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Statutes are laws created by the Legislature. The process of interpreting a statute is how courts attempt to figure out what the Legislature meant when it wrote the law in official documents.


Statutes are laws created by the Legislature. The process of interpreting a statute is how courts attempt to figure out what the Legislature meant when it wrote the law in official documents. Although on the surface Taxing and Penal statute looks completely different in the way in which both of these statutes are interpreted, they are very much alike. Penal statutes are those which provide penalties for disobedience of the law, directly affecting the personal liberty of the individual by providing punishment for an illegal act in different ways such as fine, imprisonment or another penalty[1]. Whereas a taxation statute is a type of fiscal law that places a financial obligation on the individual or entity responsible for paying taxes. Imposing any mandatory payment by the government is considered a form of taxation, and this can only be done through the authority of a legal provision. Taxes are implemented to generate revenue for the state’s general use. Article 265 of the Constitution of India, “No tax shall be levied or collected except by the authority of law.”[2]

Comparative study between different rules of Interpretation of Taxing Statute and Penal Statutes

Rules of interpretation common to both statutes

  • Strict Construction

Taxing statute: A taxing statute has to be construed strictly. According to Lord Cairns, “If a person sought to be taxed within the letters of the law, he must be taxed, however great the hardship may appear to the judicial mind to be.”[3] Under fiscal laws, a transaction cannot be taxed based on its substance. If there are ambiguous words that could reasonably have two different meanings, the taxpayer should be given the benefit of the doubt in interpreting them.[4] Taxation laws must be based upon legal principles, not moral views.[5]

As in the case of New Piece Goods Bazaar Company v Commissioner of Income Tax[6], “the appellant had paid municipal and immovable property taxes and requested deductions for them under Section 9 (1) (iv)[7] and Section 9 (1) (v)[8] of the Income Tax Act of 1922. The Supreme Court ruled that because the language used in Section 9(1)(iv)[9] is clear and unambiguously thus deductions must be allowed, as the appellant had the right to claim them”.

Penal Statute: The general principle is that laws that impose penalties should be interpreted narrowly and not expanded beyond their literal meaning. i.e., they cannot be enlarged by any equitable doctrine. Lord Esher observed that “If there is a reasonable interpretation that will avoid the penalty in any particular case, we must adopt that construction”[10].

The case of W.H. King v Republic of India[11] involved a dispute over the interpretation of the Bombay Rents, Hotels, and Lodging Houses Rates (Control) Act, 1947[12]. The appellant had assigned his tenancy to another after receiving a pugree payment but was later prosecuted under the Act. The prosecution argued that relinquishment and assignment were more or less the same and that the term relinquishment had not been used in the Act in a technical sense., but the Supreme Court disagreed. They held that since the Act was a penal statute, it had to be strictly interpreted in favour of the subject, and that relinquishment of tenancy was not the same as an assignment.

Popular meaning

Taxing Statute: In interpreting a tax enactment, Courts must interpret words used in tax laws according to their ordinary meanings.[13] The main issue is that taxpayers may try to avoid paying taxes by exploiting gaps in the language of the law. Courts should not try to block these gaps by restricting the language used in tax laws or by giving it an artificial meaning.

Ramavatar v Assistant Sales Tax Officer

Fact: The issue at hand was whether betel leaves fell within the legal definition of vegetables or not, which would determine whether they were subject to the sales tax under The Central Provinces and Berar Sales Tax Act of 1947[14].

Argument: The Court should apply the meaning favouring the subject as the word could have multiple interpretations.

Held: The court rejected the use of technical or botanical definitions and the word is to be interpreted in its wider sense unless there is a valid reason for the court to think otherwise.

Penal Statute: Just as with tax laws, when interpreting a statute dealing with a criminal offence, courts must ensure that the action being charged as an offence falls within the meaning of the words used and not force the words to fit a certain idea. If a loophole is discovered, particularly in a criminal statute that impacts citizens’ liberty, it is not the role of judges to fix it[15]

Rules of interpretation specific to each statute

  • Avoidance of Double Taxation (Taxing Statute)

Another principle to consider is the avoidance of taxing the same income twice under the same law. If interpreting the law in a certain way would result in double taxation of the same income, then another reasonable interpretation that avoids this outcome should be adopted[16]. However, this rule no longer applies if the legislature explicitly passes a law that leads to double taxation of the same income. In this case, the law cannot be deemed invalid solely based on the fact that it results in double taxation.

