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UNION OF INDIA

v.

H. S. DHILLON

October 21, 1971

33

[S. M. S1KRI, C.J., J.M. SHELAT, A. N. RAY, I. D. DuA, S. C. RoY,

D. G. PALEKAR AND G. K. MITTER, JJ.]

Constillltion of India, 1950, Arts. 246, 248, List /, Sev~ntlz. Schedule,

entries 86 and 97, and List JI, entry 49-Scope of-;-:Enqllll'Y uzto sc~pe

of residuary powers-Nature of-'An}' other niatter ill entry 97, n1ea111ng

of.

Wealth Tax Act, 1957, as amended by s. 24, Finance Ac_t, 1969-

Comvetencv of Parliameiit to enact-If fa/ls unda entry 49. List //.

Section 3 of the Wealth Tax Act, 1957, imposes a tax on the c.apital

value of the net wealth of an assessee. Net wealth, under the Act, JS the

amount by which the aggregate value of all assets of the assessee, computed

in the manner provided by the Act, is in excess of the aggregate value of

all debts (subject to some exceptions) owed by the assessee; and assets,

under

s. 2(e) as it originally stood, meant generally property of every

description but not including agri.cultural land,

&rowmg crops, grass or

standing trees on such land. Section 24 of the Fmance Act, 1969, amend­

ed

s. 2(e) of the Wealth Tax Act and included agricultural land etc., in thC assessee's assets for the purpose of computing his net wealth.

The High Court held that the amendment was beyond the legislative

competence of Parliament.

In appeal to this Court, on the questions : ( 1) whether such a tax on

agricultural land could

be imposed only by the

States under entry 49, List

II, Seventh Schedule

to the Constitution, dealing with 'taxes on lands and

buildings'; and (2) whether the object

of specifically excluding agricultural

land from the scope

of entry 86, List I, was also to take it out of the

ambit

of entry 97, List I, and Art. 248, dealing with residuary powers of ParJiament.

HELD: (Per S. M. Sikri, C.J., S. C. Roy, D. G. Palekar and G. K.

Mitter,

JJ.) : The amendment is valid. [75 G]

(Per S. M. Sikri, C.J., S. C. Roy and D. G. Palekar, JJ.) : (I) (a)

Article 248

of the

Constitution provides that Parliament has exclusive

power to make any law with respect to any matter not enumerated

in List II or List III and that such power includes the power of makinl( any Jaw

im~ing a tax not 11_1entioned in those Lists. Under entry 97, List I,

Parliament has exclusive power to make laws with respect to any other

!"at~er not enumer~ted in Lists II or III including any tax not mentioned

10 either o.f. t~ose Lists. The scheme of distribution of legislative powers in

the Const1tut1on !lamely, Arts. 246 ~nd 248 and entry 97, List I, shows

.that any matter !ncludmg a tax, ~h1ch has not been allotted exclusively

to the ~tale Legislat~rc~ un.der 1:-1st II, or concurrently with Parliament

unc!~r List III, ~all.s w1th10 Ltst I, 10clud1~g entry 97 of that List read with

Art. 248. ,If t~1s IS the .true scope of residuary powers of Parliament. then

~hen dealmg with a Central Ac~ the only enq?iry is whether it is legislation

10 respect of any matter m List ,II, for, this 1s the only field rel(arding

w'1ic!t •there is a prohibition against Parliament. If a Central Act d0es not

34 SUPREME COURT REPORTS (1972] 2 S.C.R.

enter or invade. these prohibited fields there is no point in trying to decide A

a.s to under which entry or entries of List I or List Ill a Central Act would

rightly fit to. 1.46F; 47F-G; 61D, E]

Gift Tax Officer v. Nazareth, [1971] I S.C.R. 195,. 200.

(b) This is the test that had been applied in interpreting the Canadian

Cons!Itut10n and ~I?ce the scheme of distribution of legislative powers

betw~en the _Domm10n and the Provmces under the British North America B

Act IS essentI~lly the same as under the Indian Constitution those principles

of mterpretat10n may be accepted as a guide. [61F-G] ·

Subrahmanyam Cheltiar v. M11th11swami Goundan; [1940] F.C.R. 188,

npphed.

Lefroy Canada's Federal System; Halslmry's Laws of E11gla11d, 3rd Ed.

Vol.

5 p. 498, Russe/ v. The Quee11 [1881-82] 7

A.C. 836, A. G. for C

Canada v. A.G. for Br. Columbia [1930] A.C. 111, Jn re: The Regulation

and Control of Aero11a11tics in Canada, [1932] A.C. 54, Jn re : Silver Bros.

Ltd.

[1932] A.C. 514 and Canadian Pacific Ry. Co. v. A.G. for

Br ..

Columbia [1950] A.C. 122, referred to.

Chhotabhai Jethablwi Patel v. Union, [1962] Supp. 2 S.C.R.· J, Prorince

of Madras v. Boddu Paidanna, [1942] F.C.R. 90; Bombay v. Chamorbaug.

wala, [1957] S.C.R. 874, Atiabari Tea Co. v. Assam, [1961] I S.C.R. 809 D

and A11tomobile Transport v. Rajasthan, f 1963] I S.C.R. 491, explaincJ.

