TaxTMI 
TaxTMI 
1971 (10) TMI 31
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....far as it includes the capital value of the agricultural land for the purposes of computing net wealth, was ultra vires the Constitution of India. We may mention that the majority also held that the impugned Act was not a law with respect to entry 49, List II, of the Seventh Schedule to the Constitution ; in other words, it held that this tax was not covered by entry 49, List II, of the Seventh Schedule. The Wealth-tax Act, 1957, was amended by the Finance Act 1969, to include the capital, value of agricultural land for the Purposes of computing net wealth. " Assets " is defined in section 2(e) to include property of every description, movable or immovable. The exclusions need not be mentioned here as they relate to earlier assessment years. " Net wealth " is defined in section 2(m) to mean " the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date", other than certain deb....
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....sing or harvesting of any agricultural or horticultural produce on such land. Explanation.---For the purposes of this clause, tools, implements and equipment do not include any plant or machinery used in any tea or other plantation in connection with the processing of any agricultural produce or in the manufacture of any article from such produce ; ". Section 7(1) deals with the evaluation of the assets and provides that subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open Market on the valuation date. Rest of the provisions are machinery provisions dealing with the authorities, assessment and special provisions dealing with special cases, like appeals, revisions, references, payment and recovery of wealth-tax, refunds and miscellaneous provisions. The submissions of Mr. Setalvad, appearing on behalf of the Union, in brief were these : That the impugned Act is not a law with respect to any entry (including entry 49) in List II ; if this is so, it must necessarily fall within the legislative competenc....
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....hin List I, including entry 97 of that List I, read with article 248. It seems to us unthinkable that the Constitution-makers, while creat- ing a sovereign democratic republic, withheld certain matters or taxes beyond the legislative competence of the legislatures in this country either legislating singly or jointly. The language of the relevant articles on the contrary is quite clear that this was not the intention of the Constituent Assembly. Chapter I of Part XI of the Constitution deals with " Distribution of Legislative Powers ". Article 246 in the Chapter reads thus : " 246. (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the ' Union List '). (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the 'Concurrent List ') (3) Subject to clauses (1) and (2) the Legislature of any State has exclusive power....
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....a with regard to allocation of residuary legislative powers. The result was the enactment of section 104 of the Government of India Act, which provided : " 104. Residual Powers of legislation.(1) The Governor-General may by public notification empower either the Federal Legislature or a Provincial Legislature to enact a law with respect to any matter not enumerated in any of the lists in the Seventh Schedule to this Act, including a law imposing a tax not mentioned in any such list, and the executive authority of the Federation or of the Province, as the case may be, shall extend to the administration of any law so made, unless the Governor-General otherwise directs. (2) In the discharge of his functions under this section the Governor- General shall act in his discretion. " It appears from paragraph 50 of this report that " the method adopted by the white paper (following in this respect the broad lines of Dominion Federal Constitutions) is to distribute legislative power between the Central and Provincial Legislatures respectively, and to define the Central and Provincial spheres of Government by reference to this distribution," and because of apparently irreconcilable diff....
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....II ; agricultural land exempt in entry 87 has been incorporated as entry 48, List II ; and, similarly, agricultural land exempted from the incidence of duties in respect of succession to property has been made the subject-matter of duties in respect of succession in entry 47, List II. It seems to us that from this scheme of distribution it cannot be legitimately inferred that taxes on the capital value of agricultural land were designedly excluded from entry 97, List I. In this connection it is well to remember that the first draft of the three lists was attached to the report of the Union Powers Committee dated 5th July, 1947 (see volume V, Constituent Assembly Debates, page 60). List I then consisted of 87 entries and there was no residuary entry. It was on 20th August, 1947, that Mr. N. Gopalaswami Ayyangar moved that this report be taken into consideration. At that stage it was evident that in the case of Indian States the residuary subjects were to stay with the Indian States unless they were willing to cede them to the Centre. He said : " Now, Sir, when this Committee met after its first report had been presented, we were relieved of the shackles which we had imposed on o....
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....rom the residuary powers ultimately conferred on Parliament. The content of the residuary power does not change with its conferment on Parliament. It may be that it was thought that a tax on capital value of agricultural land was included in entry 49, List II. This contention will be examined a little later. But if on a proper interpretation of entry 49, List II, read in the light of entry 86, List I, it is held that tax on the capital value of agricultural land is not included within entry 49, List II, or that the tax imposed by the impugned statute does not fall either in entry 49, List II, or entry 86, List I, it would be arbitrary to say that it does not fall within entry 97, List, I. We find it impossible to limit the width of article 248 and entry 97, List I, by the words " exclusive of agri- cultural land " in entry 86, List I. We do not read the words " any other matter " in entry 97 to mean that it has any reference to topics excluded in entries 1 to 96, List I. It is quite clear that the words " any other matter " have reference to matters on which the Parliament has been given power to legislate by the enumerated entries 1 to 96, List I, and not to matters on which it ....
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....bout List I. If the answer is in the negative then it follows that Parliament has power to make laws with respect to that matter or tax. It must be remembered that the function of the lists is not to confer powers ; they merely demarcate the legislative field. The Federal Court, while interpreting the Government of India Act in Governor-General in Council v. Raleigh Investment Co., observed : " It would not be right to derive the power, to legislate on this topic merely from the reference to it in the List, because the purpose of the Lists was not to create or confer powers, but only to distribute between the federal and the provincial legislatures the powers which had been conferred by sections 99 and 100 of the Act. " In Harakchand Ratanchand Banthia v. Union of India Ramaswami J., speaking on behalf of the court, while dealing with the Gold (Control) Act, 1968 (45 of 1968), observed : " Before construing these entries it is useful to notice some of the well- settled rules of interpretation laid down by the Federal Court and by this court in the matter of construing the entries. The power to legislate is given to the appropriate legislatures by article 246 of the Constitu....
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.... States are concerned, is it necessary that any additional specific taxes should be entered in the Provincial List, and if so, what ? " The Committee reported in paragraph 72 as follows : " It appears that under the new Constitution, residuary powers will be vested in the Centre, so far as the Provinces are concerned, while the corresponding residuary powers in respect of the States will be vested in the States themselves. The question has therefore been raised whether, as a consequence, as many specific taxes as possible should not be entered in the Provincial List of subjects. We cannot think of any important new tax that can be levied by the Provinces, which will not fall under one or the other of the existing categories included, in the Provincial List. We think that the chance of any practical difficulty arising out of the proposed constitutional position is remote, and, in any case, it seems to us that if a tax is levied by the Centre under its residuary powers, there will be nothing to prevent the proceeds of the whole or a part of this tax being distributed for the benefit of the Province only. As a matter of abundant caution, however, it may be laid down in the Constit....
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....ommendation. I think, it finds a reflection in the mention of sales tax in item 58 which ought not to be there. " If Parliament were to levy a use tax, it could hardly be thrown out on the ground that it cannot be included in the residuary powers because the tax was known at the time of the framing of the Constitution. Indeed it does not seem to be a sound principle of interpretation to adopt to first ascertain whether a tax was known to the framers of the Constitution and include it in the residuary powers only if it was not known. This would be an impossible test to apply. Is the court to ask members of the Constituent Assembly to give evidence or is the court to presume that they knew of all the possible taxes which were being levied throughout the world ? In our view the only safe guide for the interpretation of an article or articles of an organic instrument like our Constitution is the language employed, interpreted not narrowly but fairly in the light of the broad and high purposes of the Constitution, but without doing violence to the language. To interpret article 248 in the way suggested by the respondent would in our opinion be to do violence to the language. We are,....
