Government of India is divided into three branches i.e. Legislature, Executive and Judiciary. It is the function of the legislature to make the laws and that of the executive, to enforce those laws. Legislature derives its power of imposing taxes from Article 265 of the Constitution which states that:
"No tax can be levied or collected unless it has the authority of law". It is through this article that the legislature acquires the right to impose tax and prescribe various conditions under which such tax is applicable.

Interpretation means to give meaning to some words which are ambiguous or unclear by looking into the intention of the legislature, purpose which the law fulfils or the mischief it eliminates which existed prior to enactment of that law. It is a common rule that words are to be given their direct and grammatical meaning. But in case there are any ambiguities then the help of interpretation is taken by understanding the context in which such words are used. Such meaning is given which solves the purpose of the law and which seems to be intention of the legislature.

Practical applicability of laws is different from drafting & enforcing the law. It is the role of judiciary to interpret the laws made by the legislature. It is the function of Judiciary to apply the law made by the legislature on case to case basis.

The Legislature also has power to delegate its law-making power to the Executive for proper implementation of the laws. Such delegation of power is exercised in form of rules, regulations, circular, clarifications and notifications. In India, such power to issue above subordinate legislation is with Central Board of Indirect Tax and Customs [1]in case of indirect tax and Central Board of Direct Tax [2] in case of direct tax. But all these subordinate legislations are limited to powers given to the subordinate authorities through the principal statute and these subordinate legislations has the same legal and binding authority as if they are part of the parent statute.

Need & Importance of Interpretation:

As the social, economic and political conditions of the society keeps on changing, interpretations of the laws also require change. Legislature is not equipped to meet such changing conditions and legislature cannot anticipate every situation which might occurred in real life. Thus, it is Courts which play the role and interpret the laws to adapt as per needs of the society.

Rule of Strict Interpretation:

Strict rule of interpretation is one of the principles used to interpret fiscal and penal statutes. According to this rule, plain, clear and direct meaning is given to words which are used in common parlance by the general public to which such law is applicable. There can be no presumption by court with respect to particular meaning.

Court cannot give particular meaning to a word which is not clear by making a presumption that particular meaning is the intention of the legislature. Court cannot under the guise of possible or likely intention of the legislature, give meaning to the words which are not clear and where contextual meaning cannot be made out.

Reasons for Applicability of Strict rule on Taxation Statute:

Tax is a forceful extraction of money from the assessee [3] by the sovereign authority in which the taxpayer is not entitled to any assured benefit. So, taxes place a monetary burden on the taxpayer and thus to some extent it is considered as penalty on the taxpayer which is imposed under the authority of law. Thus, unless the imposition of tax is clearly backed by law, no tax can be imposed.

Taxation statute is a fiscal statute which is enacted on the basis of trial and error method or on experimentation basis. It is not practicable for legislature to anticipate all the possible situations or conditions which may arose after the law is enacted. It is possible that the assessee might use some shortcomings in the law as a loophole and take advantage of it. As tax results in pecuniary burden so the benefit of doubt is given to assesse in case of any contradictions.

Strict rule is applicable to taxation statutes, so courts are bound to give clear and plain meaning to the words without delving into the consequences it can result in. There is no presumption of tax or intendment of the legislature to impose tax unless clearly and specifically provided. Thus, it is the legislature or subordinate authority to come forward and bring amendments and clarifications to rectify the loopholes.

Thus, direct meaning is given to words used in the statute and in case of two interpretations coming out than in that case that such interpretation is given, which is in favour of the taxpayer. Until and unless, clear words are used in the statute which imposes the liability on the taxpayer, there can be no burden to pay tax. [4]

Rule of Interpretation applicable to Taxation Statute:

Taxation statute is a fiscal statute which imposes the pecuniary burden on the taxpayer. So such statutes are construed strictly. Plain, clear and direct grammatical meaning is given. Where there are two possible outcomes then that interpretation is given which is in favour of assessee.

Any taxation statute involves three stages firstly, the subject on which tax is levied or imposed, secondly, the assessment of the liability of assessee and lastly, the recovery once the assessment is made. The first stage is where charging provisions of the act are involved. These charging provisions must be clearly provided in the statute.

These charging provisions provide the extent and coverage of the subjects as to whom the tax is applicable. It also provides the outline in form of subjects which the legislature wants to cover under the law. Charging provisions are to be interpreted strictly as it results in financial burden.

There cannot be any ambiguity and meaning which is clear, obvious, direct is given. Nothing can be inferred to substantiate the intention of the legislature or purpose for which the law was made. Once the revenue shows that particular subject is covered by law then tax is applicable for all those subjects. But if it fails to proof then no tax can be imposed by extending the meaning.

Principal of equity has no role to play in case of taxation law. It is because there is lot of deeming legal fiction involved in tax laws. Thus, whatever is written must be strictly followed without considering its justness. If the words are clear, then court has to give that meaning irrespective of consequences it resulted into or in other words even if such construction is unequitable, then also Court is bound due to legal fiction. Court cannot meet the deficiency by extending the provisions of the statute. It is duty of the legislature to rectify it through amendments.

Evasion of Statutes:

It is permissible to evade an Act of Parliament in the sense that a person may not do that which the Act prohibits but he is free to do anything which though equally advantageous to him as that which is prohibited is nevertheless outside the prohibition, penalty or burden imposed by the Act. It is well established that penal and taxing laws are not to be extended by analogy to cover acts and situations not within the words of the state on any doctrine of substance.

But this principle has no application where what is done is really the thing prohibited although under colour or cloak of different transaction not prohibited by the statute. It is not permissible to evade an Act of Parliament by resorting to a fraudulent device or by covering the reality by a non-genuine transaction. The word 'evade' is thus ambiguous and is used in two senses, and in spite of various explanations given by the courts as to the two different meanings of that word.

Conclusion:
In the light of above discussion we can conclude that, as the tax laws are interpreted strictly, legislature must ensure that words used in the statute are clear and wide enough to cover all subjects which it intend to be taxed. Words and descriptions should be used with proper care and sophistication so as to avoid any ambiguity.

While making the laws assistance of such experts should be taken who deal with such laws on daily basis as they are the ones who understand the intricacies and could help in drafting the law involving the intricacies and complexities. Experienced Chartered Accountants, Litigators and officers of tax department should be consulted and their experience should be considered while enacting the laws. If the tax laws are drafted with loopholes, then the purpose of that law is not fulfilled and the whole law collapses.

End-Notes:

1. CBEC
2. CBDT
3. Taxpayer
4. https://blog-ipleaders-in.cdn.ampproject.org/v/s/blog.ipleaders.in/interpretation-taxation-statute/