There are two certainties in this world: Death & Tax.Unavoidable circumstances. Reduce it. How to do that? Understand Tax Laws and apply. Why to understand and how to apply? Illustrations [in individuals]. Give money to spouse and spouse should purchase/construct house property they can use which for self-purpose to avoid provisions of Sec.27.
Transfer of house property to son’s wife or minor grand child(son’s son) without adequate consideration would attract provisions of Sec. 64.Because sec. 27 does not cover these two transfers (only spouse and minor child(not being a married daughter) covers. So, if the property is under self-occupation, then the nail income will be the club.
Transfer it satisfies income yielding assets. Create income-yielding assets from income of assets transferred the to spouse. Using spouse in a sister concern of the entity where the assesses has the substantial interest would help to avoid clubbing.
SCOPE: Not only corporate entities, but all come under the purview of CTP (contrary to the common belief). Knowledge of taxation is an unimportant ingredient in any financial decision making. In tax planning, direct tax laws are the most crucial input. The Income Tax Act is the prime field of study in this context.
The interpretation process and demonstration of application would equip us with the art of getting into other legislations. It would take the holistic approach wherever necessary to comprehend decision situations involving knowledge of multiple pieces of legislation.
Stages in taxing statute:
- Chargeability: By express enactment, can not infer
- Assessment: Quantifying chargeability
- Collection: TDS, Advance tax, Self-assessment tax (under IT Act )
Rules of interpretation:
A. LITERAL RULE: ordinary, natural and grammatical meaning:
If the provision is free from ambiguity, we must ascribe plain meaning to the words used without impeding subtracting anything from the words. If a narrow interpretation emerges, which cannot serve the manifest purpose of the act, then a broad meaning can ascribe. (Ex. Sec. 173 (1) of the Companies Act, 1956: The nature of the concern or interest of the director or manager of a company in the subject-matter of the proposed motion discloses. Here we cannot confine the interest only to monetary interest alone.)
B.GOLDEN RULE: Rule of reasonable construction: If application of literal rule yields absurd result by which object sought to achieve would defeat, words changes to produce sensible meaning. It should not be guesswork.
C.MISCHIEF RULE/ RULE OFBENEFICIAL CONSTRUCTION: suppress the mischief and advance the remedy. The earlier mischief for which the earlier law provided none solution and the true intent of the present legislation with its remedy to the mischief.
D.RULE OF HARMONIOUS CONSTRUCTION
When two or more provisions of the cat conflict with each other, they have to understand in such a manner that all have to satisfy. [Ex. Sec. 210 (date of balance sheet shall not precede the date of meeting by over six months) and 166(1)(gap between two AGMs should not be over 15 months)]
E.EJUSDEM GENERIS: of the same kind or species
If there is a plain conflict between two provisions, the special one prevails. General words following specific words have to draw their colour from the specific words [You can keep dogs, cats, cows, buffaloes and other animals (not a lion)]. If the particular words used exhaust the whole genus, then the general words can cover a larger genus.
INTERNAL AIDS TOINTERPRETATION OF STATUTE:
- Long title is a part of the act (short title only identifies the act)
- Preamble: scope, object and purpose of the act, but can not override the plain words of the act.
- Heading and title of a chapter: preamble to the sections
- Marginal notes: In India, they can refer to.
- Definitional sections / cause illustrations are not a part of the section, but definitely a part of the act. But they cannot expand or curtail the ambit of the section.
- Proviso: The exception to the section.
- Explanations to read in harmony with the main section and clarifies its meaning
- Schedules: to read together with the act. If they are in conflict with the act, actprevails.
EXTERNAL AIDS TOINTERPRETATION OF STATUTE:
- Earlier acts, historical settings
- Dictionary meaning
- Foreign decisions
FUNDAMENTAL:
- Act, Ordinance, Rules
- Structure of an Act – Chapter, Sections, Sub-sections, Clauses, Sub-clauses, Provisos, Illustration, etc.
- Deductions, Allowances, Rebates, Relief, Exemption, etc.
- Benevolent circular – Binding force of a circular
- Heads of Income & Sources of Income, GTI, Total Income
- Reason to believe v. Reason to Suspect
- Application of mind
- Principle of unjust enrichment