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....solutely needless, cumbersome detail. All complications would be avoided and matters simplified by redrafting article 217 to say that all matters enumerated in List II must belong to the States and all matters enumerated in List III are assigned to the Centre and the States concurrently and that every other conceivable subject must come within the purview of the Centre. There was nothing more simple or logical than that. Instead, a long elaborate List has been needlessly incorporated. This was because List I was prepared in advance and entry No. 91 was inserted by way of after-thought. As soon as entry 91 was accepted, the drafting should have been altered accordingly. Article 217 should have been re-written on the above lines and matters would have been simplified. May I suggest even at this late stage that these needless entries be scrapped and article 217 be re-written and things made simple ? I had an amendment to that effect but I did not move it because I know that any reasons behind an amendment would not be deemed fit for consideration by the House. " Prof. Shibban Lal Saksena (Constituent Assemby Debates, vol. 9, page 855-856) :--- " Sir, to-day is a great day that we ....
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....lled residuary article which is Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List '. Theoretically, I quite accept the proposition that when anything which is not included in List II or List III is by a specific article of the Constitution handed over to the Centre, it is unnecessary to enumerate these categories which we have specified in List I. The reason why this is done is this. Many States people, and particularly the Indian States at the beginning of the labours of the Constituent Assembly, were very particular to know what are the legislative powers of the Centre. They wanted to know categorically and particularly ; they were not going to be satisfied by saying that the Centre will have only residuary powers. Just to allay the fears of the Provinces and the fears of the Indian States, we had to particularise what is included in the symbolic phrase 'residuary powers'. That is the reason why we had to undergo this labour, notwithstanding the fact that we had article 223. I may also say that there is nothing very ridiculous about this, so far as our Constitution is concerned, for the simple reason th....
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....oceeded on any a priori theories as to the principles of distribution in the constitution of a Federal Government. In regard to distribution, the Centre is invested with residuary power, specific subjects of national and all-India importance being expressly mentioned. " Shri T T. Krishinamachari (Constituent Assembly Debates, vol. 11, pages 952-954) : " I would in this connection deal with a point raised regarding the vesting of the residuary powers. I think more than one honourable Member mentioned that the fact that the residuary power is vested in the Centre in our Constitution makes it a unitary Constitution. It was, I think, further emphasised by my honourable friend Mr. Gupta in the course of his speech. He said : The test is there. The residuary power is vested in the Centre.' I am taking my friend Mr. Gupta quite seriously, because he appears to be a careful student who has culled out this particular point from some text book on federalism. I would like to tell honourable Members that it is not a very important matter in assessing whether a particular Constitution is based on a federal system from the point of view whether the residuary power is vested in the States or ....
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....e scheme and policy of the Act to assume that any, point of internal self-government was withheld from Canada. ' " The last sentence applies much more to the Constitution of a sovereign democratic republic. It is true that there are some limitations in Part III of the Constitution on the legislatures in India but they are of a different character. They have nothing to do with legislative competence. If this is the true scope of residue powers of Parliament, then we are unable to see why we should not, when dealing with a Central Act, enquire whether it is legislation in respect of any matter in List II for this is the only field regarding which there is a prohibition against Parliament. If a Central Act does not enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of List I or List III a Central Act would rightly fit in. It was accepted that this test had been applied in Canada, but it was argued that the Canadian Constitution is completely different from the Indian Constitution. It is true that the wording of sections 91 and 92 of the Canadian Constitution is different and the judicial Committee has interpreted these ....
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....igned to the provincial legislatures, the Parliament of Canada had not, by its general power ' to make laws for the peace, order, and good Government of Canada' full legislative authority to pass it. " In Halsbury's Laws of England (Third Edition, volume 5, page 498), the rule is put thus : " In determining the validity of legislation the general method of inquiry is to ask first, whether the matter comes within the classes expressed by statute to be exclusively within the powers of the provinces ; if it does not, the power belongs exclusively to Parliament, but even if it does appear to come within those classes, the exclusive power still belongs to Parliament if it also falls within an enumerated class within the legislative authority of Parliament. In Attorney-General for Canada v. Attorney-General for British Columbia, Lord Tomlin, after referring to sections 91 and 92 of the Canadian Constitution, observed as follows : " Questions of conflict between the jurisdiction of the Parliament of the Dominion and provincial jurisdiction have frequently come before their Lordships' Board, and as the result of the decisions of the Board the following propositions may be stated :-....
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....tation placed on the Act by the Privy Council before Attorney-General for Ontario v. Attorney-General for the Dominion '. But whatever the interpretation, the same test was applied by the Privy Council before 1896 in Russel v. Queen and after this case. The learned counsel referred to five cases of this court and the Federal Court to show that the Canadian cases should not be relied on as the Canadian Constitution was different. It is true that the Canadian Constitution is different in many respects and for some purposes it would be misleading to rely on the Canadian cases. In Chhotabhai Jethabhai Patel v. Union of India the question was the interpretation of entry 84, List I (Duties of excise on tobacco ... ) and entry 60, List II (Taxes on professions, trades, callings and employments). This court held that the Canadian cases which were cited before it did not afford any assistance because in Canada analogous problems are always concerned with questions of direct and indirect taxation. We agree that in the interpretation of entry 84, (duties of excise .... ) it would be misleading to rely on cases dealing with direct and indirect taxation. Similarly, in 1942 in Province of Ma....
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....l language in the heads of section 92 yields to particular expressions in section 91, where the latter are unambiguous,' per Lord Haldane in Great West Saddlery Co. v. The King. The principles laid down by the judicial Committee in a long series of decisions for the interpretation of the two sections of the British North America Act may therefore be accepted as a guide for the interpretation of similar provisions in the Government of India Act. " It is true that Gwyer C.J. was dealing with the question of " pith and substance" and the " true nature and character of the legislation " for the purpose of determining whether it is a legislation with respect to matters in this list or that list but at least his judgment shows that where the provisions are similar, the principles laid down by the judicial Committee should be accepted as a guide. Similarly, Varadachariar J. observed at page 235 : It seems to me necessary to point out that the assumption in the Patna case that the scheme of section 100 of the Constitution Act is radically different from that of sections 91 and 92 of the British North America Act is not warranted. A long line of decisions beginning at least as early a....
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....ed List I at all. This is the point which was taken by Sardar Hukam Singh and others in the debates referred to above and was answered by Dr. Ambedkar. But, apart from what has been stated by Dr. Ambedkar in his speech extracted above, there is some merit and legal effect in having included specific items in List I for when there are three lists it is easier to construe List II in the light of Lists I and II. If there had been no List I, many items in List II would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it may, we have the three Lists and a residuary power and therefore, it seems to us that in this context if a Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further question arises. In view of this conclusion, we now come to the question, i.e. whether the impugned Act is a law with respect to entry 49, List II, or whether it imposes a tax mentioned in entry 49 in List II ? On this matter we have three decisions of this court and although these decisions were challenged ....
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....er the two entries overlapping. " It was urged on behalf of the respondent that in Assistant Commissioner of Urban Land Tax v. Buckingham & Carnatic Co. Ltd., this court held that a tax on the capital value of land and buildings could be imposed under entry 49, List II, but it seems to us that this is not a correct reading of that decision. Reliance is placed on the following sentence at page 277 : We see no reason,therefore, for holding that entries 86 and 87 of List I preclude the State legislature from taxing capital value of lands and buildings under entry 49 of List II." The above observations have to be understood in the context of what was stated later Ramaswami J. later observed in that judgment as follows : " The basis of taxation under the two entries is quite distinct. As regards entry 86 of List I, the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. The tax under entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It....
