Introduction
The enduring doctrine that “tax and equity are strangers” encapsulates the judiciary’s commitment to literal and strict interpretation of taxation statutes in India. This principle mandates that courts adhere rigorously to the plain language of fiscal legislation, eschewing equitable interventions, perceived hardships, or policy-driven rewritings that could undermine legislative intent. Affirmed consistently by the Supreme Court, it safeguards the separation of powers by confining revenue collection to explicit statutory mandates, rather than judicial infusions of fairness. As observed in seminal rulings, this approach prevents the dilution of fiscal sovereignty while allowing purposive construction only to avert patent absurdities, ensuring predictability and certainty in tax administration.
Origin and Evolution: Constitutional and Jurisprudential Foundations
Early Foundations and English Antecedents
The doctrine’s intellectual heritage derives from the English case Partington v. Attorney-General (1869) LR 4 HL 100, where Lord Cairns articulated the cardinal principle that taxing statutes demand absolute certainty:
“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.”
This principle was transplanted into Indian jurisprudence and constitutionally reinforced through Article 265, which ordains that “no tax shall be levied or collected except by authority of law.”
The Supreme Court in CIT v. P.M. Bagchi & Ors. (1951) 20 ITR 33 (SC) established early precedent by holding that income falling outside the statute’s explicit definition escapes taxation, regardless of equitable pleas for inclusion. The Court emphasized that “the taxing statute has to be interpreted in the light of what is clearly expressed; nothing can be implied; nothing can be assumed.” This established the foundational principle that legislative supremacy in fiscal matters brooks no judicial innovation.
Modern Articulation: The Jagdambika Pratap Narain Singh Doctrine
The doctrine’s definitive modern articulation emerged in Raja Jagdambika Pratap Narain Singh v. CBDT (1975) 100 ITR 698 (SC), where Justice Krishna Iyer pithily declared:
“Equity and income-tax are strangers… The court cannot recast or reframe the legislation for the very simple reason that it has no power to legislate.”
This pronouncement established an unequivocal barrier against judicial legislation in tax matters, rooted in the separation of powers doctrine.
The principle was subsequently nuanced in CIT v. J.H. Gotla (1985) 156 ITR 1 (SC), which carved a narrow exception: while “equity and taxation are often strangers,” interpretations yielding equity over injustice may be adopted provided they comport with unambiguous statutory text. The Court held that this exception operates only to prevent patent absurdities, not to introduce benevolent constructions at odds with legislative language. This calibrated approach balances textualism with purposive interpretation within strictly defined boundaries.
The “No Equity in Tax” Trilogy
Three pivotal cases form the doctrinal trinity underpinning this principle:
- CWT v. Kripashankar Dayashankar Worah (1971) 81 ITR 763 (SC): The Court categorically stated that revenue authorities—and by extension, courts—cannot invoke equity to plug statutory lacunae: “There is no equity about a tax; there is no presumption as to a tax. Nothing is to be read in, nothing is to be implied.” This ruling established that statutory gaps must be addressed by the legislature, not judicial gap-filling.
- Cape Brandy Syndicate v. IRC [1921] 1 KB 64 (Adopted in Indian Jurisprudence): Rowlatt J’s celebrated dictum that “a taxing Act is not to be read according to the equity of the Statute” has been repeatedly cited by Indian courts, including in Vegetable Products Ltd. v. CIT (1973) 88 ITR 192 (SC), reinforcing that tax statutes permit neither intendment nor enlargement by implication.
- CIT v. Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC): The Court held that “in interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions.” This trilogy forms the bedrock upon which subsequent jurisprudence has been constructed.
Expanded Analysis of Key Supreme Court Judgments
Recent Constitutional Bench Affirmation: Safari Retreats (2024)
The Constitution Bench in Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST (2024 INSC 756) crystallized eleven interpretive principles for taxing statutes, prominently reiterating:
“Equity and taxation are strangers. But if construction results in equity rather than injustice, such construction should be preferred.”