(c) The adoption of this mode of enquiry

will not affect the

federal

strnctu_re of the Constitution. The State Legislatures have full legislative

nuthonty to pass laws in respect of entries in List II and subject to Ie2isla-

tion by Parliament on matters in List III. [67E-F]. -

(d) lt is not right to say that on this basis, List I need not have E

been formulated at all. Apart from the reason that the enumeration \vas

done in List I to allay the fears of Provinces and Princely States which

were not satisfied with the statement that the Centre

was to have

only re·

siduary powers but were particular to know what those Centres' po\'ers

were, there is some merit and legal effect in having included specified items

in List I, for, when there a:re three Lists it is easier to construe List II in

the light of Lists I and III. If there hac! been no List I, many items in List

JI would perhaps have been given a much wider interpretation than <:an be F

given under the present scheme. [58C-F; 67G-H]

(2) The impugned Act is not a law within entry 49, .List II. The

nature

of. wealth-tax is different from that of a tax under this entry.

Wealth tax

is a tax annually imposed on the net value of all

assets

less liabilities of particular tax payers. It is deemed to be imposed

on the person of the tax payer, but the requisites of a tax under entry 49,

are : (i) it must

be a tax on units, that is, lands and buildings separately

as units, (ii)_ the tax cannot be a tax on totality that is, it is not a composite

tax on the value of all lands and buildings, and (iii) the tax is not concern-

ed with the division of interest in the buildings or lands, that. is, it is not

concerned whether one person owns

or occupies it or two or more persons

own

or occupy it. Therefore, the tax under entry 49 is not a personal tax

but a lax on property deemed to be imposed on an object the

proporty

itself. [.68B; 70E-H; 71A-B; E-G]

G

H

S. C. Nawa11 v. W.T.O. [1969] 1 S.C.R. 108, Asstt. Commission'er· I

Urhan Land Tax v. B. & C. Mills [1970] I S.C.R. 268 and Gift Tax Officer

v. D. H. Nazareth, [1971] I S.C.R. 195, discussed and followed :

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UNION v. H. S. DHILLON 35

The impugned legislation is therefore valid either under entry 86, List

J, read with entry 97, List I

or under ntry 97 List I standing by itself.

/72G-HJ

(2) (a) It cannot be legitimately inferred that taxes on the capital

value of agricultural

·land were designedly excluded from entry 97, List,

I, because of the use of the words 'exclusive of agricultural land' in entry

86, List I.

If the intention was also not to include taxes on the capital

value

of agricultural land in entry 97, then it would have been included in

some entry in List II

or III, just as all other matters and taxes which have

been excluded from entries in List I fall specifically within one

or

the other

entries

in List II or List

III, since it is unthinkable that the Constitution

makers, while creating a Sovereign De1nocratic Republic, \vithheld certain

niatters or taxes beyond the legislative competence of Parliament and the

Legislatu·res of the States. legislating .either singly or jointly. The words

'exclusive of agricultural land' are not words of prohibition. [46G; 4~C-FJ

(b) The Constituent Assembly debates show that the first draft of the

3 lists was such that in the case of the Princely States taxes on capital value

df agricultural land were not expressly mentioned and could only have

been included in their residuary powers. ff so. there can be no reason

for excluding it from the residuary powers ultimately conferred on Parlia·

ment. The content of the residuary power does not change with its con­

ferment on Parliament. [49G; 50E-HJ

( c) The words 'any other matter' in entry 97, List I, have re[erence

to matters on which Parliament has been given power

to legislate by the

enumerated entries

I to 96 and not to matters on which it has not been

given power to legislate such as a topic mentioned by way of cxclusiOn.

It is true that the field of legislation is demarcated by entries I to 96, List

J, but demarcation does not n1ean that if entry 97 confers additional

powers, it should not be given effect to. /51F-H]

(d) But whatever doubt there may be on the interpretation of entry

97

is removed by the wide terms of Art. 248.

On its terms, the only

question to

be asked is : 'Is the matter sought to be legislated on included

in List II or List III or is the tax sought to be levied mentioned in List II or List ITT. 1f the answer is in the negative, then. it follow; that

Parliament has power to make laws with respect to that matter or tax.

This is so because, the function of the Lists is not to con'fer powers; they

merely demarcate the legislative field. The entries in the three Lists arc

only legislative heads

or fields of legislation, and the power to legislate is .~iven to the appropriate Legislature by Arts. 246 and 248 d the

Constitution. [51H:

52A-B, El

Harakc/1and Ratanchand Banthia v. Union. (1970] I S.C.R. 471, 489.

followed.

G. G.

in

Co1111ci/ v. Raleigh /m•estmcnt Co., [1944] F.C.R. 229, 261

:ipplied.