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....in the building or land. In other words, it is not concerned whether one person owns or occupies it or two or more persons own or occupy it. In short, the tax under entry 49, List II, is not a personal tax but a tax on property. It seems to us that this court definitely held and we agree with the conclusion that the nature of the wealth-tax imposed under the Wealth-tax Act, as it originally stood, was different from that of a tax under entry 49, List II, and it did not fall under this entry. The distinction between a "net wealth-tax" and "tax on property" is clearly brought out in the following extracts, and supports the conclusion arrived at by this court. Readings on Taxation in Developing Countries by Fird and Oldman elucidates the concept of wealth-tax as follows, at page 281 : " The term 'net wealth-tax' is usually defined as a tax annually imposed on the net value of all assets less liabilities of particular,tax-payers---especially individuals. This definition distinguishes the net wealth tax from other types of taxation of net wealth, such as death duties and a capital levy ; the former are imposed only at infrequent intervals---once a generation---while the latter....
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....al property tax and the trade tax on business capital are classified in the latter category. The main importance of this distinction is that taxes in the first group presuppose a taxpayer with independent legal existence, that is, an individual or a legal entity (juridical person), while in the case of taxes in the second group, the taxable object itself is deemed liable for the tax, in addition to its owner, so that the taxpayer can be a partnership, association of the civil law, or other combination of persons without separate legal existence. Taxes of the first type give consideration to the taxpayer's ability to pay, while those of the second type consider merely the value of the taxable object, such as the capital of a business, in the case of the trade tax on business capital, or the assessed value of real property, in the case of the real property tax. " In our view the High Court was right in holding that the impugned Act was not a law with respect to entry 49, List II, or did not impose a tax mentioned in entry 49, List II. If that is so, then the legislation is valid either under entry 86, List I, read with entry 97, List I, or entry 97 List I, standing by itself. Alt....
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....our opinion on that point. It seems to us that there is a distinction between a true net wealth-tax and a tax which can be levied under entry 86, List I . While legislating in respect of entry 86, List I, it is not incumbent on Parliament to provide for deduction of debts in ascertaining the capital value of assets. Similarly, it is not incumbent on State legislatures to provide for deduction of debts while legislating in respect of the entry 49, List II. For example, the State legislature need not while levying tax under entry 49, List II, provide for deduction of debts owed by the owner of the property. It seems to us that the other part of entry, i.e., " tax on the capital of companies " in entry 86, List I, also seems to indicate that this entry is not strictly concerned with taxation of net wealth because capital of a company is in one sense a liability of the company and not its asset. Even if it is regarded as an asset, there is nothing in the entry to compel Parliament to provide for deduction of debts. It would also be noticed that entry 86, List I, deals only with individuals and companies but net wealth-tax can be levied not only on individuals but on other entities and ....
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....cs in Canada, the Privy Council upheld the validity of a parliamentary statute after supplementing the powers under the specified items in section 91 with the residuary powers. It observed : " To sum up, having regard (a) to the terms of section 132 ; (b) to the terms of the Convention which covers almost every conceivable matter relating to aerial navigation ; and (c) to the fact that further legislative powers in relation to aerial navigation reside in the Parliament of Canada by virtue of section 91, items 2, 5 and 7, it would appear that substantially the whole field of legislation in regard to aerial navigation belongs to the Dominion. There may be a small portion of the field which is not by virtue of specific words in the British North America Act vested in the Dominion ; but neither is it vested by specific words in the Provinces. As to that small portion it appears to the Board that it must necessarily belong to the Dominion under its power to make laws for the Peace, order and good government of Canada. Further, their Lordships are influenced by the fact that the subject of aerial navigation and the fulfilment of Canadian obligations under section 132 are matters,of nat....
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....iew of the importance of the issues involved, the writ petition was heard by a Full Bench of the High Court, which, by a majority of four to one, allowed it holding that section 24 of the Finance Act, 1969, to the extent that it included agricultural land within the definition of assets for the purposes of the Wealth-tax Act, 1957, was beyond the competence of Parliament, and was, therefore, ultra vires the Constitution. So far as the first question raised the responent was concerned, the High Court held, in view of the decisions of this court in Sudhir Chandra Nawn Wealth-tax Officer, Calcutta, Assistant Commissoner Urban Land Tax v. Buckingham & Carnatic Co. Ltd. and Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality to which we shall presently come, that a tax levied on the capital value of all assets taken in their totality under entry 86 in List I, read with article 246 or one which included agricultural land and levied under the power conferred by article 1448 read with entry 97 in List I, was not a tax under entry 49 in List II, that is to say, it was not a tax on lands and buildings, the two taxes being of a different nature, and, therefore, a tax on capital va....
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....as decided by the High Court in his favour. Counsel for the respondent contested the correctness of the contentions urged on behalf of the Union of India and, after an elaborate analysis of the relevant entries and the articles, supported the majority judgment of the High Court. Before we proceed to examine these rival contentions it is necessary to set out broadly the scheme of distribution of legislative powers between the Union and the States laid down in Chapter I of Part XI of the Constitution. Under article 245, Parliament can make laws for the whole or any part of the territory of India and the State legislatures for the whole or part of their respective States. The different topics or matters of legislation are set out in the three Lists in the Seventh Schedule. List I, known as the Union List, enumerated topics of legislation in respect of which Parliament has exclusive power to make laws. List II, known as the State List, likewise, enumerates topics of legislation in respect of which State legislatures have exclusive power to make laws. By reason of the non-obstante clause in clause (1) of article 246, if there is a conflict or overlapping of the subject-matter of legis....
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....ession " any matter not enumerated in the Concurrent List or State List" in article 248 must mean, in the context of clause (1) of article 246, which gives Parliament exclusive power in respect of matters in List I, any matter other than those enumerated in any of the three Lists. Obviously, the residuary power given to Parliament in article 248 cannot include power which is exclusively given to Parliament on matters in List I already conferred under clause (1) of article 246, so that an attempt to distinguish the words " any matter " in article 248 and " any other matter " in entry 97 in List I, is a distinction without difference. There had to be difference in language in the two provisions in the context of the content of entry 97 as that entry speaks about matters other than those enumerated before in List I and those enumerated in the other Lists. Notwithstanding the fact that the residuary power has been vested in the Central Legislature under article 248 and its consequence translated in entry 97 in List I, there can be no gainsaying that the idea was to assign such residuary power over matters which at the time of framing the three Lists could not be thought of or contempla....
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.... and the scheme of the Act. The presumption, unless there is anything to the contrary, is that the power is not withheld or that it does not exist at all ; it is there in some quarter. To ascertain where it is, it becomes necessary at the very threshold to know the nature of the impugned tax. ' The Act is designated by its first section-the Wealth-tax Act, 1957. Though it is the substance and not the form or designation which matters, the Act was passed, as conceded by Mr. Setalvad, in exercise of the power contained in article 246(1) read with entry 86 of List I. Under section 3, what was originally charged was the capital value of the net wealth of an assessee, such net wealth having to be arrived at by taking into consideration the total assets excluding the agricultural land held by him as defined by section 2(e) and section 2(m). The fact that it is the capital value of the net wealth, computed after deducting from the gross wealth the debts and liabilities of the assessee or the fact that it excluded agricultural land from out of the total assets, prima facie, did not render the tax anything else than the wealth tax as Parliament legislatively declared it to be. A legislatu....
