rule and by looking into the intention of the legislature and consider words’ popular meaning or meaning which is popular in commercial circles so as to to interpret their context.^21 In another case of Ramavtar v Assistant Sales Tax Officer ,^22 the court had to decide whether the sale of betel leaves was subject to sales tax. The appellant by relying upon the dictionary meaning of the word vegetable said that betel leaves were not subject to sale tax as they are a type of vegetable. The court said that a word must be understood in its popular sense and not by its literal or dictionary meaning. In making this interpretation, the court also considered the legislative intent which was not too not exempt betel leaves as they were removed from the exemption list by an amendment. In the case of Motipur Zamindary Co Ltd v State of Bihar ,^23 the question to be decided was whether sugarcane fell within the term green vegetable in Entry 6 of the Schedule of the Bihar Sales Tax Act, 1946. The Supreme Court held that the term ‘vegetable’ is too wide and ambiguous and hence would cover sugarcane within its ambit. However, the Supreme Court held that while dealing with taxing statutes, popular meaning of the words should be considered and the word green vegetable in its popular sense includes garden vegetables and would therefore not cover sugarcane.In the case of Ganesh Trading Co, Karnaul v State of Haryana ,^24 the court held that for the purpose of imposition of sales tax paddy and rice were not identical goods even though the dictionary meaning of the word paddy would cover rice. The court remarked that identity is one of the essential elements to determine the nature of goods while determining tax liability.The Supreme Court held in the case of Bimal Chand v Gopal Agarwal ,^25 whenever an expression is capable of a wider meaning, the question whether narrower or wider meaning has to be adopted depends upon the context and such words should be interpreted as per their usage in ordinary parlance.Thus, all these cases show that especially tax statutes have words in them which are (^21) Ganesh Trading Co, Karnaul v State of Haryana AIR 1974 SC 1362; Avatar Singh, Introduction to the Interpretation of Statutes (3rd^ edn, LexisNexis) 49. (^22) Ramavtar v Assistant Sales Tax Officer (1962) SCR 1 279. (^23) Motipur Zamindary Co Ltd v State of Bihar AIR 1962 SC 660. (^24) Ganesh Trading Co, Karnaul v State of Haryana AIR 1974 SC 1362. (^25) Bimal Chand v Gopal Agarwal AIR 1981 SC 1656. INTERPRETATION OF STATUTES 12 |
capable of having wide ambits and various meanings. Therefore, application of Literal Rule would be a miserable failure and would not only result into a bad set of lined judgments but also would become really heavy on the assessees time and again. The literal rule is not meant to serve such cases for it fails to take into consideration factors like context, legislative intent etc. Thus, as a result courts have time and again departed from literal construction while determining tax labilities and considered the legislative intent, context and peculiar circumstances of the case as well as the statute involves, thus meting out fair and just decisions. Similarly sometimes the ambiguity is “synctactic”^26 and vagueness arises from words like “or”, “and”, “all” etc., and if the statute’s language is clear and unambiguous, the Court cannot depart from the literal meaning of the words despite its leading to injustice.^27 Similarly, if there is some omission or lacuna in a statute, a court is restricted and not allowed to do more than that. Hence purposive construction is indeed a better approach as it helps in giving effect to the true intention of the legislature.^28 And, today it is not uncommon that the courts depart from the literal rule so as to apply the golden rule of purposive construction.^29 Shortcomings Of Literal Construction Under The Income Tax Act (DIRECT TAXATION) It is often quoted that the fiscal statutes and the equity are strangers whereby the fiscal statutes are to be literally interpreted. Various judgements including H.H. Lakshmi^30 ,^31 Ajax Products Ltd^32 and Sileshkumar R. Mehta,^33 talk about the application of Literal construction as far as applicable in case of Income Tax Act. However, there could be possible dead zones where this rule could not be applied. This chapter shall discuss various cases where the need of departure from the general rule of interpretation that is the literal construction was felt by the courts while interpreting the Provisions of the Income Tax Act. In this chapter a few of (^26) PJ Fitzgerald, Salmond on Jurisprudence (12th (^) edn ULP 2008) 152. (^27) CIT v TV Sundaram Iyyengar [1975] 101 ITR 764 (SC) (^28) Pepper (Inspector of Taxes) v Hart (1993) AC 593. (^29) Plastic Products (n 15). (^30) HH Lakshmi Bai v. CIT AIR 1995 SC 140. 31 (^32) CIT v. Ajax Products Ltd (2009) 9 SCR 1174_._ (^33) CED v. Sileshkumar R Mehta [ 1990 ] 181 ITR 10 Mad_._ INTERPRETATION OF STATUTES 13 |