(e) lt cannot he said that because of the statement in the report of the

Union Powers Committee (Constituent Assembly Debates) namely that the

'residuary subjects coul~ only relate to matters \Vhich. '"hile thev n1av

claim recognition in the future, are not nt present identifiable', \·ealth taX

"·ould not fall under residuary power. since the concept of tax on net

wealth was then well known. On the contrary, the debates show that not·

"·ithstnnding that certain taxes were known to the members of the Consti­

tuent Assembly they were not mentioned in the final lists. and that they

would only fall within the residuary power. It is not a sound principle

nf interpretation to adopt. to first ascertain \'hether a tax \Vas known tn

36 SUPREME COURT REPORTS [1972] 2 S.C.R.

the framers of the Constitution and include it in the residuary powers only

if it

was not known, because, it would be an impossible test to apply. The

only safe guide for the interpretation of an article

or articles of an organic

instrument like the 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. Moreover, the

debates themselves show that it was realised that the residuary entry would

cover every matter not included in Lists

JI and Ill, and that the

enumera­

tion of entries in List I only followed the precedent of the Canadian Con­

stitution and informed the Provinces and the Princely. States as to the

legislative powers the Union was going to have. [53B-D; 55E-F;

57C-E)

A.G. for Ontario v. A.G. for Canada, [1947] A.C. 127, 150, and A.G.

for 011tario v. A.G. for Canada, [1912] A.C. 571, 581, referred to.

(

4) It is true that under entry 86, List I, aggregation is necessary

be·

cause it is a tax on the 'capital value of assets ..r an individual', but it does

not follow that Parliament is obliged to provide for deduction of debts in

order to determine the capital value of the assets. So, even the Wealth

Tax Act, as originally passed does not fall under entry 86, List I. In fact

this Court did not hold in the earlier cases that the Wealth Tax

A.ct fell umjer entry 86 List I. It was only so assumed. Therefore, it falls only

under entry 97 List

I.

[74C-E]

(5) Assuming that the Wealth Tax Act as originally enacted fell under

cn•ry 86 List I, there is nothing in the Constitution preventing Parliament

from comb!ning its powers under entry 86, List I with its powers under

entry 'YI. List I. T:here is no principle which debars Parliament from rely­

ing on the powers under the specified entries 1 to 96, List I and supple­

ment them with the powers under entry 97, List I, and Art. 248 or even

the powers under entries

in List III. L74B-C)

State of Bombay v. Narothamdas lathabhai, (1951) S.C.R. 51, followed.

Subramaniam Cheltiar v. Muthuswami Goundan, (1940] F.C.R. 188

and /11 ,., : The Re11ulation and Control of Aeronautics in Canada, [1932]

A.C. 5.+, 77, referred to.

(Pei· Mitter, J. : The subject matter of the Wealth Tax Act including

or excluding agricultural land is not covered by entry 86, List I, of the

Seventh Schedule to the Constitution, read with Art. 246,

nor by entry

49, List

II but by entry 97, List I, read with Art. 248. [140C-D)

(a) Broadly speaking, the scheme under Art. 246 is that Parliament is

to have exclusive power to make laws with respect to matters in List I, the

State is to have such exclusive power with respect to matters in List II,

Subject to the powers of Parliament in respect of matters in List I and

List

IJT, while matters in List JJ[ would be the subject matter of legislation

both by

Parliament and the State Legislatures. Under entry 97, List I,

Parliament bas exclusive powers to make laws with respect to any oth ..

matter not enumerated in List JI or List III including any tax not mention­

ed in either of those lists. Article 248 provides that Pirrliament has ex­

clusive power to make laws with respect to any matter not enumerated iQ

the Concurrent List or State List. The Article makes it clear that the

Constitution.Jmak~.rs were careful to see that the law making power with

respect to any matters, which, until the date of the Constitution, had not

been thought

of

as fit for legislation or had, by some chance, been omitted

from the field df 1.ists II ~rid III. were. to be Within !lie exclMive jurisdic­

tion of Parliament ·to legislate. Such law-ri'laki!ig power was to e*l~ttd ~o

the imposition of a tax mentioned in either of the lists.fll3H; 114-A-F]

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UNION v. H. S. DHILLON 37

(b) Under the Wealth Tax Act, both before and after the amendment

in 1969,

an annual tax is imposed on the value of all the assets of. an

assessee which are in excess of all his debts on the valuahon date subject

to certain exceptions. The taxation was to be based on the net

\'Orth of

an individual, that is to sav, his total assets Jess his debts. It is therefore

possible for

an asses.see, though seemingly

in_ possession o_f. assets of great

value not to

be subject to proportionately

high taxatton 1f he owes large

debts. The scheme of the Wealth-tax Act in substance

is thus to treat the

individual

as if

he were a business, ascertain the price which the said busi­

ness would fetch by deducting its liabilities from its tangible assets and

impose a tax

on the balance which is the net wealth of an

individu:al.

Whereas under the Wealth-tax Act as originally enacted a portion of the

assets, namely agricultural land, was not to be taken int.o consideration,

the amendment of 1969 brought that in for the computation of the value

of the assets. But the nature of the Act has not been changed, only it has

been made more comprehensive then before. The Act does not proceed

on the lines of Prof. Kaldor's suggestion that an annual tax on wealth

should be a tax on accrual and not a tax on the principal itself.