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....he debts and liabilities of the assessee. The fallacy in such an argument lies in the confusion between the basis of the tax and its incidence. The basis of the tax is the capital value of the assets except agricultural land. Agricultural land had to be excepted from the tax by reason of the restricted legislative power granted in respect of the subject-matter in entry 86. The power in respect of that subject-matter in its turn was restricted by a definite policy in distributing power under which the field of legislation in agriculture was left to the States as was also the case under the Government of India Act, 1935. The exclusion of agricultural land from entry 86 would not by itself, therefore, mean that the tax is not one on the capital value of assets. In determining the incidence, the legislature may as well take into account various factors such as fairness to the assessee and tax the capital value of his net wealth by allowing deduction of his debts and liabilities from the gross value. That again would not change the character of the tax. Prof. Nicholas Kaldor, who is regarded as the person on whose recommendations in his report on Indian Tax Reform, 1956, the wealth-tax ....
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.... and entry 49 in List II reserved the power to impose tax on lands and buildings to the States, the tax suffered from legislative incompetence. This court rejected all the three contentions and held that section 3 of the Act charged the capital value of net wealth on the corresponding valuation date, and was not on accretion of wealth only during the accounting year and since the last valuation date, i.e., that it was not on accrual basis, that the Constitution did not contain any inhibition against the same subject-matter being charged from year to year, that the tax was imposed under entry 86 in List I, that it was not a tax directly on lands and buildings as it was on the capital value of the assets of an assessee on the valuation date and not on the different components of those assets, that that being so, it was a tax different from the one which could be imposed under entry 49 of List II, and, therefore, there was no entrenchment on the States' power to levy a tax on lands and buildings under that entry. It is true that counsel appearing for the petitioner in that case accepted the position that the subject of the Wealth-tax Act fell within entry 86 of List I, because such ....
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....) and Mitter J., who were also parties to the earlier judgment, rejected the contention holding that in pith and substance the impugned Act, in imposing the tax on urban land at a percentage of, the market value, fell within entry 49 and did not entrench upon the field of legislation of entry 86, List I. What is important for the present appeal is that he held that there was no conflict between entry 86 of List I and entry 49 of List II, inasmuch as the basis of the tax under entry 86 would be the principle of aggregation and the tax would be imposed on the totality of the net capital value of all assets, while entry 49 in List II contemplated a levy on lands and buildings or both as units. He also held that in a tax levied under entry 49 of List II, the Madras legislature, by the amplitude of power in that entry, was competent to levy it on the capital value of lands and buildings, but because that could also be done under entry 86 of List I in respect of non-agricultural lands, overlapping would not for that reason alone arise. " The two taxes ", observed the learned judge, " are entirely different in their basic concept and fall on different subject-matters". The differentiation....
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....y article 248 read with entry 97 in List I. The aforesaid analysis of the three decisions clearly demonstrates that the discussion therein over the ambits of the Centre's power under entry 86 of List I, and States' power under entry 49, in List II, was neither obiter nor was it on any assumption, and that in deciding upon the ambit of the respective powers, the court made a distinction between a tax directly upon lands and buildings as units by reason of ownership in such lands and buildings (which would fall under entry 49 of List II), and a tax on the capital value of the total assets barring agricultural land which would fall under entry 86, of List I, which, in the words of Ramaswami J, in the case of the Madras Urban Land Tax Act, was conceptually different by reason of its characteristic of aggregation as held in Nawn's case and different in its subject-matter as well as incidence. In all the three cases, the question directly arose on account of the nature of the challenge involved in each of them as to the scope of power under entry 86 of List I, in the first case, under entry 49 of List II, in the second case, and under entry 49 read with entries 18, of List II, and 97, ....
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....ion agricultural land. On the other hand, entry 41 of the List dealing with custody, management and disposal of evacuee property expressly includes agricultural land. That is for the obvious reason that, involving as it does Indo-Pakistan relations, such a subject could not be left exclusively to the individual States. Entries 14, 18, 28, 30, 45, 46, 47, 48 and 49, in List II, which deal with agricultural land, directly or even incidentally, leave power relating to them to the States. Thus, tax-on agricultural income is left to the States and cannot, therefore, be included in any Income-tax Act enacted by Parliament under entry 82 of List I, by reason of exclusion from that entry of agricultural income although such an Act is on the totality of the assessee's whole income, and its inclusion in entry 46 of List II. A similar result is achieved in the matter of a tax on capital value of assets under entry 86, of List I, by the exclusion of agricultural land therefrom and its inclusion in entry 49, of List II. It is now fairly well-settled that under entry 49 of List II, a State legislature can levy a tax on lands, including agricultural land, on the basis of their capital value. Agri....
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....the two cases following it had been correctly decided in so far as they hold that the Wealth-tax Act, as passed in 1957, fell under entry 86 of List I. But he urged that since a tax on the capital value of assets including agricultural land cannot fall under that entry and the States obviously have no power to impose such a tax on the total assets of a person under entry 49 of List II or any other entry in that List, the amending Act must fall under article 248(2) and/or entry 97 of List I. Counsel for the respondent refuted the correctness of both the contentions and argued (a), that the power to impose a tax on the capital value of agricultural land is reserved in entry 49 in List II, (b) that the power to impose a tax on the capital value of assets held by a person has been enumerated, mentioned and dealt with in entry 86 of List I, which in doing so expressly excludes agricultural land from its ambit, and that that being so, article 248(2) providing residuary power cannot be construed to confer a power which, though conferred under a specific entry, has been deliberately, under the scheme of distribution of powers, excluded, and (c) that entry 86 of List I lays down a restricti....
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....e head of preventive detention, confers power to make a law on that subject only on the grounds of defence, foreign affairs or the security of India, and entry 9 in List III for reasons connected with the security of a State, maintenance of order or maintenance of supplies and services essential to the community. The power to make a law authorising preventive detention is thus restricted to the six reasons set out in the two entries and not for any other reason. The power having been so dealt with, it is impossible to say that the matter of preventive detention is not enumerated or that that which is excluded therefrom was intended to or must fall under a provision or an entry dealing with residuary power. If counsel for the Union were to be right, the Union can claim the power to make a law for preventive detention on grounds other than those specified in the two entries on the ground that it has residuary power to do so under article 248 and entry 97, List I. If that were so, there was no point at all in prescribing the reasons in the two entries on which such a law can be enacted by Parliament. The object of providing residuary power was to confer power only in respect of a matt....
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....ond Gift-tax Officer v. Nazareth, Hidayatullah C.J., dealing speci- fically with entry 97 in List I, because of his conclusion that the Gift-tax Act, 1958, fell under the residuary field of legislation under that entry, analysed first the scheme of distribution of power under articles 245, 246 and 248, and then the impact of the three lists on such distribution. Dealing with article 248 and entry 97 in List I, he construed them at pages 197 and 198 of the report as follows : " Then there is the declaration in article 248 of the residuary powers of legislation. Parliament has exclusive power to make any law in respect to any matter not enumerated in the Concurrent List or State List and this power includes the power of making any law imposing a tax not mentioned in either of those lists. For this purpose, and to avoid any doubts, an entry has also been included in the Union List to the following effect : .... He then set out the entry and observed : " The entries must of course receive a large and liberal interpretation because the few words of the entry are intended to confer vast and plenary powers. If, however, no entry in any of the three Lists covers it, then it must be r....
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....cultural land therefrom, that field of legislation and tax must be said to be one not enumerated and not mentioned in that List and being tax on aggregation, conceptually different from one which can be levied by the States under entry 49 in List II, it is not also enumerated in List II, and, therefore, that part of it must be said to fall under the residuary entry 97. The answer to that contention depends on the interpretation which entry 86 in List I bears. In a distributive system of power, whenever a question arises whether a statute is within the power of the appropriate legislature, regard must be had to its substance rather than its form. Once it is found that there is power, it can be used by the federal legislature in as plenary a manner as if it is a power in a unitary system, subject of course to the express limitations in the Constitution and to the necessary freedom of the States to exercise without interference the powers reserved to them, (cf. King v. Barter ). As stated earlier, constitution-makers, while distributing powers, may grant a particular power either absolutely or with qualifications or restrictions. In the latter case, though the power can be acted upo....
