ASPECT THEORY ; INTERPRETATION OF TAX
By: Dr. Sanjiv Agarwal :
Any subject which is one aspect and one purpose fall within particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping, but that should be in law. Same transaction may involve two or more taxable events in its different aspects, but the fact that there is overlapping does not detract from the distinctiveness of aspects [Shilpa Color Lab v. CCE, Calicut 2006 -TMI - 1022 – (CESTAT,BANGALORE)].
Entry 60 of list II states that "taxes as professions, trade, callings and employment." Entry 60 is a taxing entry. It is not a general entry. Tax on professions etc. has to be read as a levy on professions, trade, callings, etc, as such. Therefore, entry 60 which refers to professions cannot be extended to include services. This is what is called as an "aspect theory" [All India Federation of Tax Practitioners v. Union of India 2007 -TMI - 1556 – (Supreme Court)]
In Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes 2008 -TMI - 2576 – (Supreme Court of India) it was held that while interpretating tax statutes involving applicability of Article 246 of Constitution of India read with Seventh Schedule thereof, court should take various theories including `aspect theory' while interpreting such statutes.
Extracts from judgment in Subh Timb Steels Ltd v Union of India (2010) 20 STR 737; (2010) 29 STT 479 ( P & H)
15. Aspect theory has been subject-matter of several decisions. In Federation of Hotel & Restaurant Assn. of India v. Union of India 1989 -TMI - 40104 – (SUPREME Court), the levy considered was expenditure tax under Central law with reference to the contention that the same was in substance tax on luxury under Entry 62 of List II. Stand of the Central Government was that expenditure aspect was different from luxury aspect and expenditure aspect could be held to be excluded from the luxury aspect. The plea was upheld. It was observed :-
"26.... Wherever legislative powers are distributed between theUnionand the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and, where necessary modified by that of the other.
27. The Judicial Committee in Prafulla Kumar Mukherjee v. Bank of Commerce AIR 1947 PC 60, referred to with approval the following observations of Sir Maurice Gwyer 'C.J.' in Subrahmanyan Chettiar case:
"It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its 'pith and substance', or its 'true nature and character', for the purpose of determining whether it is legislation with respect to matters in this list or in that."
28. This necessitates as an "essential of federal Government the role of an impartial body, independent of general and regional Governments", to decide upon the meaning of division of powers. The court is this body.
29. The position in the present case assumes a slightly different complexion. It is not any part of the petitioners' case that expenditure tax is one of the taxes within the States' power or that it is a forbidden field for the Union Parliament. On the contrary, it is not disputed that a law imposing "expenditure tax" is well within the legislative competence of Union Parliament under Article 248 read with Entry 97 of List I. But the specific contention is that the particular impost under the impugned law, having regard to its nature and incidents, is really not an "expenditure tax". at all as it does not accord with the economists' notion of such a tax. That is one limb of the argument. The other is that the law is, in pith and substance, really one imposing a tax on luxuries or on the price paid for the sale of goods. The crucial questions, therefore, are whether the economists' concept of such a tax qualifies and conditions the legislative power and, more importantly, whether "expenditure" laid out on what may be assumed to be "luxuries. or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation.
30. In Lefroy's Canada's Federal System the learned Author referring to the "aspects of legislation" under sections 91 and 92 of the Canadian Constitution ie. British North America Act, 1867 observes that "one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose fall within another legislative power". Learned Author says:
"... that by 'aspect' must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon."
In Union Colliery Co. ot British Columbia v. Bryden 1899 AC 580, Lord Haldane said:
"It is remarkable the way this Board has reconciled the provisions of section 91 and section 92, by recognizing that the subjects which fall within section 91 in one aspect, may, under another aspect, fall under section 92."
31. Indeed, the law "with respect to" a subject might incidentally "affect" another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Govemor-General-in-Council v. Province otl Madras AIR 1945 PC 98 in the context of concepts of Duties of Excise and Tax on Sale of Goods said:
"... The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of, his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale…"
32. Referring to the "aspect" doctrine Laskin's Canadian Constitutional Law states:
"The 'aspect' doctrine bears some resemblance to those just noted but, unlike I them, deals not with what the 'matter' is but with what it 'comes within',... (p. 115)
"….it applies where some of the constitutive elements about whose combination \ the statute is concerned (that is, they are its 'matter'), are a kind most often met with in connection with one class of subjects and others are of a kind mostly dealt with in connection with another. As in the case of a pocket gadget compactly assembling knife blade, screwdriver, fishscaler, nailfile, etc., a description of it must mention everything but in characterizing it the particular use proposed to be made of it detenpines what it is. (p. 116)
I pause to comment on certain correlations of operative incompatibility and the 'aspect' doctrine. Both grapple with the issues arising from the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a 'matter' bring it within a class of subjects………" (p. 117).
16. By way of instance of different aspects of the same matter, illustration was also given of tax on property under the State law and tax on income under the Central law.
.38. Indeed, as an instance of different aspects of the same matter, being the topic of legislation under different legislative powers, reference may be made to the annual letting value of a property in the occupation of a person for his own residence being, in one aspect, the measure for levy of property tax under State law and in another aspect constitute the notional or presumed income for the purpose of income tax".
[(Also see Tata Sky Ltd v State of Punjab (CWP No 10992 of 2010 dated 25.10.2010)].
