Basics of understanding of Definition of words and Phrases under Income Tax Act, 1961

It is important to understand every single word used in a statute which conveys a specific meaning, but it is neither possible nor desirable to define every word in the statute. The words which are not defined in such Acts should be interpreted according to their ordinary and natural meaning.

If the language of an Act is clear and explicit, we must give effect to it, whatever may be the consequences, for in that case the words of the statute speak the intention of the Legislature. In other words, if the language used by the Legislature is precise and unambiguous, we have only to expound the words in their natural and ordinary sense.

To do so, first one has to find whether any definition has been assigned to that word in the General Clauses Act, 1897, in which case, this definition is used to understand the meaning of that word. If it is not defined in the General Clauses Act, 1897, one has to find whether that word is defined in any other Act, in which case, its meaning in such an Act may be used as a guide to understand the meaning of the word. At times the dictionary meaning or a judicial interpretation helps understand the meaning of a word used in an Act.

Before the start of Chapter I of any Act it is written as follows:
“BE it enacted by Parliament in the _____ Year of the Republic of India as follows: -”

Every year various Acts are passed by Parliament and unique serial numbers are assigned to these Acts for better reference. The Income Tax Act, 1961, is the forty-third Act passed by Parliament in the Twelfth Year of the Republic of India. Year 1961 is the twelfth year of Republic of India from 1950. Therefore the Income Tax Act, 1961, is [43 of 1961].

In the Income Tax Act, 1961 (the Act), ‘definitions’ can be found in section 2 of the Act, which applies to the whole Act unless the context otherwise requires. Definitions are also found in sections 3, 17, 27, 43, 55, among several other sections of the Act. It has to be carefully noted whether a particular definition applies to the whole Act, or a Chapter, or a section, or group of sections or a sub-section. If a particular definition applies to a specific Chapter, its meaning cannot be used in another Chapter unless it is stated otherwise. This is also true for sections, groups of sections, and so on.

Generally definitions can be categorized in five types  

(i)  ‘Inclusive definitions’ 

‘Inclusive definitions’ can be identified by the presence of the word ‘includes’ in the definition. An inclusive definition allows including, within its ambit, anything which is similar to the term defined.

FOR EXAMPLE:

Sections 2(8) "assessment" includes reassessment. Therefore ‘protective assessment’ is also an assessment. Section 2(12A) "books or books of account" includes ledgers, day-books, cash books…”, Section 2(13) "business" includes any trade, commerce or manufacture…”, Section 2(15) "charitable purpose" includes relief of the poor, education, medical relief…”, Section 2(24) "income" includes—(i) profits and gains; (ii) dividend..” 

(ii)  ‘Exhaustive definitions’ 

‘Exhaustive definitions’ can be identified by the presence of the word ‘means’ in the definition.   An exhaustive definition does not allow including anything from outside to the scope of the     definition. It restricts the meaning therefore it may also be called restrictive definitions.

FOR EXAMPLE:

Sections 2(1) "advance tax" means the advance tax payable in accordance with the provisions of Chapter XVII-C.” Therefore anything which is not stated in Chapter XVII-C cannot be interpreted as advance tax. Section 2(33) "prescribed" means prescribed by rules made under this Act, Section 2(42B) "short-term capital gain" means capital gain arising from the transfer of a short-term capital asset. In this category of definitions anything beyond the scope of definitions is not permitted. 

(iii) ‘Adoptive definition’ 

‘Adoptive definition’ can be identified by the presence of a reference of other Acts in the   definition. In this category instead of defining the term afresh, for the purpose of the Act, the     definitions from other Acts are adopted in the Act.

  FOR EXAMPLE:

  Section 2(20)"director", "manager" and "managing agent", in relation to a company, have the        meanings respectively assigned to them in the Companies Act, 1956 (1 of 1956)”, Section 2(37)    "public servant" has the same meaning as in section 21 of the Indian Penal Code (45 of 1860)”. 

(iv) ‘Exclusive definitions’ 

 ‘Exclusive definitions’ can be identified by the presence of the phrase ‘does not include’. In this     category something is expressly excluded from the definition.

FOR EXAMPLE:

Section 2(14)"capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include — (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession…” 

(v)  ‘Combined definitions’

‘Combined definitions’ can be identified by the presence of both the words ‘means’ and ‘includes’ in the definition. In this category, on one hand it restricts inclusion, and on the other, it   allows inclusion.

FOR EXAMPLE

 Section 2(7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes — (a) every person in respect of whom any proceeding under this Act has been taken…”

Significance of a few phrases used generally at the beginning of some of the provisions

Significance of a few phrases used generally at the beginning of some of the provisions to indicate a special meaning assigned to them.

(i) “Notwithstanding anything contained in…” (Non-obstante clause)

The Latin phrase ‘non obstante’ means ‘notwithstanding’, which means in spite of; in spite of the fact that; without being opposed or prevented by; although; regardless of; irrespective of. It seeks to give the provision an overriding effect as against any contrary provision that may be found either in the same enactment or (if the words so suggest) in some other statute; it is used to avoid the operation and effect of all contrary provisions.