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....re two matters, one permissible under entry 86 in List I and the other not enumerated anywhere else and therefore falling under article 248 and/or entry 97 in that List. If it were so, as contended, the restriction in entry 86 in regard to agricultural land had no meaning. Such a contention would mean that, though the draftsman excluded agricultural land from entry 86 of List I, his intention was to nullify that exclusion by including that exclusion in the same breath in the residuary field in article 248 and entry 97. But, it was said that if the interpretation of entries 86 and 97 in List I, we commend, were to be true, it would mean that neither Parliament nor the State legislatures can ever levy wealth-tax on the capital value of all the assets including agricultural land held by an assessee. It is true that, under entry 86 of List I, Parliament cannot include agricultural land within the purview of the tax imposed under that entry. Nor can a State legislature impose such a tax under entry 49 in List II. This does not mean that a tax on the capital value of agricultural land cannot at all be imposed. Such a power is contained in entry 49, List II. But, there is nothing surpri....
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....icle 248 conferred an independent and distinct power on Parliament in all matters not enumerated in Lists II and III. Since List III did not deal with taxes, the only question was whether the impugned tax fell under any entry in the State List. The contention was that article 248 was in Pari materia with section 91 of the British North America Act, 1867, and, therefore, the proper inquiry, as under that Act, would be whether the impugned tax fell under List II and that if it did not, the power must nessarily be held to reside in Parliament. In support of this contention he emphasised the words, " Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List ", in article 248, and argued that List III not containing any entry with respect to any tax, only List II was relevant. Therefore, in dealing with a question such as the one before us, the proper inquiry would be whether the impugned tax entrenched upon entry 49, in List II, that being the only relevant entry, and if it were found that it did not, the power must be said to reside in Parliament, in other words, that which is not in List II must be said to be with Pa....
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.... merely illustrated that certain subjects fell under the general description, viz., " peace, order and good government of Canada ". The second part contains the declaration of the exclusive power of Parliament in respect of the classes of subjects there enumerated. This declaration, however, in no way affects the generality of power initially assigned to Parliament, or its exclusive power to make laws for peace, order and good government. The third part enumerates twenty-nine classes or heads of subjects. The fourth part is contained in the last paragraph which again, contains a declaration that any matter coming within any class of subjects enumerated in this section shall not be deemed to come within the class of matters of a local or private nature comprised in the enumerated classes of subjects assigned exclusively to the Provincial legislature in section 92. The result is that if a matter falls within any of the twenty-nine heads enumerated in the third part of the section, it is deemed not to fall within any class of matter assigned to the Provincial legislatures. The power assigned to the Dominion in the initial part of section 91, viz.with respect to matters concerning peac....
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....though it trenches upon matters assigned to the Provincial legislatures by section 92. (2) The general power of legislation conferred on Parliament by section 91 in supplement of the power to legislate upon the subjects expressly enumerated must be strictly confined to such matters as are unquestionably of national interest and importance. (3) It is within Parliament's competence to provide for matters which, though otherwise within the competence of Provincial legislatures, are necessarily incidental to effective legislation by it upon one of the enumerated subjects in section 91 ; and (4) There can be a domain in which Provincial and Dominion legislation may overlap, that is to say, where there is overlapping between classes of subjects or heads of legislative power, in which case neither legislation would be ultra vires if the field is clear, but if the field is not clear and the two legislations meet, the Dominion legislation must prevail. Providing such a distribution of powers in general terms had a two-fold object, (a) to avoid inflexibility, which it was apprehended, elaborate lists might result in, and (b) not to have any power reserved or withheld. The clear objec....
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....r fields of legislation plenary powers including the power to legislate on all matters incidental and subsidiary to the matters assigned to them. The question of preeminence of Parliamentary legislation by reason of the non-obstante clause in article 246 arises only where there is overlapping of jurisdictions or the law in question is in respect of any of the matters in List III. For the rest, the power of the States is as exclusive in their field as it is of Parliament within its allotted field. The contention that the first part of section 91 of the Canadian Act is analogous to article 248 and its second part to article 246(1), and, therefore, decisions on section 91 and section 92 of that Act apply for the purpose of construing the distribution of powers in our Constitution is unacceptable. It is true that in Subrahmanyan Chettiar v. Mutuswami Goundan Gwyer C.J., at page 200 of the report, did speak of the Canadian Act as containing analogous provisions and of the British Parliament having those provisions in mind when it enacted section 100 of the Government of India Act, 1935. But it is clear from the context that those observations were made in connection with overlapping o....
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.... distribution of powers in the Canadian and the Indian Acts : "It is natural enough, when considering the ambit of an express power in relation to an unspecified residuary power, to give a broad interpretation to the former at the expense of the latter ; and this indeed is the principle upon which the judicial Committee have for the most part interpreted sections 91 and 92 of the British North America Act. The case, however, is different where, as in the Indian Act, there are two complementary powers, each expressed in precise and definite terms." In Manikkasundara Bhattar v. R. S. Nayudu, the Federal Court once again uttered similar words of caution, observing that in view of section 104 of the 1935 Act expressly providing for residuary power, it would be impossible to apply to the Indian Act, the Canadian principle evolved by the Privy Council that one has only to look into the provincial List for power, which if it is absent there must necessarily be attributed to the general pool of power in the Dominion : " In the Canadian Constitution Act there is no provision in respect of omitted subjects of legislation. Every subject must be held to be either within the legislative p....
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....ad himself pointed out to us the debates in the Constituent Assembly on entry 91 in List I (equivalent to the present entry 97 in List I) as instructive and showing the background in which and the purpose for which that entry was inserted in List I. When the entry came before the House, Sardar Hukum Singh and Mr. Naziruddin Ahmad thought that if article 231 (equivalent to the present article 248) meant that all powers not contained in Lists II and III. vested in the Centre, enumeration of powers in List I, as also the last entry 91 therein, were altogether redundant. Sardar Hukum Singh pointed out also that the word " other " preceding the words " matter " in that entry was unnecessary. " If every subject which is not mentioned in Lists II and III, is to go to the Centre", observed Mr. Naziruddin Ahmad, " what is the point of enumerating entries 1 to 90 in List I ". This construction was akin to the one urged before us by Mr. Setalvad, viz., that one need only turn to List II, and if the power in question is not there, the power must be assumed to be with the Centre by reason of article 248. The point urged by Mr. Naziruddin was at once demurred by Prof. Shibban Lal Saksena who poi....
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....could only be related to matters which, while they may claim recognition in the future, are not at present identifiable and cannot, therefore, be included now in the Lists". Sir Gopalaswami Ayyangar in his speech moving this report on August 20, 1947, also said that after making " three exhaustive Lists ", if there was any residue left at all, if in the future any subject cropped up which could not be accommodated in one of these three lists, then that subject should be deemed to remain with the Centre .. ." Therefore, what emerges from this discussion is that the residuary power lodged in article 248 was in respect of matters which could not be foreseen or contemplated when the three Lists were framed, and, therefore, could not then be included in any one of them. Mr. Setalvad, however, relied on a speech by Shri Krishnamachari during the debate on the Centre's residuary power. On a careful reading of it in the context of what others said on that occasion, it is clear that it was made to allay the apprehensions expressed by some of the members against article 248 and entry 97 of List I. The propositions, he sought to make, were (a) that one of the best points of the 1935 Constit....
