Where Two Views Are Possible, Favour the Assessee” โ and Five Times It Does Not Apply
Summary: Article examines the principle that where two views are possible, the view favourable to the assessee should be adopted, tracing it to CIT v. Vegetable Products Ltd.ย and explaining five limits on its use. It states that the principle applies only after ordinary statutory interpretation leaves genuine ambiguity, not as a substitute for interpretation. It does not apply to questions of fact, and for tax exemptions the Constitution Bench decision in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co.ย requires ambiguity to be resolved in favour of the Revenue. The material also notes that invoking the principle concedes the existence of another legally tenable interpretation and should therefore generally be treated as a last resort. In cases involving conflicting non-jurisdictional High Court decisions, it states that the conflict must be genuine and that CIT v. Thana Electricity Supply Ltd.ย is frequently cited for a proposition it does not contain. It also discusses conditions identified in Kanel Oil & Exports Industries Ltd. v. JCITย and refers to MD Sons [2026] 188 taxmann.com 703 (Bengaluru โ Trib.), where the principle was not applied because no genuine conflicting views existed. The material concludes that the maxim remains limited to genuinely balanced questions of statutory construction.
“Where two views are possible, the one favourable to the assessee must be adopted.” It is the most cited sentence in tax litigation, and one of the least understood. This folio is about five things it does not mean.
There is a sentence that appears, by my rough reckoning, in one written submission out of every three that crosses a Bench: where two views are possible, the one favourable to the assessee must be adopted. It is invoked to resolve the meaning of a section, the treatment of a fact, the choice between two decisions, the availability of an exemption, and, on occasion, simply as a closing flourish when the argument on the merits has run out. It is treated as a trump card โ produced at a later stage and expected to win.
It is a real principle, and an important one. But it is far narrower than its daily use suggests, and the gap between what it says and how it is deployed is now large enough that Benches have begun to say so. This folio is an attempt to state the principle precisely, and then to set out five situations in which it (in authorโs humble understanding) is misapplied โ the last of which involves the profession misquoting the very case it most often cites.
Where the maxim comes from
The sentence is drawn from CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). It is worth knowing what that case actually decided, because almost no one who cites it does. It was not a grand pronouncement on the philosophy of tax interpretation. It was a narrow penalty matter, turning on the meaning of the words “tax payable” in the penalty provision then in force โ specifically, whether tax already paid under a provisional assessment fell to be deducted before the penalty was computed. The Court held that it did, and in reaching that conclusion, faced with a genuinely ambiguous expression, observed that where two reasonable constructions of a taxing provision are possible, the one favourable to the assessee should be adopted.
That is the whole of it. A single interpretive tie-breaker, applied to one ambiguous phrase in one penalty section. Everything the maxim has since been made to carry has been loaded onto it afterwards. So the first discipline is to remember the size of the thing: it is a rule for choosing between two competing readings of a statutory provision, and it was born resolving exactly that and nothing more.
First: it applies only after interpretation has been exhausted, not instead of it
The maxim is a rule of last resort. It operates only once the ordinary tools of construction โ the language, the scheme, the context, the purpose โ have been applied and have genuinely failed to yield a single answer. It is not a shortcut that permits a Bench to skip interpretation and reach straight for the assessee.
This is not a refinement I am inventing; it is a condition built into the rule. The Calcutta High Court in Paharpur Cooling Towers Ltd. v. CIT – 338 ITR 295 declined to apply the maxim precisely because the provision before it admitted of no uncertainty โ it held that the principle in Vegetable Products has no application where the section is clear and admits of no ambiguity, and that the provision must genuinely be capable of two views before the rule is reached. Where the words yield one answer, there are not two views; there is one view and a disappointed litigant.
In practice the maxim is reached for too early โ the submission asserts that two views are possible and jumps to the tie-breaker, skipping the step that matters most: showing that the provision, properly construed, genuinely sustains both readings. A section is not ambiguous merely because one reading is inconvenient, and the burden of establishing a real ambiguity rests on the one who invokes the rule. Without that foundation, the maxim is asked to do interpretation’s work, and cannot.
The maxim is not a substitute for interpretation. It is what remains when interpretation has been done in full and two answers still stand.
Second: it does not apply to questions of fact
Vegetable Products is a canon of statutory construction. It governs the interpretation of the law. It has nothing to say about the resolution of facts. Whether a cash credit is satisfactorily explained, whether a transaction is genuine, whether an expense was in truth incurred, whether a valuation is right โ these are findings arrived at on evidence and on the balance of probabilities. They are not “two views on the meaning of a provision.” The assessee’s preferred version of a disputed fact enjoys no presumptive priority; it must be established on the material, like any other fact.