If the

Act

does

not fall under any entry in List I or List II or List III it must be

covered

by entry 97, List I and be within the legislative competence of Parliament under Art. 248. Under the express words of Art. 248(1), one

has only io consider whether the subject-matter of legislation is comprised

in List II or List III : if it

is not, Parliament is competent to legislate on

it irrespective

o'f the inclusion of a kindred subject in List I or the specified

limits of such subject in this List. Although read by itself entry 97 may

seem to suggest that the expression 'any other matter' has reference

to the

other entries in List I, Art. 248(1) makes it clear that

such matters are

those which are not covered by entries in Lists II and III. [112C-D. E-F;

119H;

120A-E; 140B-DJ

( c) Entry 86 List I, deals with taxes on capital value of the assets

exclusive of agricultural land,

of individuals and companies. This is the

only entry in List I

to which

the.Act could conform. There is no entry

in List

III to which the

Act could conform. It will not be improper to

interpret the expression 'capital value of assets' as meaning the aggregate

value of the assets which a willing: purchaser would offer a willing feller

for the property in its conditipn at the time of the transaction. So inter­

preted the expression will take in only the assets less the charges secured

on it, but not an\! other liability. The various decisions and authorities on

the Jaw relating to Rating and which bear on the true meaning of the ex­

pression also make it amply clear that the expression can only mean tr.e

market value of the assets less any encumbrances charged thereon. The

expression does not take in either general liabilitie• of the individual own­

ing them or in particular the debts owed in respect of them. The capital

value

of

th~ assets df an individual is as different from his net wealth as

the market value of ·the saleable assets of a business is from its value ~s

a ~oing concern ignoring the good will. When a business is valued as a

gomg concern its assets and liabilities whether charged on the fixed assets

or n_ot have to be taken into account but in computing the value of the

tangible assets of the business the general liabilities of the business apart

from the encumbrances on its assets

do not figure.

Ll22C--E; 139E-HJ

Halsbury's Laws of England, 3rd Ed. Vol. 32, p. 79, Rvde on Rating,

I Ith ed. p. 433 and Faraday on Rating, 5th ed., p, 42 referred to.

(d) In

all the earlier cases regarding imposition of wealth tax it was

assumed that the Act fell under entry 86, and the principal ground of

attack on the Act

was that 'Hindu undivided families' are not \individuals'

and could not be brought to tax under that entry directly or

by the aid

of Art. 248, read with entry 97

of List I. No serious attempt was made

38 SUPREME COURT REPORTS [1972]2 S.C.R.

in any of the cases to properly indent~ly the subject-matter of the legisla­

tion imposing the tax and ascertain whether capital value

of assets meant

the same

thing as net wealth. Therefore, the subject matter of legislation

by the Wealth Tax Act

is not covered by entry 86.

p 39B-E]

Mahavir Prasad Badridas v. Yagnik, /[ W.T.O. [1959] 37 J.T.R. 191,

N. V. S11brah111anian v. W. T.0. 40 J.T.R. 569, P. Ra111abhadra Raja v.

Union. 45 I.T.R. ll8, C. K. Mohammad Keyi v. W.T.O. 44 I.T.R. 277,

Jugal Kishore "· W.T.O. 44 J.T.R. 94, S. A. Sliitole v. W.T.O. 52 J.T.R.

'":>72, M.A. Mt1tl!ial Chettiar v. W.T.0. 53 I.T.R. 104, Banarsi Das v. Tax­

in}? Officer, [1965] 2 S.C.R. 355 and S. C. Naill v. W.T.O., [1969] I S.C.R.

108 and Asstt. Com111issio11er v. B. & C. Mills. [1970] I S.C.R. 286.

referred to.

(el Entry 86 can be utilized for levying a capital levy in an emergency

or by way of a marginal imposition on an individual's assets without consi~

deriog his holding of agricultural land. [I 40A-B]

(i) Scanning the lists there can be little douht that the Constitution­

makers took care to insert •ubject-matters of legislation regarding land and

particularly agricultural land and matrers incidental to the holding of agri­

cultural land

in the exclusive jurisdiction of

State Legislatures, except when

such agricultural land

is included in evacuee property or when a question

of acquisition or requisitioning of agricultural property

arises. So far as

some specific matters of legislation with regard to agricultural land arc

concerned, they have been set forth in List

IL while there are correspond­

ing entries in List

I which expressly exclude agricultural land. But, while

entry 86, List I, excludes agricultural land from assets for purposes

of

capitj1J value, there is no corresponding entry with regard to tax on capital

value of agricultural lands, the nearest approach to it being Entry 49 in

List II dealing with 'taxes on lands and buildings'. [119A-F]

(g) The concept of tax on net wealth which includes not only the

value

of the assets but also excluded the general liabilities of the assessec

to pav his debts

is one entirely different from a concept of tax

attributable

to' lands and buildings as such. That is, the levy has no direct relationship

to the aggregate value

of

t~.e assets of an individual, but his net worth

which was

to be determined by deducting his liabilities from the total value of the a<sets held by him. Even assuming that entry 49, List JI

envisages imposition to tax~s on lands and buildings adoP.ti~g a mode ?f

a certain percentage on thelf capital value, lands and bmldmgs must still

be subject to taxation as units and no aggregation is possible. The tax«

on lands, and buildings in the entry should be construed as ta~es on lands

and taxes on building..;;. Further, no State Legislature is confident to levy

a tax which \·oul<l embrace an individual's assets in the shape of lands and

buildings out<idc the State. f I 36G-H; 140B-C]

The A.rstt Co111111issioner v. B. & C. Mills, [1970] I S.C.R. 268 and

s. c. Nawn '. w.r.o. [1969] I S.C.R. 108, followed.