  • When interpreting the law, it is important to consider the purpose or objective of the law. (Penal Statute)

Penal laws must be interpreted with consideration given to both the nature of the offence and the objective the law aims to accomplish. The goal is not to permit offenders to avoid being held accountable under the law. If the language used to prohibit the action can reasonably be interpreted to have a broader meaning that aligns with the objectives or policies of the law, then the language should be interpreted in that manner. This means that even if the words are narrowly defined when interpreted literally, they may still be given a wider meaning that better serves the law’s purpose. As in the case of Sakshi v. Union of India[17], The Supreme Court stated that rape is specifically defined under Section 375[18], and it only covers certain forms of penetration. Other forms of penetration, like penile-oral, are not included. As there is no confusion in the definition, it is not advisable to create confusion by misinterpreting it judicially.

The Rationale for Narrow Interpretation

The reason for employing a narrow interpretation of penal laws is that the vast expansion of such laws in modern times could potentially ensnare honest individuals who are unaware of their obligations.[19] By applying a strict interpretation, innocent individuals can be spared from being wrongly punished. Additionally, it mandates that every aspect of the legal process be followed closely, and any deviation from the prescribed procedure may work in favour of the accused who is alleged to have committed an offence. For taxing statutes, the rule of strict construction is followed as Taxation is the act of compelling a tax-payer to give a portion of their income to the Government without any guaranteed benefit in return. It places a financial burden on the taxpayer and can be viewed as a penalty enforced by the Government under the rule of law. Therefore, taxes can only be imposed if they are legally justified.


Although there are both similarities and differences in how judges interpret taxing and penal statutes, there are still areas where their opinions do not fully agree, as in the case of Commercial Tax Officer, Madras v Y.M.A. Madras[20], Shah J. observed that “In criminal trial or a quasi-criminal, the Court is entitled to consider the substance of the transaction and determine the liability of the offender But in taxing statute the strict legal position as disclosed by form and not the substance of the transaction is determinative of its liability .” Subsequently, this decision faced criticism as that any reasoning based on the substance of the transaction should not be used, and that the court should strictly adhere to the literal interpretation of the law.

Author(s) Name: Tushar Dhar (University of Allahabad)


[1] Steel Authority of India v. Bihar Market, AIR 1990.

[2] INDIA CONST. art. 265.

[3] Partington v A.G., (1869) 4 HL 100.

[4] Express Mill v. Municipal Committee, AIR 1958 SC 341.

[5] TA Quereshi v. CIT, Bhopal, AIR 1971 SC 2591.

[6] New Piece Goods Bazaar Company v Commissioner of Income Tax., (1947) 49 BOMLR 620.

[7] The Indian Income-Tax Act, 1922, § 9(1)(iv), No. 11, Act of Parliament, 1922 (India).

[8] The Indian Income-Tax Act, 1922, § 9(1)(v), No. 11, Act of Parliament, 1922 (India).

[9]The Indian Income-Tax Act, 1922, § 9(1)(iv), No. 11, Act of Parliament, 1922 (India).

[10] Tuck and Sons v Priester (1887) 19 QBD 629.

[11] W.H. King v. Republic of India, AIR 1952.

[12] The Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, No. 57, Acts of Parliament, 1947 (India).

[13] BCA REFERENCER,  (last visited May. 10, 2023).

[14] The Central Provinces and Berar Sales Tax Act, 1947 No. 21, Acts of Parliament, 1947 (India).

[15] Ramavatar v. Assistant Sales Tax Officer, AIR 1961 1325.

[16] IRC v. F.S. Securities Ltd., (1964) 2 ALL ER 691.

[17] Sakshi v. Union of India, AIR 2004 3566.

[18] Indian Penal Code, 1860, § 375, No. 45, Acts of Parliament, 1860 (India).

[19] Seksaria Cotton Mills v. State of Bombay, AIR 1953 SC 278.

[20]Commercial Tax Officer, Madras v. Y.M.A. Madras, AIR 1970 SC 1212.