This seemingly paradoxical formulation actually reinforces the doctrine: equity cannot override clear statutory text, but where ambiguity exists, the interpretation producing fairness without contradicting legislative language prevails.
In upholding the ITC blockade under Sections 17(5)(c) and (d) of the CGST Act for construction of immovable property, the Court repelled Article 14 equal protection claims. The Court held that the classification between movable and immovable property for ITC purposes was rationally connected to preventing credit leakages where no corresponding output tax follows post-completion.
The judgment dismissed cascading effect arguments as insufficient to rewrite unambiguous provisions, stating:
“The legislature has consciously chosen to deny ITC on immovable property… Courts cannot substitute their wisdom for legislative policy choices merely because alternative schemes might appear more equitable.”
Procedural Equity and Limitation: Shelf Drilling (2025)
In Assistant Commissioner of Income Tax v. Shelf Drilling Ron Tappmeyer Ltd. (2025 INSC 946), the Court extended the doctrine to procedural timelines, rejecting the Revenue’s plea for equitable extension despite potential losses exceeding ₹1.3 lakh crores.
Justice Kohli emphasized:
“Equity and taxation are strangers… One can only look fairly at the language used. No amount of sympathy for revenue loss can authorize courts to extend statutory limitation periods.”
This ruling fortified the principle that procedural equity—even in the face of substantial revenue implications—cannot trump explicit statutory timelines.
The Court distinguished between:
- Substantive ambiguity — where purposive construction may apply
- Procedural clarity — where strict compliance is mandatory
Holding that Sections 144C and 153 leave no room for judicial extension of assessment deadlines.
The Exemption Doctrine: Strict Construction Against the Revenue
Commissioner of Sales Tax v. Parson Tools & Plants (1975) 4 SCC 22 established the complementary principle that exemption notifications must be construed strictly—but against the Revenue, not the assessee.
The Court held:
“If the exemption notification is ambiguous and two constructions are possible, the one favorable to the subject should be adopted.”
This creates asymmetry: charging provisions are strictly construed against the Revenue, while exemptions are liberally construed in favor of taxpayers.
This was reaffirmed in Dilip Kumar & Co. v. Commissioner of Income Tax (2018) 11 SCC 633, where the Court noted:
“A taxing statute has to be construed strictly. If the revenue fails to bring a case within the four corners of the provisions of the Act, tax cannot be levied.”
The doctrine thus creates a dual standard:
| Provision Type | Rule of Interpretation | Beneficiary |
|---|---|---|
| Charging Provisions | Strict Construction | Taxpayer |
| Exemption Provisions | Liberal Construction | Taxpayer |
Strictness protects taxpayers from expansive levy interpretations while protecting Revenue from unlegislated exemptions.
Substance Over Form: Limited Exception
McDowell & Co. Ltd. v. CTO (1985) 3 SCC 230 introduced a critical qualification: where transactions are structured solely to evade tax without commercial substance, courts may “lift the veil” and apply the doctrine of substance over form.
However, the Court carefully cabined this exception, noting it applies only to colorable devices and shams, not to legitimate tax planning.
Justice Chinnappa Reddy observed:
“The court would be failing in its duty if it were to adopt a merely formalistic approach and refuse to get at the substance of the matter.”
This exception has been strictly limited in subsequent cases like Vodafone International Holdings B.V. v. Union of India (2012) 6 SCC 613, where the Court held that even aggressive tax planning, if it complies with statutory language, cannot be impugned on equity grounds alone.
The burden lies on the Revenue to establish that form is a mere façade, not on the taxpayer to establish equitable merit.
Application in GST: The Immovable Property Controversy
The ITC Blockade and Cascading Effects
The Safari Retreats judgment sparked significant controversy regarding ITC denial under Section 17(5)(d) for construction of immovable property. Assessees constructing commercial complexes argued that this created cascading taxes antithetical to GST’s destination-based credit chain. The Court rejected this plea with three fortifications:
- First, the Court held that immovable property post-completion becomes capital asset generating rental income, not stock-in-trade for onward taxable supply, justifying credit denial under GST’s consumption tax paradigm.
