Tax assessees will have to show clear proof to the Revenue Department that they are eligible for availing a tax exemption.
Reversing an earlier ruling, a five-member Constitution Bench of the Supreme Court has ruled that in case of any ambiguity in an exemption notification, the benefit would fall in the favour of the tax man.
The Constitution Bench of the Supreme Court in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company, has ruled that exemption notifications should be interpreted strictly and that the burden of proving applicability would be on the assessee. “After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State,” the court ruling said. The ruling is likely to give more authority to tax department to ensure that tax exemptions are granted only in those case where the eligibility is clearly established. .
“The ruling shows that exemption is an exception to the general rule and so should be strictly given as the burden tax is then shifted to others,” said an expert, adding that the Revenue Department may now also seek backdated taxes from similar cases.
It is also to be seen whether the judgment, which is relating to an exemption from customs duty, is also applicable for exemptions in other levies including income tax, he added.