Question

In a taxing Act one has to look merely at what is clearly said.

There is no room for any intendment. There is no equity about a
tax. There is no presumption as to a tax. Nothing is to be read in,
nothing is to be implied and subsequent legislation, if it
proceeded on an erroneous construction of previous legislation,
cannot alter the previous legislation.
Per Rowlatt J in cape brandy syndicate v IRC [1921]1 KB 64
Examine the principle of interpretation of taxing statutes in view of the
above cited judicial pronouncement.

INTRODUCTION
Article 152 of the 1995 constitution provides that no tax shall be imposed
except under the authority of an Act of parliament. Parliament has since
taken the initiative to enact various tax laws in Uganda.
Tax laws are highly complex, complicated and beyond understanding of a
tax-payer. The words and expressions used are not simple. Many sections
contain sub-sections, clauses, sub-clauses. Many deeming provisions have
been inserted. Meaning of an expression is extended by way of
Explanation and is curtailed by way of proviso, sometimes more than one
provisos and explanations meaning differently. This therefore calls for the
interpretation of these taxing statues.
Interpretation (construction) alone is the process of determining the
true meaning of a written document. It is a judicial process, effected in
accordance with a number of rules and presumptions.
The Oxford Dictionary of law 5th Ed. (2003) defines interpretation
of statutes as the judicial process of determining, in accordance with
certain rules and presumptions, the true meaning of Acts of Parliament.
The most commonly interpreted tax statutes in Uganda include but not
limited to the Income Tax Act cap 340, the tax Appeals Tribunal Act cap
345 and the Uganda Revenue Authority Act cap 196.
THE ESSENCE OF INTERPRETING TAXING STATUTES
Often, many words and phrases which are used in taxing statutes either
have no technical meaning in law or they simply have no precise meaning
in ordinary use. For example, the word profits of a business in the
Income Tax Act, cap 340. The term profit is not statutorily defined.
Trade also lacks satisfactory statutory definition as it is also difficult to
ascertain its meaning in its ordinary usage. Although the term trade is
widely used and appears common, but as regards its application in tax law
it poses problems. For instance, whether a resale of property constitute a
trade
Therefore, due to this lack of precision it has become necessary to define
the words or phrases (by practice or precedent) to enable those applying
tax law to decide on various taxing matters.
Courts have been playing the role of interpreting the law as laid down in
the statutes to give meaning to the words and phrases which in
themselves do not have precise meaning. What the courts do in
construing taxing statutes is in effect the same as in other statutes,
namely, to ascertain the intention of the legislature as it appears from the
language it has used.

BRIEF FACTS OF CAPE BRANDY SYNDICATE V IRC

Members of a wine syndicate joined in a separate syndicate to purchase
brandy from South Africa. Some was shipped to the East with the
remainder being sent to London to be blended with French Brandy, recasked and sold at a profit. The Appellants contended that they carried
out an isolated transaction of a speculative nature, which was not a trade
or business within the meaning of Section 39 of the Finance (No. 2) Act,
1915; and, alternatively, that if they carried on a trade or business, the
profits arising from a business commencing after 4th August, 1914, were
not chargeable to Excess Profits Duty.
Held , (1) that the question whether the Appellants carried on a
trade was one of fact, and that there was evidence on which the
Special Commissioners could arrive at their conclusion; and (2)
that, on a true construction of the Finance (No. 2) Act, 1915, and
subsequent Acts, a trade or business commenced since the
beginning of the war was liable to assessment to Excess Profits
Duty.
Rowlatt J said: In a taxing Act one has to look merely at what is clearly
said. There is no room for any intendment. There is no equity about a tax.
There is no presumption as to a tax. Nothing is to be read in, nothing is to
be implied and subsequent legislation, if it proceeded on an erroneous
construction of previous legislation, cannot alter the previous legislation.
Lord Sterndale MR said: I quite agree that subsequent legislation, if it
proceed upon an erroneous construction of previous legislation, cannot
alter that previous legislation; but if there be any ambiguity in the earlier
legislation, then the subsequent legislation may fix the proper
interpretation which is to be put upon the earlier.
Lord Atkinson: Where the interpretation of a statute is obscure or
ambiguous, or readily capable of more than one interpretation, light may
be thrown on the true view to be taken of it by the aim and provisions of a
subsequent statute.