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....t, as amended by the Finance Act, 1969, fell under the residuary power in article 248 and entry 97 of List I. We frankly concede our inability to appreciate this contention. Can it be said that the Wealth-tax Act when passed in 1957 fell under entry 86 of List I, but that it ceased to be so when it was amended in 1969 by including within its sweep agricultural land ? The subject-matter, the nature and the incidence of the tax remained the same, the only difference which the amendment made was the inclusion of agricultural land while computing the capital value of the assets of an assessee. In our opinion, the Act, even after its amendment, retained its original character and continued to be one falling under article 246(1) read with entry 86 in List I. The field of legislation under entry 86 in List I is no doubt a restricted one in the sense that the law imposing the tax envisaged there cannot include within its sweep agricultural land. But that does not mean that the power in respect of such a tax is not covered by that entry or that that which was withheld as a matter of policy and by the scheme of distribution of power is a distinct power, and, therefore, falls under article ....
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.... accept the contentions urged on behalf of the Union. The amending Act, in our opinion, fell under entry 86 of List I, and not under article 248 and/or entry 97 of List I. It follows that the impugned Act, by reason of the restricted field in entry 86, List I, suffered from legislative incompetence. The majority judgment of the High Court must, consequently,be upheld and the appeal dismissed. We order accordingly but in view of the great importance of the issues involved in the appeal, we think it just that there should be no order as to costs. MITTER J.---This is an appeal from a judgment of a Bench of five Judges of the High Court of Punjab and Haryana holding by a majority of four to one that section 24 of the Finance Act of 1969 amending the definition of " net wealth " in the Wealh-tax Act, 1957 (27 of 1957), by the inclusion of agricultural land in the assets for the purpose of computation of net wealth was beyond the competence of Parliament and as such ultra vires the Constitution. The reasoning of the majority Judges was that entry 86 of List I of the Seventh Schedule to the Constitution withdrew the power to impose wealth-tax on agricultural land from the competency o....
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....ion of lands and buildings as separate units. The entry did not contemplate the aggregation of all lands, agricultural or otherwise, and buildings held by a person as one unit and consequently the State legislature was not competent to impose a tax on such aggregation. Further, the entry did not contemplate a tax which would permit the legislature to deduct the liabilities to which the ownerof the property might be subject. The unit for the purpose of taxation as described in the Wealth-tax Act as the net wealth is not contemplated by entry 49 of List II. (4) The legislative power was distributed among the Union Parliament and the State legislatures by the different provisions in Part XI of the Constitution. The objects of the exercise of powers, that is to say, the subject-matter of all legislation, was comprised within the three Lists in the Seventh Schedule. The entries enumerated in List I set forth the matters within the exclusive powers of Parliament to legislate upon and this was notwithstanding anything in clauses (2) and (3) of article 246. The exclusive power of the legislature of a State with respect to matters enumerated in List II was however subject to clauses (1) a....
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....tters adopted in the Indian Constitution had a close parallel to sections 91 and 92 of the British North America Act and the decisions of the judicial Committee of the Privy Council on those two sections throw considerable light on the question before us in this court. The propositions put forward by Mr. Palkhivala were as follows : (1) Power to levy wealth-tax on agricultural land was not covered by article 248 read with entry 97 in the Union List. The Constitution has denied to the Union the power to levy any tax direct or indirect on the capital value of agricultural lands. (2) The judgments of this court in Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta, Assistant Commissioner of Urban Land Tax v. Buckingham & Carntic Co. Ltd. and Shri Prithvi Cotton Mills Rd. v. Broach Borough Muicipality, show that : (a) a direct tax on lands and buildings was covered by entry 49 in List II while a tax on the total assets which may include buildings and non- agricultural land was covered by entry 86 in the Union List ; (b) a tax under entry 49 could be levied on the capital value of lands and buildings just as under entry 86 a tax could be levied on the capital value of other a....
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.... enact legislation which would have the effect of levying a tax on the value of the assets which included agricultural lands. The Wealth-tax Act, 1957, as it stood before the amendment of 1969 contained the following provisions relevant for the purpose of this appeal. Under section 2(e): " 'Assets' includes property of every description, movable or immovable, but does not include,--- (i) agricultural land and growing crops, grass or standing trees on such land ; (ii) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural, land : Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a dwelling-house or a store house or an out-house ; ........... " Section 2(m) ran as follows : " 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of t....
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.... " The exemptions provided in section 5 were considerably augmented by inclusion of the following relevant clauses in sub-section (1) of section 5. These are as follows : " (iv-a) agricultural land belonging to the assessee subject to a maximum of one hundred and fifty thousand rupees in value : Provided that where the assessee owns any house or part of a house situate in a place with a population exceeding ten thousand and to which the provisions of clause (iv) apply and the value of such house or part of a house together with the value of the agricultural land exceeds one hundred and fifty thousand rupees, then the amount that shall not be included in the net wealth of the assessee under this clause shall be one hundred and fifty thousand rupees as reduced by so much of the value of such house or part of house as is not to be included in the net wealth of the assessee under clause (iv) ; ..... (viiia) growing crops (including fruits on trees) on agricultural land and grass on such lands ; (ix) the tools, implements and equipment used by the assessee for the cultivation, conservation, improvement or maintenance of agricultural land, or for the raising or harvesting of an....
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....al lands, growing crops or a building occupied by a cultivator or receiver of rent or revenue out of agricultural land ceased to be exemptible. The main question in this appeal is, whether the amendment of the definition of " assets " by withdrawing the exemption in respect of agricultural land, etc., was within the competence of Parliament. The vires of the Wealth-tax Act of 1957 was challenged before different High Courts prior to the decision appealed from and the matter also came up to this court as is to be found in at least three decisions which have come to my notice. But as no question ever arose with regard to the competency of Parliament to include agricultural assets in the definition of " net wealth " for the purpose of levying wealth-tax, the point now before us never arose in any of those prior decisions. In none of the decisions which will be presently noted was there any pin-pointed direction at the particular head of legislation which would cover the imposition of wealth-tax on the aggregation of assets. It will, therefore, not be out of place to consider the competence of Parliament to legislate on this field not on any preconceived notions nor on the basis of a....
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.... exclusive power with regard to matters in List II, subject to the powers, of Parliament in respect of matters in List I and III, while matters in List III could be the subject matter of legislation both by Parliament and the State legislatures. By clause (4), however, Parliament is given power to make laws with respect to any matter for any part of a territory of India not included in a State, notwithstanding that such matter is a matter enumerated in the State List. Obviously the Constitution gave Parliament the power to make laws with respect to Union territories mentioned in sub-clause (b) of clause (3) of article 1 of the Constitution and other territories mentioned in sub-clause (c) of the said clause as might be acquired after the commencement of the Constitution. The Constitution-makers envisaged a possibility of the existence or occurrence of subject matters of legislation not enumerated either in List II (the State List) or List III, the Concurrent List. This was sought to be provided for in article 248 of the Constitution which reads : " (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. ....
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....tomic energy and mineral resources necessary for its production " and entry 12 " United Nations Organisation " : atomic energy in 1935 was only in the minds of the scientists. United Nations Organisation had not come into existence. Although the League of Nations was there, probably it was not thought necessary to include any such entry in List I under the Government of India Act because it would be the Imperial Parliament which would be primarily concerned with this subject. Entry 14 in the present list reading " Entering into treaties and agreements with foreign countries and implementing of treaties, agreements and conventions with foreign countries " and entry 15 " War and peace " could not form the subject matters of legislation when the federal legislature was not a sovereign body for such purposes. It is significant to note that entries like : " Entry 20. Economic and social planning, Entry 21. Commercial and industrial monopolies, combines and trusts, and Entry 23. Social security and social insurance ; employment and unemployment " in present List III had no counter-part in any of the Lists in the Seventh Schedule to the Government of India Act. But what is necessa....