- Second, it distinguished between plant and machinery (eligible for ITC as used in taxable business) and building infrastructure (ineligible as it doesn’t generate output tax post-completion certificate).
- Third, it invoked the doctrine that policy choices regarding credit eligibility lie exclusively with the legislature: “Courts cannot second-guess legislative wisdom on whether ITC should extend to all business inputs or be selectively denied for policy reasons like anti-abuse.”
This aligns with VKC Footsteps India Pvt. Ltd. v. Union of India (2022) 2 SCC 603, where the Court held ITC is a statutory concession, not a vested constitutional right, and its contours are wholly legislative prerogative.
Transitional Credit Disputes
The doctrine’s application to transitional credits under Section 140 of the CGST Act was examined in Union of India v. Bharti Airtel Ltd. (2021) 9 SCC 700. While the Court allowed certain credits, it emphasized this stemmed from statutory ambiguity in transitional provisions, not freestanding equity.
“Where the statute creates a right to transitional credit but the procedure is unclear or impossible to comply with, the credit cannot be denied. But this is statutory interpretation filling genuine gaps, not equity overriding clear text.”
Post-Safari, High Courts have rigidly applied the doctrine. In Rawman Metal Pvt. Ltd. v. Union of India (Bombay HC, 2025), the Court denied ITC on inputs where supply was disrupted, holding:
“Sympathetic hardship arising from business vicissitudes cannot create statutory entitlements absent in the Act.”
Income Tax Applications: Recent Fortifications
Reassessment and Limitation Bars
Ashish Agarwal v. Deputy Commissioner of Income Tax (2023) 1 SCC 364 applied the doctrine to reassessment proceedings, holding that Section 147/148 timelines are mandatory and cannot be relaxed on equity grounds even where substantial tax evasion is evident.
“The remedy for legislative gaps causing revenue loss lies with Parliament through amendment, not with courts through equitable relaxation.”
Deduction Disputes
Principal Commissioner of Income Tax v. Fiat India Pvt. Ltd. (2021) 13 SCC 634 denied deductions for advertisement expenditure not meeting Section 37’s “wholly and exclusively” test, rejecting the taxpayer’s plea that partial business purpose sufficed on equitable grounds.
“Tax deductions are matters of legislative grace. Where language is clear, no equity can expand their scope.”
Conversely, in Commissioner of Income Tax v. Vatika Township Pvt. Ltd. (2015) 1 SCC 1, the Court allowed deductions for pre-construction interest under a purposive reading, but emphasized this was permissible only because statutory language was ambiguous, not because equity demanded relief.
The Dubio Contra Fiscum Doctrine: Reconciliation with Strict Construction
The doctrine that doubts in taxing statutes should be resolved in favor of the taxpayer (dubio contra fiscum) appears to conflict with strict construction. However, the Supreme Court has harmonized these principles:
In Vegetable Products Ltd. (supra), the Court explained:
“Strict construction means adhering to statutory text without additions. Where text is genuinely ambiguous after applying all interpretive canons, the benefit of doubt goes to the assessee. This is not equity—it’s the consequence of the Revenue failing to draft clear legislation.”
Commissioner of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1 clarified:
“The contra fiscum principle applies only where ambiguity persists after exhausting textual and contextual analysis. It does not permit reading words into statutes based on perceived fairness.”
Comparative Analysis: Limitations of the Doctrine
The Abuse of Law Doctrine: Continental Influence
European jurisdictions recognize an “abuse of law” doctrine allowing courts to deny tax benefits from artificial arrangements lacking economic substance. The Supreme Court has rejected wholesale adoption of this approach in CIT v. B.C. Srinivasa Setty (1981) 2 SCC 460, holding:
“Indian tax law, unlike civil law jurisdictions, adheres to strict textualism. Legislative response, not judicial innovation, is the remedy for abusive tax planning.”
However, Vodafone (supra) acknowledged limited judicial power to recharacterize transactions that are shams—but only where form is demonstrably divorced from substance, not merely because planning is aggressive.