Yet the maxim is routinely pressed into exactly this service โ “two views are possible on these facts, so the one favourable to the assessee must be taken.” That is not the rule. On a question of fact, the tribunal weighs the evidence and records a finding; it does not award the tie to the assessee because the maxim was recited. A practitioner who has only a factual dispute, and dresses it in the language of Vegetable Products, has not strengthened the point. He has misdescribed it, and a careful Bench will notice.
The distinction to hold onto is simple. If the dispute is about what a provision means, the maxim may, at the last, apply. If the dispute is about what happened, it does not apply at all.
Third: for exemptions, the maxim reverses
Here the danger is not that the maxim fails to apply. It is that the opposite rule applies, and the practitioner who invokes Vegetable Products is standing on the wrong side of the line.
The Constitution Bench in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co. (2018) 9 SCC 1 settled this. It held that an ambiguity in a tax exemption provision or notification must be interpreted in favour of the revenue, and that the benefit of any such doubt cannot be claimed by the assessee โ and it expressly overruled the contrary line, including the view in Sun Export Corporation, which had extended the favourable-construction rule to exemptions. The reasoning is principled rather than merely adverse to the taxpayer: the charge and the exemption are read by different rules. Ambiguity in a charging provision is resolved for the assessee, because the State must show clear authority to tax. But an exemption is a departure from the norm of equal taxation, and one who claims to fall within it must establish that clearly; if the exemption is ambiguous as to entitlement, the ambiguity goes against the person seeking its benefit.
The practical consequence is precise. In construing whether income is charged, whether a receipt is taxable, whether a provision imposing liability catches the assessee โ the Vegetable Products rule is available. In construing whether a deduction, an exemption, or a beneficial notification applies โ it is not merely unavailable, it is inverted. A submission that cites Vegetable Products to resolve an ambiguous exemption in the assessee’s favour is citing the rule that Dilip Kumar overruled for that very situation.
Fourth: to invoke it is to concede your reading is not the only correct one
This is less a rule than an observation about advocacy, but it is one that separates the careful pleader from the reflexive one.
When counsel argues “two views are possible, so adopt mine,” he has necessarily conceded that the other view โ the revenue’s โ is legally tenable. He is no longer saying his construction is right. He is saying it is one of two respectable constructions and asking to win the tie. That is, in most matters, a materially weaker position than contending that his reading is simply correct and the other is wrong.
The point was exposed in the long controversy over the word “payable” in the provision disallowing amounts on which tax was not deducted. Some benches held the language plainly covered only amounts outstanding at the year end; others held it covered all such amounts. Faced with that, the argument ran that since two views were possible, the one favourable to the assessee should prevail. But as the debate itself demonstrated, if the language were truly clear there could not be two genuine views โ so either one of the competing readings was simply wrong, in which case the task was to show it was wrong, or the provision was genuinely ambiguous, in which case the tie-breaker applied. The maxim bites only in the second case, and reaching for it is an admission that one is in it.
Good counsel therefore treat Vegetable Products as the argument of last resort, deployed after the case for correctness has been made, not as a substitute for making it. To lead with the maxim is to open by conceding half the ground.
Fifth: between conflicting High Courts โ the rule everyone states, and the case everyone misquotes
Now the situation that generates the most confident citation and the most frequent error: what a Tribunal does when two High Courts, neither of them the jurisdictional High Court, have taken opposite views on the same question.
The received wisdom is a single line โ where non-jurisdictional High Courts conflict, the Tribunal must adopt the view favourable to the assessee, on the authority of Vegetable Products and CIT v. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom). That formulation is repeated in submission after submission. It is also, in two respects, seem to be not correct.
The first problem is with the authority itself. Thana Electricity Supply does not lay down a “favour the assessee” rule at all. What the Bombay High Court actually held is that the decision of one High Court is not binding on another, that the decisions of other High Courts cannot be elevated to the status of binding precedent, and that where there are conflicting decisions of courts of coordinate jurisdiction, the later decision is to be preferred if it was reached after full consideration of the earlier one. The operative rule of Thana Electricity is prefer the later, fuller decision โ not prefer the assessee. The case is cited constantly for a proposition it does not contain. That alone is worth pausing on, because it is a clean example of the misquoting most-cited authority โ and a Bench that reads the judgment, rather than the citation, will not be persuaded by it.