Sri Prit/ril"i Cotto!! Mills Lill. v. Borough Municipality [1970] I S.C.R.

A

B

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D

E

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388. Rella Ram v. Province of East Pun;ah, 11948] F.C.R. 207; C. K.

Mohammad Kali ,._ W.T.O. 44 J.T.R. 277. Sir Byramjee Jeejeebhoy v.

Province of Madras. A.l.R. 1940 Born. 65, Municipal Corporation v. H

Gvdhandas A.l.R. 1954 Born. 188 and Patel Gordhandas Har}?obindas v. .._

Municipal Commissioner A/rmedahad, [1964] 2 S.C.R. 608, 622, referred ,

to.

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UNION V. H. S. DHILLON 39

Therefore the subject malter of legislation by the Wealth Tax Act is

not covered by Entry 49, List II also. Hence Parliament has power to

levy tax on net wealth inclusive of agricultural land uhder its residuary

po\ver.

(Per J.C. Shela!, A. N. Ray and I. D. Dua, JJ.) Dissenting: (1) (a)

Wealth tax is a tax annually imposed on the net value of all assets less

liabilities. Such a deduction distinguishes the tax from property taxes

such as death duties and capital levy. It is not imposed directly on the

property but on the person of the assessee as

it takes into consideration the

asscssee's taxable capacity, by deducting his debts and liabilities from the gross value of his assets. [81 E-F; 82C-D]

The Wealth Tax Act, 1957, as originally enacted was passed by Parlia­

ment in exercise of its power under Art. 246(!) read with entry 86, List

J, Seventh Schedule of the Constitution. That entry deals with a tax on

the capital value of the assets, exclusive of agricultural land, of an indivi­

dual or a company. Under the Act the basis of the tax is the capital value

of the assets held by an assessee

on the relevant valuation date. The fact

that it excludes one or more of the assets-agricultural land before

amend­

ment-or allows from its incidence certain deductions, such as debt'i and

liabilities, pertains to the field of computation and not the basis of the tax

and it does not change the character of the tax. [SOF-G; SID)

(b) Prof. Nicholas Kaldar, on whose recommendations in his Report

on Indian Tax Reforms, 1956, the wealth tax was imposed, though the

tax fell under the entry. [82A-C]

(c) In all the earlier cases that came up before this Court or the High

Courts dealing with ¥.'ealth tax:, it ¥.·asi never the contention of the Union

that the Act di<l not fall under entry 86, List I. The discussion regarding

Parliament's power under the entry and the State Legislature's power under

entry 49, List II was not ohiter nor did it proceed on assumptions. In

deciding upon the ambit of the respective powers, the court made a distinc­

tion 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,

List II) and a tax on the capital value of the total assets barring agricul­

tural land. It was categorically held that the two were conceptually

different and that the biter fell undo" entry 86, List I. [82E--F; 85F-H]

S. C. Nmm v. W.T.0. [1969) 1 S.C.R. 108, Banarsi Das v. W.T,O, 56

T.T.R. 224; Asstr. Commr. of Urban Land Tax v. B. &: C. Mill. [19701 1

S.C.R. 268, Prithvi Cottort Mills Ltd. v. Broach Borough M1111icipa/ity.

i.1970] I S.C.R. 388 anll Gift Tax Officer v. Nazareth, [1971) 1 S.C.R. 195.

referred to.

(2) But a

tax on the capital value df assets including agricultural land

c;mnot be imposed under Art. 246(1) read with entry 86, List I. [86C-DJ

(a) The entry restricts in express terms the power to impose a tax

on the capital value of assets, exclusive of agricultural land [8601

(b) The entries are enumeratio simplex of broad categories and should

be construed in a liberal spirit so as to include within each all that is sub­

sidiary and incidenal to the power enumerated. But an interpretaion,

however liberal cannot

be adopted to include within it anything which the

entry,

in express tenns, excludes or restricts. [86E-F]

A.G. for New

South Wales v. Brewery Employees Union, [1908) 6

C.L.R. 649. 611 and A.G. for Ontario v. A.G. for Canada, [.1912) A.C.

571, referred to.

