CIT v. Vegetable Products Ltd

Facts

• Vegetable Products Ltd was engaged in manufacturing hydrogenated oil
• A dispute arose regarding whether certain income qualified for a particular tax treatment
• The relevant provision was capable of two reasonable interpretations
• One interpretation benefited the Revenue; the other benefited the assessee
• The Revenue adopted the interpretation more favourable to itself

Issue

1. When a taxing statute is ambiguous and admits of two reasonable interpretations, which interpretation should be adopted?

Held

• A taxing statute must be strictly construed
• If two reasonable constructions of a provision are possible, the one that favours the assessee must be adopted
• The State cannot tax by implication; the charging section must be clear and unambiguous
• This principle applies to the charging provisions (not to exemption provisions, which are construed strictly against the assessee)

Ratio Decidendi

In matters of taxation, the State cannot tax by implication or inference. If the language of a charging provision is capable of two reasonable interpretations, the one less burdensome to the assessee should be preferred. This is a fundamental principle of tax jurisprudence reflecting the constitutional mandate that no tax shall be levied except by clear authority of law (Art.265).