BharatTax Research·Published 19 September 2026
Two reasonable views, take the one that helps the assessee. It is the most quoted sentence in Indian tax argument. Since 2018 there has been a significant exception, and it lands on precisely the provisions most assessees are arguing about.
The rule
Where a provision of a taxing statute is capable of two reasonable constructions, the construction favourable to the assessee must be adopted.
CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) is relied on in 2,642 judgments on BharatTax — the fifth most-cited authority in the corpus — and was applied as recently as 17 April 2026. Fifty-three years on, it is doing daily work.
The second use, which is probably the commoner one
Read the orders and a pattern appears that the headline statement of the rule does not capture. Vegetable Products is invoked at least as often to resolve a conflict between courts as to resolve an ambiguity in words.
One recent order puts the reasoning plainly: noting that “no valuable guidance has come from the Hon’ble jurisdictional High Court” on the issue, the Tribunal quoted Vegetable Products to conclude that “the view supporting the assessee’s case in such an instance has to be adopted”, and allowed the appeal on that basis alone.
That is a practical rule of enormous value. Where two non-jurisdictional High Courts disagree and your own High Court is silent, you do not have to win the interpretive argument. You have to show the conflict is genuine.
Is it still good law? Yes — with one significant carve-out
The rule itself is untouched for charging provisions. But in 2018 a Constitution Bench drew a line that practitioners need to know before they reach for it.
Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co. (2018) 9 SCC 1, decided on 30 July 2018 by a Bench of five judges, held that an exemption notification is to be construed strictly, that the burden of bringing the case within it lies on the assessee, and that ambiguity in such a notification is resolved in favour of the revenue. It overruled the three-judge decision in Sun Export Corporation on that point.
A Tribunal order in our corpus summarises the holding this way:
…exemption notification should be interpreted strictly and the burden of proving that the case comes within the parameters of the exemption clause or exemption notification would be on the assessee. In such circumstances, in case there is ambiguity, the Notification must be interpreted in favour of the Revenue.
| Type of provision | Ambiguity is resolved in favour of |
|---|---|
| Charging provisions — whether the receipt is taxable at all, at what rate, in whose hands, for which year | The assessee, per Vegetable Products |
| Exemption provisions — strictly construed, burden on the assessee to bring the case within them | The revenue, per Dilip Kumar |
The Supreme Court took the same strict approach to an income-tax exemption in New Noble Educational Society v. CCIT (2022) 448 ITR 594, decided 19 October 2022, reading “solely” in section 10(23C)(vi) as meaning only and exclusively, and rejecting the predominant-object test that had grown up around it.
Why this matters more than it looks. A great deal of what is actually in dispute — deductions under Chapter VI-A, exemptions under section 10, concessional regimes — is arguably on the exemption side of that line rather than the charging side. If it is, reaching for Vegetable Products is reaching for the wrong rule, and the Revenue will say so.
The counter-argument, which is also being accepted
Dilip Kumar was a customs case about a concessional rate under an exemption notification, and how far it travels into income tax is contested. The Tribunal has been willing to confine it. In one order in the corpus, after setting out the Dilip Kumar principle in full, the bench held:
In the facts of the present case, there is no ambiguity. It is a case of absence of enabling provision. Hence, the ratio laid down therein has no applicability to the facts of the present case.
Two useful moves follow from that. First, Dilip Kumar only operates where there is genuine ambiguity in an exemption provision — it is not a general instruction to read the Act against the assessee. Second, characterisation is the battleground: whether the provision in issue is an exemption at all, or a computational or charging provision, decides which rule applies.
How the Tribunal actually applies it
In recent orders Vegetable Products appears across a spread of issues that have nothing in common except a genuine doubt — the trigger date for limitation on a penalty order under section 275(1)©, the allowability of a provision for standard assets under s.36(1)(viia) where a co-ordinate bench and a High Court had taken the assessee’s view, and the scope of s.80P(4) for co-operative societies.
The common thread is that the rule is a tie-breaker. It is argued last, after the substantive case has been put and shown to be at least as good as the Revenue’s. Orders that lead with it read as weak; orders that close with it read as complete.
Before you rely on it
- Is the provision a charging one, or an exemption? If the latter, Dilip Kumar is against you.
- Is the ambiguity genuine, or are you preferring a reading? The rule needs two reasonable constructions, not one convenient one.
- Has your jurisdictional High Court spoken? If it has, the rule is irrelevant — you are bound either way.
- If you are relying on a conflict between High Courts, can you show both decisions and that neither is jurisdictional?
- Is it your closing argument rather than your opening one?
When it will not help
Exemption and deduction provisions. Per Dilip Kumar, subject to the characterisation argument above.
Where the jurisdictional High Court has decided the point. Then you are bound, favourable or not, and the rule has nothing to operate on.
Where the language is plain. Dilip Kumar restates the orthodox position that clear words are given effect irrespective of consequences. A provision you dislike is not thereby ambiguous.
Where the dispute is factual. The rule is about construction of a provision, not about which version of the facts to prefer. On facts, the onus rules apply instead.
Where the citation figures come from
Citation figures come from an analysis of 292,668 ITAT, High Court and Supreme Court judgments on BharatTax.net. Vegetable Products is relied on in 2,642 of them. “Cited” counts judgments mentioning the authority and does not distinguish a case followed from one distinguished.