Interpretation of tax states in Uganda

There are three primary approaches to the interpretation of statutory
provisions as originally developed by the English judges at common law

and absorbed into the law of the general law of Uganda. First, the literal
rule that where the words of statute are clear and unambiguous, they
should be interpreted according to their natural and ordinary meaning.
Secondly, the golden rule, allowing the judge to modify the literal meaning
in the event of ambiguity. Thirdly, the mischief rule, directing the judge to
interpret statute by reference to the mischief it was designed to cure. In
more recent times a fourth approach has emerged in the form of
purposive interpretation, requiring the judge to ascertain the true intent
of the legislature
In the absence of constitutional or other statutory provision prescribing a
particular approach, judges have considerable freedom in deciding which
of these approaches to adopt in interpreting statutory provisions. In the
exercise of this freedom, the courts in Uganda have consistently held that
tax statutes must be interpreted in accordance with the literal rule.
The general rules used in interpretation of taxing statutes were cited by
Justice Christopher Madrama in Kinyara Sugar Ltd vs Commissioner
General Uganda Revenue Authority where he recognised that he drew
inspiration from Lord Donovan in Mangin v IRC and these rules include;
The literal rule
The literal rule, sometimes referred to as strict constructionism, directs
that where the words of a statute are plain and unambiguous, they should
be construed strictly according to their natural and ordinary meaning
without looking to other sources to ascertain its meaning 1. A classic
statement of the rule in the tax context is to be found in the judgment of
Rowlat J in the case of Cape Brandy v IRC2:
In a taxing Act, clear words are necessary to tax the subject.
But it is often endeavoured to give to this maxim a wide and
fanciful construction. It does not mean that words are to be
unduly restricted against the Crown or that there is to be any
discrimination against the Crown in such acts. It means this, I
think, it means that in taxation you have to look simply at
what is clearly said. There is no room for any intendment,
there is no equity about tax, you read nothing in; you imply
nothing, but you look fairly at what I said and at what is said
clearly and that is tax
This rule which has been followed religiously by Ugandan judges means
that the subject is not to be taxed unless the words of the taxing statute
1A. Ipaye, op cit , p .4
2[1921] 12 Tax Cases 358

unambiguously impose that tax on him. It follows from this that for tax
liability to arise there must be a clear link between the charging provisions
and the intended taxpayer. This link must be direct, not inferential.
Implicit in all this is that the courts have no business in trying to repair
legislation that fails to fire or misfires. This is illustrated by the case of
Ayshire Pullman v IRC3 where a provision intended to widen the tax net
failed to achieve that purpose. Lord Simmonds said:
It is at least clear what is the gap that is intended to be filled
and hardly less clear how it is intended to fill the gap. Yet I can
come to no other conclusion than that the language of the
section fails to achieve its apparent purpose and I must
decline to insert words or phrases which might succeed where
the draftsman failed4.
This is not to say that the literal rule confines the judge to the words of
the particular provision calling for interpretation. A statute must be read
as a whole and so the literal meaning of a particular provision may be
modified when read in the light of surrounding provisions.
Furthermore, where the literal meaning of a word will result in ambiguity,
in the sense that the words are capable of more than one meaning, the
judge may seek internal aid within the body of the statute itself or
external aid from statutes in pari-material in order to resolve the
ambiguity. If, however, the statutory provision is found to be
irredeemably ambiguous, the judge to adopt the interpretation that most
favours the taxpayer.
Justification of Literal rule
Outside of the tax context the courts have had no difficulty in accepting
that as a matter of principle, statutes should be interpreted purposively.
The principle reason appears to be that tax is seen as involving the
imposition of a burden on the citizen5.This reflects the traditional
hostility of judges at common law to statutes seen as encroaching on a
citizens property or liberty. Tobias puts this view forcefully when he
writes:
The revenue statutes constitute penalties imposed by the
state which encroach on a citizens liberty, that is, their right
to prosper from free enterprise. Given that there exists no
doctrine in the courts to support the notion that there is a duty
3(1921) 14 TC 745
4[1946] 1 All ER 637
5Federal Board of Inland Revenue v American International Insurance Company (Nig.) PLC (1999) 1 N.R.L.R. 50,
at p. 56 (per Belgore C.J.)