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....e unknown spheres of activity " which could not be contemplated at the moment. The matter had engaged the attention of the Constituent Assembly. The Second Report of the Union Powers Committee dated 5th July, 1947, to the President of the Constituent Assembly contains the following statement : " We think that residuary powers should remain with the Centre. In view, however, of the exhaustive nature of the three Lists drawn up by us the residuary subjects could only relate to matters which, while they may claim recognition in the future, are not at present identifiable and cannot therefore be included now in the Lists. " Moving the aforesaid report Shri Gopalaswami Aiyangar in his speech on the 20th August, 1947, said, inter alia, as follows : " We should make the Centre in this country as strong as possible consistent with leaving a fairly wide range of subjects to the Provinces in which they would have the utmost freedom to order things as they liked. In accordance with this view, a decision was taken that we should make three exhaustive Lists, one of the Federal subjects, another of the Provincial subjects and the third of the concurrent subjects and that, if there was an....
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....ands ", whether agricultural or otherwise, agriculture, agricultural income and taxes with regard to any of these matters, the specification appears to be as follows : LIST I. Entry 82. Taxes on income other than agricultural income. Entry 86. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies ; taxes on the capital of companies. Entry 87. Estate duty in respect of property other than agricultural land. Entry 88. Duties in respect of succession to property other than agricultural land. LIST II. Entry 18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents ; transfer and alienation of agricultural land ; land improvement and agricultural loans ; colonization. Entry 46. Taxes on agricultural income. Entry 47. Duties in respect of succession to agricultural land. Entry 48. Estate duty in respect of agricultural land. Entry 49. Taxes on lands and buildings. LIST III. Entry 6. Transfer of property other than agricultural land ; registration of deeds and documents. Entry 7. Contracts, including partnership, agency, contracts of ....
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....arging section to ascertain the exact scope of the legislation. In the words of the Judicial Committee of the Privy Council in Provincial Treasurer of Alberta v. C. E. Kevr " the identification of the subject-matter of the tax is naturally to be found in the charging section of the statute, and it will only be in the case of some ambiguity in the terms of the charging section that recourse to other sections is necessary ". The scheme of the Act in substance is to treat the individual as if he was a business, ascertain the price which the said business would fetch by deducting its liabilities from its tangible assets and impose a tax on the balance which is the net wealth of an individual. Whereas, under the Wealth-tax Act as originally enacted a portion of the assets, namely, agricultural land, was not to be taken into consideration, the amendment of 1969 brought that in for the computation of the value of the business. The nature of the Act has not changed ; only it has been made more comprehensive than before. We have next to find out the legislative entry to which the said Act conforms. If one were to ignore entry 97 in List I, the only entry which might suggest itself would b....
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.... no definition of such term appears in any text-book, and, in order to determine 'effective capital value' of any building the valuer must appreciate the proper significance of the term." The learned author then goes on to discuss the positive meaning of the expression by first explaining its negative meaning and at page 43, after noting some instances, states : " The above instances are sufficient to illustrate the difficulty of defining 'effective capital value '. It is submitted that the substantive definition of this expression is 'the selling price between a willing seller and a willing purchaser of the property in question, subject to the restriction that it can only be occupied substantially in its present condition'; this takes into consideration all the above qualifications, but it will be observed that it is then no easier to assess the figure than to arrive at the rental value direct." According to Halsbury's Laws of England, third edition, volume 32 at page 79 : " Where neither actual rents nor the profits of trade afford evidence of annual rental value, a percentage on the cost of construction or structural value of the hereditament, or of a substitute heredita....
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....islature to levy a tax called the Urban Immovable Property Tax Act was challenged. There by Part 6. Bombay Finance Act of 1932 incorporated therein by the Bombay Finance (Amendment) Act, 1939, was impugned. Section 20 of the said Part 6 of the Bombay Finance Act directed that inclusion of the said Part was to extend to the City of Bombay and the other places therein mentioned. Section 21 defined " annual letting value " in the city of Bombay as meaning the rateable value of buildings or lands as determined in accordance with the provisions of the City of Bombay Municipal Act, 1888. Section 22 which was the charging section provided that there shall be levied and paid to the Provincial Government a tax on buildings and lands called the Urban Immovable Property Tax at 10 per cent. of the annual letting value of such buildings or lands. Examining the legislative authority of the Provincial Government, Beaumont C.J. observed : " The impugned tax may fall either : (1) within item 42 of the provincial list and not within the federal list, or (2) within item 54 or item 55 of the federal list and not within the provincial list, or (3) it may fall within both the lists. " It will be not....
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....of the properties." Kania J. did not think that the impugned tax was of a nature to encroach upon item 55 in List I ; under that item the tax should be on the total capital assets and not on a portion of the person's capital. In Municipal Corporation v. Gordhandas, rule 350-A framed by the Corporation of the City of Ahmedabad in respect of a rate on open lands was impugned as ultra vires. This rule laid down the manner in which the rateable area of the open lands was to be determined and provided that the rate of the area of open land thus determined was to be levied at one per cent. of the valuation based on capital and all such lands subject to " exemptions thereinafter provided shall be liable to be charged the same ". Rule 243 dealt with the valuation based on capital and it laid down that valuation based upon capital shall be the capital value of buildings and lands as may be determined from time to time by the valuers of the municipality who were to take into consideration such reliable data as the owners or the occupiers might furnish either of their own accord or on being called upon to do so. It was common ground that the corporation derived its authority to impose tax....
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....tra vires." He did not, however, feel driven to this conclusion as in his view : "...... a distinction must be made between a rate or tax which is levied on land on the basis of its capital value and a tax which is levied on the capital value of the land treating it as an asset itself. " He added : " It seems to me that it is perfectly legitimate to the taxing authority to attempt to correlate its tax to the real value of the property. It would be open to a municipality to levy a uniform tax on all the buildings ; it would similarly be open to the municipality to levy a uniform tax on all the lands. The municipality may, however, attempt to make such taxation reasonable by taking into account the areas of the lands and the size and nature of the buildings. But when the municipality makes provisions for taking into account these relevant facts, the municipality is attempting only to make its taxation reasonable, just and equitable. It is with that view alone that, in the case of lands, the Municipal Corporation of Ahmedabad has chosen to adopt the basis of the capital value of the open lands to determine the rate of tax that should be levied on them. The learned judge went....
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.... The decision of the majority judges of this court was based on the fact that the word " rate " had not been used anywhere in the Act and when it was provided that in the case of open lands the basis of valuation may either be capital or annual letting value " the words must be held to refer to that well-known method of valuation prevailing in England with respect to levy of rates and cannot be read to mean a percentage of the capital value itself " : Patel Gordbhandas Hargobindas v. Municipal Commissioner, Ahmedabad. Entry 49 appears always to have been regarded as contemplating the levy of tax oh lands and buildings both as units. As was pointed out in Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. : " Entry 49 of List II contemplates a levy of tax on lands and buildings or both as units. It is not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bear a definite relation to it .... For the purpose of levying tax under entry 49, List II, the State legislature may adopt for determining the incidence of tax the ....