Vidya Investment & Trading Co. v UOI^38 Provision 10(2)A along with its explanation was to be construed whereby “in the case of a person being a partner of a firm, which is separately assessed as such, his share in the total income of the firm” is not to form part of the total income. In this case Assessee partner derived profit from the firm on which exemption was claimed u/ s 10(2A). The profits of the firm included dividend which was exempt in the hands of firm u/ s 10(34), LTCG on sale of equity oriented Mutual fund exempted u/s 10(36) The AO contended that by virtue of Explanation to S.10 (2A), the total income shall mean the taxable income of the firm and accordingly, the incomes which are exempt in the hands of firm would be taxed in the hands of the partners. It was to be decided whether a partner of firm is entitled to claim exemption under section 10(2A) on share of profit of firm which includes exempted income on which tax has not been paid by the firm. The court looked into the objective of the provision and did a reasonable construction in order to construe the expression total income given in the explanation to mean gross total receipts of the firm in order to full fill the objective of avoiding the double taxation and save profits of the firm. Court said that, “Having regard to the principles of statutory interpretation, it is abundantly clear that a reasonable construction of a taxing statute ought to be preferred over a literal construction, if the latter defeats the manifest purpose and object of the statute.” PCIT v. IDMC Ltd.^39 Provision S. 32(1) (iia) which says “in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction”^40 The question that came before the court was whether the provision will apply to the machinery purchased before the effective date but installed afterwards? In present case due to some technical problem in the machinery itself it was not installed right after buying it, the assessing officer held that both the conditions must be satisfied and the provision shall not apply. (^38) Vidya Investment & Trading Co v. UOI (2015) 277 CTR Kar 18. (^39) PCIT v. IDMC Ltd [2017] 393 ITR 441 Guj. (^40) Income Tax Act 1961, s 32(1) (iia). INTERPRETATION OF STATUTES 15 |
However the court while interpreting the provision looked into the objective of the provision which was to give boost to the manufacturing sector “the provisions of section 32(1) (iia) are required to be interpreted reasonably and purposively as the strict and literal reading of section 32(1) (iia) would lead to an absurd result denying the additional depreciation to the assessee though admittedly the assessee has installed new plant and machinery.”^41 Whereby for saving the objective court departed from the literal interpretation.Commissioner of Income Tax, Bangalore v. J.H.Gotla,^42 In this case, the Court was considering the meaning of the expression "income", in Section 16(3) of the Act was in question read with section 24(2) of the Act whereby whether or not the word income should include loss or not was to be decided. The court looked into the objective of the provision in the light of which the income of the wife and minor children should be regarded as the assessee’s business income and he must be allowed to set of his losses. The court observed that “if a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to be sub-served by the object of the legislation ascertained from the scheme of the legislation, and if another construction is possible apart from the strict literal construction, then, the latter construction should be preferred to the strict literal construction. The Court further observed that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than injustice, then such construction should be preferred to the literal construction."^43 Similarly in case of C.W.S. (India) Ltd. v. CIT,^44 the court acknowledged that the literal construction cannot be opted where it leads to an absurd meaning. GEM Granites v. CIT^45 It is well settled that all procedural laws are retrospective unless the Legislature expressly states to the contrary. It has been held that the procedural laws in force must be applied at the date when the suit or proceeding comes on for trial or disposal. It has been held that a Court is bound to take notice of the change in the law and is bound to administer the law as it was when the suit came up for hearing. It has been held that if a Court has jurisdiction to try the suit, when it comes on for disposal, it then cannot refuse to assume (^41) PCIT v. IDMC Ltd [2017] 393 ITR 441 Guj. (^42) Commissioner of Income Tax Bangalore v. JH Gotla (1985) 156 ITR 323. (^43) Commissioner of Income Tax Bangalore v. JH Gotla [1985] 156 ITR 323. (^44) CWS India Ltd v. CIT [1994] 208 ITR 649. (^45) GEM Granites v. CIT [2005] 271 ITR 322 SC_._ INTERPRETATION OF STATUTES 16 |
CONCLUSION
INTERPRETATION OF STATUTES 18 |
