The Hindu Business Line : Construction of law: Is there a disconnect?

Over time, while some of the principles of a law statute have stood the test of time, others may need a re-look for a changed milieu. Courts are increasingly accepting that an extant legislation, such as the Income-Tax Act, has to be interpreted taking note of the advances in technology or other relevant areas, says H. P. Ranina.

THE PRINCIPLES of construction of a statute have evolved over a period of time. While some of these principles have stood the test of time and continue to hold the field, new tools of construction are honed by the need of modern times. It is now being increasingly accepted by courts that a current law like the Income-Tax Act, 1961 has to be interpreted taking note of the advances in technology.

A landmark decision on this point is of the Supreme Court in State (through CBI, New Delhi) versus S. J. Chaudhary (1996; 2 S.C.C. 428). The court relied on Francis Bennion 's classic which laid down the principle that while construing a statute the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention. Accordingly, the interpreter is to make allowances for any relevant changes that have occurred in law, social conditions, technology, the meaning of words, and other matters.

Just as the US Constitution is regarded as "a living Constitution", so an ongoing British Act is regarded as "a living Act". That today's construction involves the supposition that Parliament was catering long ago for a state of affairs that did not then exist is no argument against that construction. Parliament, in the wording of an enactment, is expected to anticipate temporal developments. The drafter will try to foresee the future, and his wording of the law will allow for it.

An enactment of past is thus to be read today in the light of dynamic changes over time, with such modification of the current meaning of its language as will give effect to the original legislative intention. The reality and effect of dynamic processing provides the gradual adjustment.

In another decision, the Supreme Court in M. C. Mehta versus Union of India (1987; 1 S.C.C. 395) laid down the proposition that, as new situations arise, the law has to be evolved in order to meet the challenge. Law cannot afford to remain static. New principles have to evolve and new norms must emerge to deal with the problems that arise in a highly industrialised economy.

The principle of updated construction was aptly applied by the Gujarat High Court while considering whether purchase of land was in the nature of capital investment or was an adventure in the nature of trade. In C.I.T. versus Minal Rameshchandra (167 I.T.R. 507), the assessee along with her mother and brother purchased a large plot of land in March 1962, from a group of 15 persons. Those persons had purchased the land from the original owners in February 1962.

The land had been converted into Town Planning Scheme land in July 1959. When the assessee purchased the land jointly with her mother and brother, the title to the land was in dispute. The land was not yielding any regular income. The assessee, her mother and brother formed a partnership in April 1970, along with seven other individuals.

The Gujarat High Court held that where there was a purchase of land, if there was no safety of the capital invested and if there was no certainty of regular return, it was difficult to say that such a transaction was in the nature of an investment. On the other hand, risk, uncertainty, foresightedness to visualise the imponderables and capacity to overcome the unforeseen hurdles were the essential requisites for business activity. So would be the case with regard to a transaction which was an adventure in the nature of trade.

Judicial notice was taken of the fact that after the formation of the State of Gujarat, there had been a spurt in building activity in Ahmedabad and land had ceased to be a commodity of investment and had become a commodity of trade and commerce. Hence, the purchase and sale of land constituted an adventure in the nature of trade.

In coming to this conclusion, the Gujarat High Court held that with the changing socio-economic situation, the attitude of the people, in general, and that of people belonging to the business community, in particular, had changed drastically.

For example, before a decade or two, silver was ordinarily considered to be a commodity of investment. Today, it would be difficult to say that silver is purchased by people to invest their surplus savings. In the context of a developing economy and fast changing socio-economic conditions of people, even the words occurring in a statute are required to be interpreted differently.

In this context, reference may be made to the Supreme Court decision in S. P. Gupta versus President of India, (AIR 1982 S.C. 149). In paragraph 62 of the separate judgment delivered by P. N. Bhagwati J. (as he then was), it was observed as follows: "The interpretation of every statutory provision must keep pace with changing concepts and values and it must, to the extent to which its language permits or rather does not prohibit, suffer adjustments through judicial interpretation so as to accord with the requirements of the fast changing society which is undergoing rapid social and economic transformation."

In the same paragraph, it was further observed to the effect that law was intended to serve a social purpose and it could not be interpreted without taking into account the social, economic and political setting in which it was intended to operate.

In National Textile Worker's Union versus P. R. Ramakrishnan (AIR 1983 S.C. 75), in paragraph 9 of the judgment (1983; 53 Comp Cas 184 at page 205), the Supreme Court had observed as under: "We cannot allow the dead hand of the past to stifle the growth of the living present. Law cannot stand still; it must change with the changing social concepts and values."

In the same paragraph, it was further observed: "Law must, therefore, constantly be on the move adapting itself to the fast changing society and not lag behind. It must shake off the inhibiting legacy of its colonial past and assume a dynamic role in the process of social transformation."

The aforesaid principle has been aptly applied to take care of changing times where machinery has to be modernised and kept in a state of technological advancement. With technology changing at a feverish pace, the need for upgrading plant and machinery on a continuous basis is paramount.

Machinery has to be continuously replaced and new ones installed which are always technologically advanced. Courts have allowed such expenditure as being deductible on revenue account. This has been done where the machineries replaced are not independent items capable of functioning on their own but are inter-dependent for an integrated process.

In C.I.T. versus Janakiram Mills Ltd. (275 I.T.R. 403), the replacement had been made only to restore the machinery to its original state of efficiency so that the entire integrated manufacturing unit, which was considered a profit-making apparatus functioned efficiently and produced quality products.

The concepts of "current repairs", "modernisation" and "expenditure laid out or expended wholly and exclusively for the purpose of the business" have to be interpreted following the principle of updating construction taking note of the business needs.

The Madras High Court held that in the scheme of the Act, Section 31 deals with "current repairs", Section 32 deals with "depreciation on assets used for the purposes of business" and Section 37 with allowance of "business expenditure" not in the nature of capital or personal expenditure. These three Sections do not operate alternatively but independently. The introduction of the concept of "block of assets" does not affect the operation of Sections 31 and 37.

In another decision in C.I.T. versus Podar Cement P. Ltd. (226 I.T.R. 625), the Supreme Court held that Parliament intends a court to apply to an ongoing Act a construction that continuously updates its wording to allow for changes. Since the Act was initially framed, while it remains law, it is to be treated as always speaking.

This means that in its application on any date, the language of the Act, though necessarily embedded in its own time, is nevertheless to be construed in accordance with the need to treat it as current law. In construing an ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention. Accordingly, the interpreter is to make allowances for any relevant changes that have occurred, social conditions, technology, the meaning to words, and other matters since the Act's passing in law.

(The author, a Mumbai-based advocate specialising in tax laws, can be contacted at ranina@bom2.vsnl.net.in)

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