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....g in the impugned Act to show that there was any intention on the part of the legislature to get at or tax the income of the owner from the building . . . . The annual value, as has been pointed out, is at best only notional or hypothetical income and not the actual income. It is only a standard used in the Income-tax Act for getting at income, but that is not enough to bar the use of the same standard for assessing a provincial tax. If a tax is to be levied on property, it will not be irrational to correlate it to the value of the property and to make some kind of annual value on the basis of the tax without intending to tax income. " The ultimate conclusion of the court was that in substance the impugned tax was not a tax on income. Before the vires of the Wealth-tax Act, as originally enacted, came to be canvassed before this court, the matter had engaged the attention of several High Courts. It would appear that throughout this web of decisions the principal and sometimes the only question raised was, whether it was competent to the Union Parliament to enact a measure which would impose a liability on Hindu undivided families when entry 86 provided for imposition of a tax o....
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.... on the capital value of the assets of a Hindu undivided family, is beyond the legislative competence of the Union Parliament. . . ." No point appears to have been raised as to whether wealth-tax could at all be the subject of a levy under entry 86, as the High Court noted : " The principal question that falls to be determined is whether the expression 'individuals' in entry 86 can comprehend a Hindu undivided family ". Reference was made to Mahavirprasad's case as also decisions turning on the interpretation of the expression " individuals " in section 3 of the Income-tax Act of 1922 and it was held that the principle of the said decision applied to the construction of 'individual' in entry 86. Although the court mentioned that reliance had been placed on behalf of the Wealth-tax Officer upon entry 97 in List I to sustain the imposition it did not feel it necessary to examine the applicability of the said entry. The question cropped up again before the same High Court in Ramabhadra Raju v. Union of India, and was similarly answered. The argument on behalf of the assessee proceeded on the assumption that entry 86 was the relevant entry for levying wealth-tax but it was inap....
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....elation to lands or buildings or both, the field is still open under entry 49 for legislation for other taxes on lands and buildings ... There is, therefore, really no conflict and no overlapping of jurisdictions in the case of the two entries in question." The learned judge was further of the view that : :...entry 49 must be held to be a general provision for taxes on lands and buildings and to yield to entry 86 which must be held to be a special provision for a particular tax, viz., a tax on the capital value of assets. " On the other aspect of the case, e.g., that a tax on the net wealth of an assessee to the extent that it is or may be said to be made up of his agricultural income and as such pertaining to the field marked by entry 46 in the State List the learned judge pointed out that the charging section in the Act did not purport to tax any income whatever but only the net wealth of an assessee as defined in terms of his assets. He agreed with the view of the Bombay and the Andhra Pradesh High Courts that a Hindu undivided family was not an entity distinct and separate from the members composing it and came within the connotation of the term " individual " in entry 86....
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....the assessee that the power in question can be located either in List II or List III. Therefore, it follows that Parliament has power to legislate on the subject either under entry 86, failing that under the residuary power given to it under entry 97. It makes no difference whether the source of the power is in entry 86 or in entry 97. Therefore, we hold that Parliament had competence to enact a law providing for imposing wealth-tax on undivided families. " The Madras High Court had to deal with the question in Raja Sir M. A. Muthiah Chettiar v. Wealth-tax Officer, Madras. The petitioner there asked for the issue of a writ of prohibition to direct the Wealth-tax Officer to forbear from taking proceedings pursuant to the notices issued and also for a similar writ restraining the Expenditure-tax Officer. The only question in the first petition was, whether section 3 of the Wealth-tax Act offended article 14 of the Constitution in that it left out of its ambit Marumakkattayam tarwads. It was held that the charging section of the Wealth-tax Act did not fall within the mischief of the equality clause of the Constitution, as Government was free to exercise a wide discretion in selectin....
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....kers wanted to exclude the capital value of the assets of Hindu undivided families from taxes. That is why their contention is that the impugned provision would not be sustained either under entry 86, or under entry 97, of List I or even under article 248 " To this the court's reaction was : " On the face of it, it is impossible to assume that while thinking of levying taxes on the capital value of assets, Hindu undivided families could possibly have been intended to be left out. " It It was further said : " The Constitution-makers were fully aware that Hindu citizens of this country normally form Hindu undivided families and if the object was to levy taxes on the capital value of assets it is inconceivable that the word 'individuals' was introduced in the entry with the object of excluding from its scope such a large and extensive area which would be covered by Hindu undivided families." Accordingly, the court came to the conclusion that the " impugned section is valid because Parliament was competent to legislate in respect of Hindu undivided families under entry 86 ". Having come to the said conclusion it was said : " This question has been considered by several Hi....
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....-tax Act falls within the terms of entry 86, List I, of the Seventh Schedule. What he argued however was that since the expression 'net wealth' includes non-agricultural lands and buildings of an assessee, and power to levy tax on lands and buildings is reserved to the State legislatures by entry 49, List II, of the Seventh Schedule, Parliament is incompetent to legislate for the levy of wealth-tax on the capital value of assets which include non-agricultural lands and buildings." This was however turned down by the court observing : " The tax which is imposed by entry 86, List I, of the Seventh Schedule is not directly a tax on lands and buildings. It is a tax imposed on the capital value of the assets of individuals and companies, on the valuation date. The tax is not imposed on the components of the assets of the assessee : it is imposed on the total assets which the assessee owns, and in determining the net wealth not only the encumbrances specifically charged against any item of asset, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. In certain exceptional cases, where a person owes no debts a....
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....cation of the subject-matter of legislation, i.e., that the levy had no direct relationship to the aggregate value of the assets of an " individual " but his net worth which was to be determined by deducting his liabilities from the total value of the assets held by him. In Assistant Commissioner of Urban Land Tax v. Buckingham & Carnatic Co. Ltd., Madras Act 12 of 1966 was, inter alia, challenged before the Madras High Court as violative of articles 14 and 19(1)(f) of the Constitution. Before this court it was contended, inter alia, on behalf of the assessee that the impugned Act fell under entry 86, List I, and not under entry 49 of List II, and as entry 49 envisaged taxes on lands and buildings the impugned Act which imposed tax on land could not be held to fall under that entry. The argument on behalf of the respondent was that the " impugned Act was, both in form and substance taxation on capital and was hence beyond the competence of the State legislature ". It was urged that " to tax on the basis of capital or principal value of assets was permissible to Parliament under List I, entries 86 and 87 and to the State under entry 48, List II. Taxation under entries 86 and 88 fo....
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....pt for determining the incidence of tax the annual or the capital value of the lands and buildings. But, the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under the two entries overlapping. The two taxes are entirely different in their basic concept and fall on different subject matters. Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality was the aftermath of the judgment of this court in Patel Gordhandas's case. To undo the effect of that decision the Gujarat legislature passed the Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963, seeking to validate the imposition of the tax as well as to avoid any future interpretation of the Act on the lines on which rule 350A was construed. Section 3 of the Act was passed to validate past assessments and collection of rates on lands and buildings on the basis of capital value or a percentage of capital value as also all assessments made before the passing of the Validation Act. At the same time section 99 was enacted in the Gujarat Municipalities Act to provide for the levy of a tax on lands and buildings " to be based on the ....
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....capital value of assets " make it amply clear that the same can only mean the market value of the assets less any encumbrances charged thereon. The expression does not take in either the general liabilities of the individual owing them or in particular the debts owed in respect of them. In my view, the subject-matter of legislation by the Wealth-tax Act is not covered by entry 86 but by entry 97 of List I. The capital value of the assets of an individual is as different from his net wealth as the market value of the saleable assets of a business is from its value as a going concern ignoring the goodwill. When a business is valued as a going concern its assets and liabilities whether charged on the fixed assets or not have to be taken into account but in computing the value of the tangible assets of the business the general liability of the business apart from the encumbrances on its assets do not figure. To what use entry 86 can be put is not for us to speculate upon. It appears that the view of Professor Kaldor as expressed in his report on Indian Tax Reform (Chapter 2) was that an annual tax on wealth should be a tax on accrual and not a tax on the principal itself. His suggestio....