to contribute to the upkeep of the state through tax, and given

that there exists a right to avoid but no duty to pay taxes, it
seems most appropriate that before the state confiscates a
taxpayers liberty it should make its grounds for doing so
crystal clear. For this very reason tax laws should be construed
in highly technical terms, without regard for the purpose they
were designed to serve, just as criminal penalties, which
similarly impose a restriction on ones liberty, are construed.
Deficiencies of Literal rule
In invoking the literal rule, the courts proceed from the premise that the
surest guide to the intention of Parliament is the words used by it in the
statute. This, however, overlooks the limitations that attend process of
legislative drafting. In particular, it ignores the fragility of language in
assuming that draftsmen can always choose words to accurately describe
the situation to be covered by the provision which will leave no room for
difference of view as to their meaning. The literal rule also fails to allow
for the difficulty of foreseeing and providing for all contingencies capable
of having a bearing on a proposed provision 6. In these ways, the literal
rule is unrealistic in assuming unattainable perfection in drafting. Indeed
draftsmen often deliberately choose to use broad terms in drafting bills
(i.e. words of wide or variable meaning) on the basis that the courts can
be relied on to determine what situations fall within them.
Another major criticism is that by precluding the judges from having
regard to the underlying purposes of statute, it imposes an arbitrary limit
on the ability of judges to ascertain the will of parliament. This is perverse
because if the purpose of construction is ascertainment of meaning
nothing that it is logically relevant should be excluded 7. The exclusion
from consideration of the underlying purposes of a statute carries the risk
that judges may end up construing tax provisions in ways that defy the
apparent intention of the legislation. This is illustrated by the case of IRC
v Duke of Westminster8. There the House upheld a scheme entered
into by the Duke to reduce his tax liability by paying his workmen in the
form of tax deductible annuities rather than wages. The Revenue argued
that the court should look at the substance of transaction to treat the
annuities as non-taxable wages, but this was decisively rejected by the
court. Lord Tomlin said:
This so called doctrine of the substance seems to me to be
nothing more than an attempt to make a man pay
6W. Twining and D. Miers, How to do things with Rules (1977),pp. 40-43
7English Law Commission, op cit, p 6
8[1935] AC 1

notwithstanding that he has so ordered his affairs that the

amount of tax sought from him is not legally claimable9.
As this case illustrates, the literal rule may facilitate tax avoidance by
enabling taxpayers to structure transactions that fall within the terms of
tax relieving provisions literally construed, but which in terms of their
substance are different from those anticipated by Parliament. For this
reason literal interpretation has been described as providing a charter for
tax avoidance. This is of no small importance. Nigeria, like many other
developing countries, loses huge sums of potential tax revenue annually
to tax avoidance to the detriment of development.
The golden rule
The object of the construction of a statute being to ascertain the will of
the legislature, it may be presumed that neither injustice nor absurdity
was intended. If therefore a literal interpretation would produce such a
result, and the language admits of an interpretation which would avoid it,
then such an interpretation may be adopted. The history of an enactment
and the reasons which led to its being passed may be used as an aid to
construction.
This approach allows the court to take into account the consequences of a
particular interpretation. If the literal meaning of the words results in an
absurdity; the court will modify the ordinary meaning of the words to
overcome this. This approach allows for rectification of an error in the
wording of the provision when a literal meaning may not result in the
intention of parliament being realised. Lord Wensleydale outlined the
approach to the golden rule in Grey v Pearson. 1857) 6 HLC 61, 106.
The mischief rule
This approach allows the court to determine the reasons or purpose for
the passing of the Act by parliament (the mischief to which the Act is
directed) and provides for an interpretation to be preferred that advances
the purpose of the Act to one that does not. This approach is only applied
if there is an ambiguity in the legislation as the position in Heydons
case (1584) 3 Co Rep 7a, 7b.4. In Heydons Case the mischief rule was
stated in the following way: [F]or the sure and true interpretation of all
Statutes in general four things are to be discerned and considered: (1st)
What was the common law before the making of the Act? (2nd) What was
the mischief and defect for which the common law did not provide? (3rd)
What remedy the Parliament hath resolved and appointed to cure the
9Ibid, p. 10