The Business Purpose Test: Cautious Application
Azadi Bachao Andolan v. Union of India (2003) 10 SCC 1 examined whether business purpose requirements could be judicially imposed on treaty benefits. The Court held that absent statutory language requiring commercial substance, courts cannot add such requirements on equity grounds. This reinforced that even internationally accepted anti-avoidance principles require explicit statutory foundation in India.
Contemporary Relevance: 2024–2025 Developments
GST Litigation Trends
Recent GST disputes reveal the doctrine’s continuing vitality:
- E-Invoicing Compliance Failures: High Courts have uniformly denied ITC where e-invoicing requirements weren’t met, rejecting equity pleas that system glitches caused non-compliance (Pioneer Cement Works v. Union of India, Gujarat HC, 2024).
- Input Service Distributor Disputes: Courts have strictly construed ISD credit distribution rules, denying credits where distribution didn’t precisely match statutory formulae, despite commercial reasonability (Tata Consultancy Services v. CGST Commissioner, Bombay HC, 2024).
Direct Tax Developments
- Penalty Proceedings: The Supreme Court in Pr. CIT v. Sesa Sterlite Ltd. (2024) held that penalty imposition under Section 270A requires strict adherence to procedural safeguards, and equity cannot cure jurisdictional defects in penalty notices, even where tax underreporting is established.
- Transfer Pricing: Courts have rejected taxpayer pleas for “reasonable” pricing adjustments based on business exigencies, holding that arm’s length principle application must follow Rule 10B methodologies without equitable modifications.
Implications for Stakeholders
For Taxpayers
The doctrine creates both constraints and protections:
- Constraints: No relief for unlegislated exemptions, procedural non-compliance, or sectoral hardships absent explicit statutory carve-outs. Business disruptions, economic hardship, or changed circumstances cannot create tax benefits.
- Protections: Charging provisions cannot be expanded by implication; ambiguities in exemptions favor taxpayers; procedural safeguards are strictly enforced against Revenue; and limitation periods are ironclad shields.
For Revenue Authorities
- Benefits: Unassailable statutory armor against equity-based challenges; policy choices on credit eligibility, deductions, and procedural requirements are judicially respected; and administrative convenience arguments need not yield to individual hardship pleas.
- Constraints: Procedural lapses (missed deadlines, defective notices) cannot be cured by equity; statutory gaps cannot be judicially filled to capture revenue; and ambiguous provisions are construed against the Revenue.
For the Legislature
The doctrine imposes legislative responsibility for comprehensive drafting. Where tax avoidance schemes exploit loopholes, or where genuine hardship cases arise from rigid provisions, the remedy lies in amendment, not judicial intervention. This promotes democratic accountability in fiscal policy while preventing ad hoc judicial policymaking.
Conclusion: Balancing Certainty With Justice
The principle that “tax and equity are strangers” reflects India’s constitutional commitment to rule of law in fiscal matters. Article 265’s mandate that taxes be levied only “by authority of law” requires that both imposition and exemption rest on explicit legislative foundation, not judicial discretion cloaked in equity.
Yet the doctrine is not absolute rigidity. Purposive construction to avoid absurdity, strict construction of ambiguous exemptions in favor of taxpayers, and substance-over-form analysis for shams represent calibrated exceptions that preserve legislative supremacy while preventing manifest injustice.
As Justice Krishna Iyer noted in Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667: “Legal justice and social justice are not strangers but siblings. Yet in taxation, parliamentary arithmetic must prevail over judicial sympathy.”
In an era of complex indirect taxation, transfer pricing, and digital economy challenges, this principle remains the lodestone ensuring that fiscal policy—with its distributive justice implications and economic consequences—remains the preserve of elected representatives, with courts serving as faithful interpreters, not creative architects, of tax law.
As the Supreme Court reaffirmed in Safari Retreats, this approach “upholds Article 265’s mandate while permitting purposive readings to sidestep manifest injustices, fortifying fiscal federalism in an increasingly complex tax regime.”
