EVASION OF STATUTES – CONSTRUCTION TO PREVENT EVASION :
It is permissible to evade an Act of Parliament in the sense that a person may not do that
which the Act prohibits but he is free to do anything which though equally advantageous to him
as that which is prohibited is nevertheless outside the prohibition, penalty or burden imposed by
the Act. It is well established that penal and taxing laws are not to be extended by analogy to
cover acts and situations not within the words of the state on any doctrine of substance of the
matter. But this principle has no application where what is done is really the thing prohibited
although under colour or cloak of different transaction not prohibited by the statute. It is not
permissible to evade an Act of Parliament by resorting to a fraudulent device or by covering the
reality by a non-genuine transaction. The word ‘evade’ is thus ambiguous and is used in two
senses, and in spite of various explanations given by the courts as to the two different meanings
of that word, the position is not very much different from what Lord Cranworth, LC found in
1855. Lord Chancellor said “I never understood what is meant by an evasion of an Act of
Parliament; either you are within the Act or you are not within it; if you are not within it you have
a right to avoid, to keep out of prohibition. A citizen is free to so arrange his business that he is
able to avoid a law and its evil consequences so long as he does not break that or any other
law. A blatant tax avoidance scheme which brings profit to a person cannot lead to the taxation
of the person on the ground that he has earned profit by trade unless his activities an the part
played by him in furtherance of the scheme amount to trade in the accepted sense or unless the
legislature enacts a special definition or provision to tax such activities. The taxing laws have
constantly been the subject of evasion in the sense of avoiding something disagreeable and
there are many dicta to the effect that a citizen is entitled to so arrange his affairs that the tax
burden does not fall on him and that there is nothing illegal or immoral in adopting such a
course.
Section 195, Code of Criminal Procedure, 1898, which provides that cognizance of
certain offences is not to be taken except on the complaint in writing made by the relevant court,
cannot be evaded by the device of charging a person with an offence to which that section does
not apply and then convicting him of an offence to which it does apply on the ground that the
latter offence is a minor one of the same character or by describing the offence as punishable
under some other section of the Penal Code, though in reality the offence falls in the category of
offences mentioned in Section 195.
The principle, that the courts can go behind the form and reach the reality, has to be
applied with certain reservations in determining correct amount of duty payable on documents
under the Indian Stamps Act, 1899. The duty being imposed on instruments and not upon
transactions, court can only construe the document as it stands for determining the proper
amount of duty, and although the name given to the document by the parties may not be
decisive of its character, it is not permissible to go behind the document and to hold an enquiry
as to the real nature of the transaction as distinguished from the real nature of the document.
On the general principle that when alternative constructions are open, a statute should be so
construed as to give effect to its object or policy, the courts to the extent the language permits,
will be slow to adopt such a construction which may lead to large scale evasion of the Act
resulting in its object being defeated.