40 SUPREME COURT REPORTS [ 1972] 2 S.C.R.

(c) The reason for excluding agricultural land from cnt.ry 86, List I

is that under the scheme of distribution of powers underlymg the Lists,

agricuJlure, with all' its subsidiary and incidental aspects, including_ taxa·

tion has been, as in the case of the Government of India Act, 193), kfl

to be dealt with hy the States. [860; 870--E]

(d) It cannot be said that the Wealth Tax Act when passed in 1951

fell under entry 86, List I, but that it ceased to be so when it was amended

in 1969 by including \Vithin its S\'eep agricultural 1an<l. In dcciJ1~g _the

question as to the provision under. \vhich the Act was cnacte<l, the <l1stln~··

tion between the subject-matter ot the Act and the scope of the po11-cr rn

respect of it -has to be observed. The subject matter of the Act is the

capital value of the total assets; its scope or field of operat10n is the capital

value

of all assets. excluding agricultural land. The subject

matter, the

nature and the incidence of the tax remained the same, the only ditTcrcnce

\Vhich the amendment ma<lc V\'as the inclusion of agricultural Jan<l \·hile

computing the capital value of the assets of an assessee. The Act, even

after its amendment, retained its original character. 188H; 93A-C]

(3) The power to levy wealth tax on agricultural land is therefore no!

under entry 86, List I. Nor does it fall under Art. 248 read with entry 97,

List I, dealing \·ith residuary po\\!rs. I 88B]

(a) Article 2.J8 declares that Parliament has the exclusive power tJ

lc!!islatc on nt.1ttcrs not cnun1crateJ in List 11 or III and to impose a tax

not mentioned in either of 'those Lists, and entry 97 is inserted in List I

providing that Parlian1cnt has exclusive power to legislate on 'any other

matter not enumerated in List JI or List JI! including any tax not mention··

ed in either of those Lists.' The object of providing residuary power was

to confer po,rcr 011/y in respect of a matter which \Vas not foreseen or

contemplated at the time o·t framing the Constitution but which by reason

of changed circu1nstanccs might arise and \"hich could not, therefore, be

<lcalt \'ith \'hen the lists \·ere framed. To hold otherwise \'ould n1can

that though the power to levy Wealth tax with reference 'to agricultural

land was deliberately omitted from entry 86, the framers of the Constitu­

tion. \·ho had in their min<ls a definite scheme of distribution of pO\'Crs

under \'hich agriculture and taxation in relation to agriculture \'ere hand-

ed o,·er to the States, nullified such exclusion by providing power for it in

the residu3ry provision in entry 97: especially when agricultural land is

>ueh a large asset in our country. !78F-H; 890-H; 90A-BJ

Subralimanyan Cliattiar v. M11tl111swami, [1940] F.C.R. 188 applied.

Cijt Tax 0/Jicer ''· Xa:aretli. !1971] 1 S.C.R. 195 followed.

A

B

c

D

E

F

(b) Article 248 deals

\·ith residuary po"'·er and that pov.:cr is an inde·

p~n<lc_nl powe~ conferred hy the Article and not by entry 97 because, en-

tries 1n the Lists do not by themselves confer po\ver, hut onlv delineate G

fields in \'hich fhe respective po\'ers are con'ferred on the LcgiSlaturcs bv

the relevant Articles ofrthe Constitution. But \'hen one talks nhout resf.

duarv power the question at once arises what is it residuary of? Article

246( 1) having, given exclusive power to Parliament. the po\·cr in respect

· of those very matters therein provided for could not have been once again

p-antcd by Art. 248. The only matters left for legislation would be those

m List II and III and such of the matters not found in those Lists and onlv

the last e9uld be the ·residuary m~tters of which exclusive power could be H

given to .Parliament. Thcrdore, the r<siduarv power conferred bv Art. 248

m~ans power in respect of matters not dealt with in Art. 246 and not

found

in any

of the three Lists. f9 l E-HJ

•

.. -

A

B

•

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n

E

F

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UNION V. H. S. DHILLON 41

(c) The words 'any other matter not enumerated in List II or List Ill'

must mean any matter not being in the entries preceding it, that is, entries

l to 96 List 1 and any matter not enumerated

in Lists II and HI. The

phrases 'any matter'

in Art. 248 and 'any other matter' in entry 97 are

used because of the context and there

is no distinction between them.

'{be

residuary power declared by Art. 248 and of which the field is defined in

entry 97, must, therefore,

be. the power in .respect

df a field or category

of legislation not to he found in any of the hsts such as, Gift tax, pxpend1-

ture tax and Annuity deposit schcm~ [79D-E; 91H]

(d) It cannot be said that since entry 86 in List I excluded agricultural

land therefrom, that

field of legislation and tax must be said to be one

not enumerated and not mentioned

in that List; and wealth tax being a

tax on aggregation and hence conceptually different from the one which

can be le\ied

by the

States under entry 49, List II it must be said to be

not enumerated ln List II also, arid .therefore, wealth tax on agricultural

land falls unMr the residuary entry 97. The subject matter relating to a

tax on the aggregate capital value of all assets of an assessee is located

in entry 86, List

1, and

granted to Parliament, except the power to tax on

the capital value of agricultural land. Constitution-makers may,

as

a

matter of principle or policy, while dealing with or granting power, do

so

in a qualified

ar restricted manner. There is no warrant for saying that

there must l)e found vested in one single authority an absolute power to

legislate wholly with respect to

a given subject. The fact that a power is

con'ferred, not in its entirety. but with a restriction upon it, cannot

mean

that the subject matter in respect of it has not been dealt with, or that

therefore, it falls under the provisions dealing with residuary matters. It

is impossible to say that there are two matters under entry 86 one permis­sible and the other not enumerated anywhere else and therefore falling

under Art. 248,

and/or

entry 97 in List I. [89A-D; 92A-CJ

( e) The debates of the Constituent Assembly show that if in the enu­

meration

of powers in the three lists

any topic of legislation was left out,

such

a topic would fall in the residuary power conferred on the Centre, and that the purp()se ()f inserting the entry relating to residuary powers

was to define its scope, which was, that the Centre was to have exclusive

power not only on matters enumerated

in the preceding entries but also

on matters not enumerated in Lists

II and Ill. Therefore, the residuary

p()wer lod~ed in Art. 248 was in respect of 'matters which could not be

foreseen or contemplated when the Lists were framed, and hence, could

not then be included in any one of them.