disease of the Commonwealth? And (4th) the true reason for the remedy;
and then the office of all the Judges is always to make such construction
as shall suppress the mischief, and advance the remedy, and to suppress
subtle inventions and evasions for continuance of the mischief, pro
privato commodo, and to add force and life to the cure and remedy,
according to the true intent of the makers of the Act, pro bono publico.
Under this rule a court is required to make a sure and true
interpretation of a statute by interpreting it according to the true intent
of the makers of the Act. Heydons Case specifically refers to the
situation where common law did not adequately deal with a problem, but
by logical extension the rule should also apply where earlier statute law
on a subject is inadequate and has, for that reason, been changed by a
later statute.
In support of the proposition that in the construction of an earlier statute
one can have reference to a later statute as held in the case of Jafferali
M. Alibhai versus the Commissioner of Income Tax [1961] EA page
610 at page 614 the Court of Appeal of East Africa in the judgment of Sir
Alistair Forbes stated at page 614 paragraphs A and B that a reference to
a later Act for the purpose of clarifying a provision in an earlier Act is
permissible. In the Jafferali case the latter statute was held to clarify and
therefore lend support to a particular interpretation of an earlier statute.
The Mischief Rule is of narrower application than the golden rule or the
plain meaning rule, in that it can only be used to interpret a statute and,
strictly speaking, only when the statute was passed to remedy a defect in
the common law. Legislative intent is determined by examining secondary
sources, such as committee reports, treatises, law review articles and
corresponding statutes. The application of this rule gives the judge more
discretion than the literal and the golden rule as it allows him to
effectively decide on Parliament's intent. It can be argued that this
undermines Parliament's supremacy and is undemocratic as it takes lawmaking decisions away from the legislature.
The Purposive approach
The purpose approach proceeds from the premise that in enacting tax
legislation the legislature must have had in mind some rational purpose
in mind, and directs the judge to ascertain the true purposes of the
legislature and to interpret the words of the statute in accordance with
that intent. This may or may not require the words of the provision in
question to be read strictly.

The purposive approach to interpretation overlaps with the mischief rule,

which itself dates back to the 16th century when judges viewed legislation
as a means of meeting the deficiencies of the common law. The mischief
rule directs the judge to interpret statute by reference to the particular
problem (mischief) that Parliament intended to remedy and then to give
such construction as will suppress the mischief and advance the remedy.
Thus, like the purposive approach it contemplates an inquiry into the
policy and purposes behind the statute. Although the purposive approach
goes further than the mischief rule by looking at the underlying purpose of
the statute considered as a whole, rather than just the mischief the
statute was designed to remedy. Furthermore, strictly speaking, the
mischief rule operates within a narrower compass as it only becomes
applicable where the statute in view was enacted to deal with a particular
mischief for which the common law failed to provide a remedy. However
the modern approach is to invoke the rule without regard to whether the
common law provides a remedy for the mischief to which the statute is
directed.
In adopting a purposive approach, judges are informed by the fallibility of
draftsman and the limitations of the English language as a medium for
capturing legislative intention in express words, and accept that they have
a constitutional responsibility to assist parliament by repairing legislation
where it fails to express Parliaments true intention. As Lord Denning put
in Seaford Court Estate Ltd v Asher10:
Wherever a statute comes up for consideration it must be
remembered that it is not within human powers to foresee the
manifold sets of facts which may arise, and, even if it were, it
is not possible to provide for them in terms free from all
ambiguity. The English Language is not an instrument of
mathematical precision. Our literature would be much poorer
if it were. This is where the draftsmen of Acts of Parliament
have often been unfairly criticized. A judge, believing himself
to be fettered by the supposed rule that he must look to the
language and nothing else, laments that the draftsmen have
not provided for this or that, or have been guilty of some or
other ambiguity. It would certainly save the judges trouble if
Acts of Parliament were drafted with define prescience and
perfect clarity. In the absence of it, when a defect appears a
judge cannot simply hold his hands and blame the draftsman.
He must set to work on the constructive task of finding the
intention of Parliament, and he must do this not only from the
language of the statute, but also from a consideration of the
social conditions which gave rise to it, and the mischief which
it was passed to remedy, and then he must supplement the

10[1949] K.B. 481

written word so as to give force to it and the intention of the

legislature11.
Thus the purposive approach enables judges to modify or even reframe
the language of legislation to accord with the intention or purpose of the
legislation, even to the extent of doing some violence to the words of
the statute.
CONCLUDING COMMENTS
At the heart of the varying approaches taken by judges in the
interpretation of taxing statutes is ideology and conflict of values as to
the proper role of the courts in interpreting statutes. The literal rule in
excluding consideration of legislative purpose and resolving ambiguous
provisions in favour of the taxpayers, promotes the interests of the
taxpayer ahead of the collective interest of the generality of citizens in
orderly development.

11[1974] 3 ALL ER 24