        FOR EXAMLPE :

        Sections 9(2), Section 10A (6), Section 10A (8), Section 12(3), Section 13(4), Section 40              respectively 

        Notwithstanding anything contained in this Act         

(ii)  “Subject to the provisions of…”
When any provision contains this phrase, it attaches a condition that the provisions of the specified section are also to be complied with. That is, while complying with the provision where this phrase occurs, other provision mentioned therein must also be complied with. Those provisions may be this Act/sub-section/clause/this section/other provisions of this section/sections

       FOR EXAMPLE:

       Sections 5(1); Section 10(2), Section 10A (1); 11 (1); Section 32AB (1); respectively

 (iii) “Save as otherwise provided in this Act…”
When any provision contains this phrase it implies that the provision of this section has to be applied without affecting any provisions in which something else has been stated.

 In legal context, save means except, but, other than; to preserve something from harm, injury, loss, etc. This phrase seeks to keep applicability of any other provision on the same subject unaffected.

FOR EXAMPLE :

Sections 1(3) and Section 14]

(iv) “Without prejudice to…”
  When any provision contains this phrase it implies that the provision has to be applied without      affecting other provision of the Act which may deal with same subject matter. Other provisions      may be – the provisions of sub-section/the generality of the provisions of.

       FOR EXAMPLE :

       Sections 12AA(4); Section 13(2) respectively 

(v) “Nothing contained in section … or section … shall operate so as to exclude from…”
When any provision contains this phrase it implies that referred sections are excluded from the applicability of the whole section. [Refer section 13(1), 13 (7), 13 (8)]

(vi)  “Sub-section”

   A sub-section is a part of a section.  A sub- section starts with a capital letter and ends with a     full stop. When parts of a section are interrelated, or when one whole provision emerges out by     putting all the parts of the section together, then those parts are referred to as sub-sections.

Examples of parts being sub-sections may be seen in sections 1, 44AD, 139 and so on as parts of these sections like section 1(1), 1(2), 1(3) and 44AD (1), 44AD (2), 44AD (6), 139 (4) and 139 (9) are interrelated and one whole provision of the respective section emerges out by putting together all the parts of these sections.

(vii)  “Clauses”

   Whereas a clause may be a part of either a section or a sub-section. A clause starts with a             small   letter and ends with a semicolon. But the last clause ends with a full stop. This is               because a sub-section is a complete sentence whereas a clause is a part of a sentence.

(viii)  “Proviso”

   A proviso qualifies the generality of the main enactment by providing an exception and               taking  out from the main provision, a portion, which, but for the proviso would be part of the     main provision. A proviso, must, therefore, be considered in relation to the principal matter to     which it stands as a proviso.

A proviso defeats the operation or conditionality of a ‘rule’ (section/sub- section/clause/sub-clause etc.) below which it is placed. The subject matter of ‘rule’ and the proviso thereof should relate to each other.

A proviso must be interpreted harmoniously with the section or sub-section to which it is appended. Unless the words of the proviso indicate otherwise, the proviso applies to the whole of the main part of the section or subsection under which the proviso has been inserted.

FOR EXAMPLE

Where the main section contained two periods, eighteen months and one year, and the proviso used the words “the period”, it was held that the proviso applied to both the period mentioned in the main section.

      INTERPRETATION OF A PROVISO

A proviso is a clause in a statute, which begins with the phrase Provided that. Literally it means ‘on the condition or understanding that’. A proviso has one or more of the following three functions:

(a)  Exception to the main provision; 

(b)  Condition to the main provision;

(c)  Additional requirement.

KNOW THE NUMBER OF A PROVISO

First proviso begins with the phrase ‘Provided that’, second proviso with ‘Provided further that”, and subsequent provisos with ‘Provided also that’. If the proviso starts with ‘Provided also that’ it has to be manually counted to know whether it is third proviso, fourth proviso, and so on. Reference may be made to section 10(23C) as it has eighteen provisos

(ix)  “Explanation”

The object of an Explanation to a statutory provision is (i) to explain the meaning and intendment of the Act itself; (ii) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful; (iii) an Explanation cannot in anyway interfere with or change the enactment or any part thereof, but where some gape is left which is relevant for the purpose of the Explanation in order to support the mischief and advance the object of the Actit can help or assit the court in interpretation  the true purport and intendment of the enactment.

In other words, an Explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may possibly arise from the existing provisions. The normal principle in construing an Explanation is to understand it as explaining the meaning of the provision to which it is added.

Explanation is normally clarificatory and retrospective in operation.

The Explanation does not enlarge or limit the provision, unless the Explanation purports to be a definition or a deeming clause.

(x) "Prescribed"

In section 2(33) of the Income Tax Act, 1961, the word 'prescribed' is defined as "prescribed" means prescribed by rules made under this Act ; Whenever in any provisions of the Income Tax Act, 1961, the word ‘prescribed’ or group of words ‘as may be prescribed’ or 'prescribed form verified in the prescribed manner' is found, it suggests that there shall be some provisions in a rule or Form in the Income Tax Rules, 1962. Reference may be made to section 10(5) to find Rule 2B, section 10(13A) to find Rule 2A, and so on.