[lO!B-C, G-H;

102A-B, D­

E, (l-HJ

(f) It is true that one member ,expressed an opinion as to the possible

exercise in fullµ'e of the residuary power under Art. 248 and Entry 97

List I, for imposing a capital levy on agricultural land; but it was hi~

individual opinion and there was nothing to show that any other member

took up

or

agreed with his•suggestion'. It is therefore not po-.ible to spell­

out. any consensus of opi!Jion in the Ass~mbly or an awareness on the part

of its members of th.e residuary power bemg capable of being used in future

for a tax such

as the

impugned one. fl02H; !03A-B, D-E]

( 4) It does not however mean that a tax on the capital value of agri­

cultu~al land cannot. at all be imP?sed. The power !s contained in entry

49, List JI. Just as m the case of mcome tax, succession and estate duties,

the power pf both the Legislatures to make a law or impose a tax on any

of these matters

is restricted, hut within the field allocated to each of them,

each has a plenary power.

[93E-H]

(5) It is not a proper enquiry

10 consider whether the jmpugned tax

encroached· upon entry 4<:!, List II ;ind if it did not, to hold that that power

4-L256 Sup Cl/72

42 SUPREME COURT REPORT~ [1972] 2 S.C.R.

must reside in Parliament on the basis that Art. 248 is in pari n1ateria with

s. 91 of the British North America Act. There is no similarity either in

the content or the scheme between the distributive system in the Br. N.

America Act and our Constitution. There is no d·eclaration in general and

unspecified terms

in our Constitution as there is in the first part of s. 91

of the Br. N. America Act, nor is there the interlacing of powers brought

about by expressions such

as 'for the peace, order, good government of

Canada', and in relation to

all matters not coming within the classes of

subjectS by the Act assigned exclusively to the legislatures of Provinces'

as 10 s. 91. The powers of Parliament and State 'Legislatures under Art.

246 and the

field of legislation delineated in the three Lists arc well defined

in elaborate and

precise· terms and ffre disjunctive and independent. The

State Legislatures are not the delegates of, nor do they derive their powen;

from Parliament. They enjoy within their fields of legislation plenary

po'"'ers including the power to legislate on all matters incidtntaJ and subsi­

diary to the matters assigned to them. The question of pre-eminence of

Parliamentary regulation by reason of the non-ob.1·tante clause in Art. 246,

arises only where there is overlapping of jurisdictions or the law in ques­

tion is in respect of any of the matters in List Ill. The power of the

States is as exclnsivc in their field as it is of Parliament within its allotted

field. J,940-H: 980--0]

Observation of Gwycr C.J. in Suhrahanlanycun v. Muthuswan1i, [1940J

F.C.R. 188, 200 explained.

Province of Madras v. Mis. Boddu Paidanna. [1942] F.C.R. 90 !05

and Main Kkasundara Bhattia v. Nayudu, [19461 F.C.R. 67, 87-88, referr­

ed to and applied.

Tn re: C. P. & Berar Act, 14 of 1938, [1939] F.C.R. 18, 38, referred

to.

C1vrL APPELLATE

JuR1so1cnoN: Civil Appeal No. 2172 of

1970.

Appeal from the judgment

and order dated

Ceptember 28,

1970 of the Punjab and Haryana High Court in Civil Writ No.

2673

of 1970.

M. C. Setalvad, M. C. Chagla, R.

II. Dhebar and B. D.

Sharma, for the appellant.

H. L. Sibbal, Advocate-Genera/, Punjab, N. A. Palkhiva/a,

Bhuvanesh Kumari, J. B. Dadachanji, 0. C. Mathur and Ravinder

Narain,

and K. P. Bhandari, for the respondent.

H. L. Sibbal, Advocate-Genera/, Punjab, P. C. Bhartari,

I.

B. Dadachanji, 0. C.

·Mathur and Ravinder Narain, for inter­

vener No. 1.

C. K. Daphtary and S. B. Wad, for intervener No. 2.

S. K. Dholakia and B. D. Sharma, for intervener No. 3.

M. M. Abdul Khadar, Advocate-Genera/, Kera/a and M. R.

Krishna

Pillai, for intervener No. 4.

A

B

c

D

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UNION v. H. S. DHILLON (Sikri, C.J.) 43

A B. Sen, S. P. Mitra, G. S. Chatterjee for Sukumar Basu, for

intervener No.

5.