By: Dr. Sanjiv Agarwal :
Any subject which is one aspect and one purpose fall within particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping, but that should be in law. Same transaction may involve two or more taxable events in its different aspects, but the fact that there is overlapping does not detract from the distinctiveness of aspects [Shilpa Color Lab v. CCE, Calicut 2006 -TMI - 1022 – (CESTAT,BANGALORE)].
Entry 60 of list II states that "taxes as professions, trade, callings and employment." Entry 60 is a taxing entry. It is not a general entry. Tax on professions etc. has to be read as a levy on professions, trade, callings, etc, as such. Therefore, entry 60 which refers to professions cannot be extended to include services. This is what is called as an "aspect theory" [All India Federation of Tax Practitioners v. Union of India 2007 -TMI - 1556 – (Supreme Court)]
In Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes 2008 -TMI - 2576 – (Supreme Court of India) it was held that while interpretating tax statutes involving applicability of Article 246 of Constitution of India read with Seventh Schedule thereof, court should take various theories including `aspect theory' while interpreting such statutes.
Extracts from judgment in Subh Timb Steels Ltd v Union of India (2010) 20 STR 737; (2010) 29 STT 479 ( P & H)
15. Aspect theory has been subject-matter of several decisions. In Federation of Hotel & Restaurant Assn. of India v. Union of India 1989 -TMI - 40104 – (SUPREME Court), the levy considered was expenditure tax under Central law with reference to the contention that the same was in substance tax on luxury under Entry 62 of List II. Stand of the Central Government was that expenditure aspect was different from luxury aspect and expenditure aspect could be held to be excluded from the luxury aspect. The plea was upheld. It was observed :-
"26.... Wherever legislative powers are distributed between theUnionand the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and, where necessary modified by that of the other.
27. The Judicial Committee in Prafulla Kumar Mukherjee v. Bank of Commerce AIR 1947 PC 60, referred to with approval the following observations of Sir Maurice Gwyer 'C.J.' in Subrahmanyan Chettiar case:
"It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its 'pith and substance', or its 'true nature and character', for the purpose of determining whether it is legislation with respect to matters in this list or in that."
28. This necessitates as an "essential of federal Government the role of an impartial body, independent of general and regional Governments", to decide upon the meaning of division of powers. The court is this body.
29. The position in the present case assumes a slightly different complexion. It is not any part of the petitioners' case that expenditure tax is one of the taxes within the States' power or that it is a forbidden field for the Union Parliament. On the contrary, it is not disputed that a law imposing "expenditure tax" is well within the legislative competence of Union Parliament under Article 248 read with Entry 97 of List I. But the specific contention is that the particular impost under the impugned law, having regard to its nature and incidents, is really not an "expenditure tax". at all as it does not accord with the economists' notion of such a tax. That is one limb of the argument. The other is that the law is, in pith and substance, really one imposing a tax on luxuries or on the price paid for the sale of goods. The crucial questions, therefore, are whether the economists' concept of such a tax qualifies and conditions the legislative power and, more importantly, whether "expenditure" laid out on what may be assumed to be "luxuries. or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation.
30. In Lefroy's Canada's Federal System the learned Author referring to the "aspects of legislation" under sections 91 and 92 of the Canadian Constitution ie. British North America Act, 1867 observes that "one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose fall within another legislative power". Learned Author says:
"... that by 'aspect' must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon."
In Union Colliery Co. ot British Columbia v. Bryden 1899 AC 580, Lord Haldane said:
"It is remarkable the way this Board has reconciled the provisions of section 91 and section 92, by recognizing that the subjects which fall within section 91 in one aspect, may, under another aspect, fall under section 92."
31. Indeed, the law "with respect to" a subject might incidentally "affect" another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Govemor-General-in-Council v. Province otl Madras AIR 1945 PC 98 in the context of concepts of Duties of Excise and Tax on Sale of Goods said:
"... The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of, his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale…"
32. Referring to the "aspect" doctrine Laskin's Canadian Constitutional Law states:
"The 'aspect' doctrine bears some resemblance to those just noted but, unlike I them, deals not with what the 'matter' is but with what it 'comes within',... (p. 115)
"….it applies where some of the constitutive elements about whose combination \ the statute is concerned (that is, they are its 'matter'), are a kind most often met with in connection with one class of subjects and others are of a kind mostly dealt with in connection with another. As in the case of a pocket gadget compactly assembling knife blade, screwdriver, fishscaler, nailfile, etc., a description of it must mention everything but in characterizing it the particular use proposed to be made of it detenpines what it is. (p. 116)
I pause to comment on certain correlations of operative incompatibility and the 'aspect' doctrine. Both grapple with the issues arising from the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a 'matter' bring it within a class of subjects………" (p. 117).
16. By way of instance of different aspects of the same matter, illustration was also given of tax on property under the State law and tax on income under the Central law.
.38. Indeed, as an instance of different aspects of the same matter, being the topic of legislation under different legislative powers, reference may be made to the annual letting value of a property in the occupation of a person for his own residence being, in one aspect, the measure for levy of property tax under State law and in another aspect constitute the notional or presumed income for the purpose of income tax".
[(Also see Tata Sky Ltd v State of Punjab (CWP No 10992 of 2010 dated 25.10.2010)].
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