Priyanshi Desai, Advocate
The objective behind interpreting laws is to clarify the ambiguous words and their meaning according to the intention of the legislation.
There are certain principles of interpretation which are exercised by the Courts for interpretation of statutes.
In this Article, a detailed discussion will be on the “Principle of Ejusdem Generis”, which is one of the principles of interpretation.
Meaning and definition of “Ejusdem Generis” “Ejusdem generis” is a Latin term and the meaning of it is “of the same kind and nature”.
Practical Application of Rule of Ejusdem Generis
The Rule of Ejusdem Generis comes into picture whenever any legal provision comprises of general words which follows words of specific class or category and is to be applied to interpret the general words.
For instance, Explanation (baa) to Section 80HHC(3) of Income-tax Act, 1961 defines “profits of business” for the purpose of availing profit-linked deduction in respect of export business from gross total income under the aforesaid section.
This Explanation emphasizes that certain receipts of income should be excluded from the profits of business. One of such exclusion enshrined in Explanation (baa) is receipts by way of “brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits”.
So here general word is “charges” which is following specific words i.e. “brokerage, commission, interest, rent”. Now, how should the word “charges” be interpreted. The word “charges” is to be interpreted by applying the Rule of Ejusdem Generis.
In-depth analysis and practical applicability of the rule is discussed as follows:
What does Rule of Ejusdem Generis envisage?
The Rule of Ejusdem Generis provides that when a list of specific words are being followed by the general words in a section, sub-section, proviso or a clause of a statute then the general words are interpreted in a way so as to restrict them to include the items or things which will be of same type as those of the specific words.
Applicability of Rule of Ejusdem Generis
The Rule of Ejusdem Generis would apply as a canon for interpretation of statutes only if following conditions are satisfied cumulatively:
Condition No.1: The provision must consist of specific words and general words
Condition No.2: The specific words should be followed by general words
Condition No.3: The specific words should constitute a distinct genus/class/category
Condition No.4: There must be an intention of the statute to restrict the meaning of the general words to the genus/class of the specific words it follows.
If all these conditions are satisfied cumulatively then the meaning of the general words will be restricted to same class/category of the specific words.
Let us understand this rule with an example.
For instance, a provision of a particular legislation makes a reference to words like “car, trucks, tractors, bikes and other motor-powered vehicles”. So here specific words are “car, trucks, tractors and bikes” which are constituting a distinct genus or class of land transport vehicles and general words are “other motor-powered vehicles”.
Therefore, the conditions for applying the Rule of Ejusdem Generis are fulfilled.
So, by applying this rule, the meaning of “other motor-powered vehicles” will be restricted to the same class or category of land transport vehicles constituted by the specific words i.e. car, trucks, tractors and bikes.
In other words, “other-motor-powered vehicles” will not include any air plane or ship because the specific words preceding the aforesaid general words are constituting distinct class of land transport vehicles.
CIT v. Divya Jewellers (P.) Ltd.  368 ITR 671 (Allahabad High Court)
Allahabad High Court has defined the Rule of Ejusdem Generis in the case of CIT v. Divya Jewellers (P.) Ltd. The High Court have envisaged that:
“Ejusdem generis rule is the rule of generic words following more specific ones. The rule is that when general words follow specific words of the same nature, the general words must be confined to the things of the same kind as those specified. The specified words must form a distinct genus or category. The rule reflects an attempt to reconcile incompatibility between specific and general words.” [Para No.13]
Specific words must constitute distinct genus/class
In order to invoke the application of this rule there must exist a distinct genus, class or category of the specific words.
In the recent case of B. Rudragouda v. ACIT [IT Appeal Nos. 314 & 315 of 2020] dated 15.04.2021,
Bangalore Bench of ITAT held that
“Ejusdem Generis rule being one of the rules of interpretation, only serves, like all such rules, as an aid to discover the legislative intent; it is neither final nor conclusive and is attracted only when the specific words enumerated, constitute a class, which is not exhausted and are followed by general words and when there is no manifestation of intent to give broader meaning to the general words.” [Para No. 16]
Intention of the statute to restrict the meaning of the general words
Another condition to be fulfilled for applying the Rule of Ejusdem Generis is that there must be an intention of the statute to restrict the meaning of the general words to the genus/class of the specific words it follows.
This intention can be found out when the statute deliberately uses the words of specific class/ category which are followed by the general words. And if the Court will go in contrary to that intention and gives wider meaning to the general words then the purpose of the legislation will be defeated.
In the case of Lilawati Bai v. Bombay State, the Supreme Court observed that
“Where the context and the object and mischief of enactment do not require restricted meaning to be attached to words of general import, the Court must give those words their plain and ordinary meaning.”
CIT v. Divya Jewellers (P.) Ltd.  368 ITR 671 (Allahabad High Court)
Facts of the case
Assessee was manufacturer and exporter of gold jewellery and was also manufacturing jewellery Rule of Ejusdem Generis from the perspective of interpretation of Income-tax Laws for others on job work basis. Assessee claimed profit-linked deduction in respect of export business under section 80HHC of the Income-tax Act, 1961. The formula for computing profit- linked deduction is derived in Section 80HHC(3) which is as follows:
|Export Profit (Profit Linked Deduction) =||
Profits of business * Export Turnover
The assessee included job work charges in the profits of the business which is the numerator of the above formula.
Legal Provisions Involved
Explanation (baa) to section 80HHC(3) defines “profits of business” and emphasizes that certain receipts of income should be excluded from the profits of business. Explanation (baa) is reproduced as follows:
“Explanation. – For the purpose of this section,— . . .
(baa) ‘profits of the business’ means the profits of the business as computed under the head ‘Profits and gains of business or profession’ as reduced by—
ninety per cent. of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and
- the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India ;”
Assessing Officer’s action
The Department by invoking clause (1) of Explanation (baa) excluded job work charges from the profits of business on the context that receipts by way of charges are required to be specifically excluded from the profits of business for the purpose of computation of profit-linked deduction.
Findings and Observations of the High Court
It was found that receipt by way of job work charges were integral part of core business activity.
The High Court observed that the word “charges” used in sub-clause (1) of Explanation (baa) is found in the company of expressions like “brokerage”, “commission”, “interest”, “rent”.
By applying the rule of ejusdem generis, it was concluded that in sub-clause (1) of clause (baa), the word “charges” are preceded by the words of specific nature, such as brokerage, commission, interest, rent, etc. These specific words formed a distinct genus or category inasmuch as all those items relate to receipts earned by an assessee from non-core business activity. In such circumstances, the meaning of the word “charges” should be restricted to the distinct category formed by the specific words i.e. brokerage, commission, interest, rent, etc. If so, the word “charges’ should be confined to those charges which do not form integral part of the core business activity of the assessee.
In the present case, the job work charges included by the assessee in the profit of business for the purpose of computing profit-linked deduction were forming an integral part of its principal business.
Therefore, it was held that the job work charges received by the assessee-company for the job works undertaken as in the nature understood in this case could not be held as similar to the word “charges” provided in sub-clause (1) of clause (baa) of the Explanation given under section 80HHC.
Accordingly, it was held that job work charges would form part of operational income and had to be included in profits of business for computation of deduction under section 80HHC.
(Source : Article published in Souvenir released at National Tax Conference held at Dwarka on 2nd & 3rd October, 2022)