With the rise of scientific temper and industrialization in the West around the 19th century, one finds in Western literary criticism an apologetic urgency to defend literature against natural sciences, social science, psychology, economics, political science and so on. Theoretical templates and terminologies were borrowed from these utile discourses and introduced to literary criticism to make it appear scientific. More non-literary methodologies were introduced to comprehend the nature of literariness. This marked a historic rupture in the continuous Western critical tradition that derived its investigative modalities from philosophy, linguistics and aesthetics. The present work, Literature as Knowledge in Indian and Western Tradition: Theory of Knowledge, Literary Taxonomy and Aesthetics, makes a panoptic survey of major theoretical trends in ancient India and the West that sprang from the domains concerning the fundamental aspect of meaning-making or artha-nirdharana. Like all other verbal discourses, literature makes use of language but with an obvious difference. This present work exhausts its critical enquiry into what makes up this marked difference and how literature as a domain of knowledge responds to the questions of truths about perceptible reality, processes of meaning-making, principles of literary classification and aesthetic experience.