The second problem is that even where the favourable-view rule genuinely applies between conflicting High Courts, it carries conditions โ and the received formulation ignores all of them. The Ahmedabad Third Member in Kanel Oil & Exports Industries Ltd. v. JCIT (2009) 126 TTJ 158 (Ahd) set them out. Where there is only one High Court decision on the point and no contrary view, the Tribunal is bound to follow it, favourable or not โ there is no choice to exercise. It is only where non-jurisdictional High Courts have expressed genuinely contrary views that a choice arises, and even then the Tribunal is free to adopt the view that commends itself to it, with the favourable view taken only in certain circumstances rather than as an automatic entitlement. Further, a decision rendered per incuriam โ without reference to a directly relevant statutory provision or binding precedent โ need not be followed at all, so a favourable judgment that is itself per incuriam does not even create the conflict the rule requires. And a Special Bench decision of the Tribunal on the point may prevail over a non-jurisdictional High Court judgment, so the exercise is not the simple headcount โ one High Court for, one against, pick the assessee โ that the slogan implies, but it is based on procedure of judicial hierarchy.
Put the two problems together and the received wisdom collapses into something far more demanding.
Before a Tribunal may adopt the favourable view on the strength of a conflict between High Courts, it must satisfy itself that the conflict is real and not manufactured, that neither favourable decision is per incuriam, that no Special Bench occupies the field, and if the authority relied on is Thana Electricity, that it truly supports the proposition โ which it does not.
The maxim, even in the one setting where it genuinely selects for the assessee, is not self-executing. It is contingent, and the contingencies are exactly what the citation omits.
Why this matters now
This is not an academic tidying-up, because Benches have started to hold the maxim to its limits. The recent Special Bench decision in MD Sons [2026] 188 taxmann.com 703 (Bengaluru โ Trib.) in para 12.5 declined to apply it for precisely the reason that goes to the root of the fifth point above: there was a High Court decision on the question and no contrary view from the jurisdictional High Court, so there were not two competing views for the maxim to choose between โ there was one view, which bound the Tribunal, and therefore no tie to break. The argument that the assessee-favourable view should be preferred simply did not arise, because the condition precedent to the maxim โ a genuine plurality of tenable views โ was absent.
That is the maxim’s first and most important limit, seen in operation. There must actually be two views before the rule does anything, and much of its daily invocation assumes a plurality that does not exist.
What a practitioner should take from this
The maxim remains a good and usable principle in its proper place. That place is narrow, and pleading it well means observing the limits the received formulation ignores:
- Establish the ambiguity first. The maxim does no work until you show the provision is genuinely capable of two readings. A Bench will ask, so answer it before you reach for the tie-breaker.
- Confine it to questions of construction. Never use it on a question of fact. It does not belong there, and its use signals that the factual case is weak.
- Check the charge vs. exemption distinction. For exemptions the rule is reversed by Dilip Kumar. Citing Vegetable Products to construe an exemption is an own goal.
- Keep it for last. Make the case that your reading is correct first. Lead with the maxim and you concede, at the outset, that the other view is tenable.
- In a conflict between High Courts, do not recite the one-liner. Show that the conflict is real, that the favourable decision is sound and not per incuriam, and that no Special Bench governs the point. And do not cite Thana Electricity for something it does not say.
The value of the maxim was never that it wins arguments on its own. It is that, at the very end of a genuinely balanced question of construction, it tells the Bench which way to resolve a doubt that interpretation could not. Used for that, it is sound. Used for anything else โ and it usually is โ it invites the answer that it does not apply.
The next folio reaches you in a fortnight.
From the File
The maxim was, in fact, the centre of a matter I argued only recently, and so I can describe only the point of law. It concerns the late-filing fee under Section 234E. For periods of default before 1 June 2015, an earlier line of Tribunal decisions had held the fee could not be levied at all, on the footing that the machinery to charge it while processing a TDS statement โ introduced into Section 200A with effect from 1 June 2015 โ was prospective, so a default relating to a quarter before that date could not attract the fee merely because the statement was processed later. A more recent line, from 2024 onwards, has taken a different view: that where processing occurs after 1 June 2015, the fee runs from 1 June 2015 to the date of processing โ without, in the orders I have seen, engaging with the earlier decisions at all.
The matter I hold falls in the first category โ the default relates to a period before June 2015. The submission I advanced was not, at first, that the assessee’s view should be preferred because it was favourable. It was the anterior point the maxim depends on: that there are, on the same question, two lines of Tribunal authority genuinely at odds, one of which the later line has not considered. Only once that real conflict is established does the tie-breaker come into play โ and it is a proper tie-breaker here, because the dispute is one of construction, not of fact. The matter was not decided on the day; the Bench heard the point and gave the next date. But it was, for me, a reminder of how the maxim is meant to be used โ reached only after the conflict is shown to be real, and pressed on a question of law where it genuinely belongs.
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Marginalia is written by CA Piyush P. Bafna, Advocate & Chartered Accountant, founder of Piyush Bafna & Associates, Pune. He is the author ofย AI in Income Tax Litigation (Bharat Law House, 1st Edition, April 2026). Comments, disagreements, and corrections are welcomed at [email protected].