Lal Narayan Sinha, Advocate-Genera/, Bihar and U.

P. Singh,

for the intervener No. 6. ·

R. C. Mishra, Advocate-Genera/, Orissa, Santosh Chatterjee

B and G. S. Chatterjee, for intervener No. 7.

G.

B.

Pai, P. K. Kurian, Bhuvanesh Kumari, I. B. Dadachanji,

O. C. Mathur, Ravinder Narain aud A. Menesis, for intervener

No. 8.

G. B.

Pai, P. K. Kurian, Bhuvanesh Kumari, I. B. Dadachanji,

C 0. C. Mathur and Ravi$er Narain, for interveners Nos. 9 and

10.

K. C. Puri, K. L. Mehta, S. K. Mehta and K. R. Nagaraja, for

intervener No. 11.

R. N. Banerjee,

0. P. Khaitan, J.B. Dadachanji, 0. C. Mathw·

D and Ravinder Narain, for intervener No. 12.

E

G

H

M. K. Ramamurthi, C. R. Somasekharan, Madan Mohan,

Vineet Kumar. Bindra Rana, S. Ganesh and Ramesh C. Pathak,

for intervener No. 13.

R. K. Garg, S. C. Agarwala, Narayana Nettar, R. K. Jain and

V. J. Francis, for interveners Nos. 14 to 16.

K. R. Chaudhuri and K. Rajendra Chowdhary, for intervener

No. 17.

/. B. Dadachanji,

0. C. Mathur, Ravinder Narain and P. C.

Bhartari, for intervener No. 18.

S. M. Sikri, C.J. delivered judgment on behalf of himself, S.

C. Roy and D. G. Palekar, JJ. G. K. Mitter, J. gave a separate

but concurring judgment. J. M. Shelat, J.

on

qeha~f of himself

and A. N. Ray and

I. D. Dua, JJ. gave a dissenting opinion.

Sikri,

C.I. This appeal is from the Judgment of the High

Court of Punjab & Haryana in Civil Writ No. 2291 of 1970,

which was heard by a Bench of five Judges. Four Judges held

that

s. 24 of the Finance Act,

I 969, insofar as it amended the

relevant provisions of the Wealth

Tax Act, 1957,

was· beyond

the legislative competence of Parliament. Pandit, J., however,

held that the impugned Act was intra vires the legislative powers

of Parliament. The High Court accordingly issued a direction

to the effect that the Wealth Tax Act,

as amended by Finance

Act, 1969, insofar

as it includes the capital value of the agricul­

tural land for the purposes of computing net wealth, was

ultra vires

the Constitution of India.

SUPREME COURT REPORTS l 19"/lj l S.C.R.

We may mention that the majority also held that the impugned A

Act

was not a Jaw with respect to entry 49 List Il 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 Finance Act,

1969, to include the capital value of agricultural land for the

purposes

of computing net wealth.

"Assets" is defined in s. 2(c)

to include property

of every description, movable or immovable.

The exclusions need not be mentioned here

as they relate to ear-

lier assessment years.

"Net Wealth" is defined in s. 2(m) to mean

"the amount by which the aggregate value computed in accord­

ance with the provisions of this Act of all the assets, wherever

located, belonging to the assessee

on the valuation date,

include~

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

debts which are set out in the

definition..

"Valuation date" in

relation to any year for which the assessment

is to be made under

this Act

is defined in s. 2(q) to mean the last day of the previous

year

as defined in s. 3 of the Income-tax. Act, if an assessment

were to be made under

this Act (or that year. We need not set

out the proviso here. Sect.ion 3 is .the charging section which

reads:

"3. Subject to the other provisions contained in this

Act, there shall

be charged for

every assessment year

commencing

on and from the first day

vf April, 1957,

a tax (hereinafter referred to

as the

"wealth-tax") in res­

pect of the net wealth on the corresponding valuation

date of every individual, Hindu Undivided Family and

company at the rate or rates specified

in the

Schedule."

Section 4 includes certain assets as belonging to $e

assessee.

Section 5 gives certain exempt;ions in respect (lf certain assets.

We need only reproduce s. S(iva) :

"S(iva). 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

ex­

ceeding 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

B

c

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c

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E

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UNION v. H. S. DHILLON (Sikri, C.J.)

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).

Sections 5(ivb), 5(viiia) and 5(ix) read :

"5(ivb) one building or one group of building owned

by a cultivator of, or receiver of rent

or revenue out of

agricultural land :

Provided that such building or group of buildings

is on or

in the immediate vicinity of the land and is

re­

quired by the cultivator or the receiver of rent or re­

venue, by reason of his connection with the land, as

dwelling-house, store-house or outhouse;"

"5(viiia) growing crops (including fruits on trees)

on agricultural land and grass on such land;"

"5(ix) The tools, implements and equipment used

by the assessee for the cultivation, conservation, im­

provement or maintenance of agricultural land, or for

the raising or harvesting of any agricultural

or

horticul­

tural produce on such land.

Exp/anation.-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

connec­

tion with the processing of any agricultural produce or

in the manufacture of any_ article from such produce;"

45

Section 7(1) deals with the evaluation of the assets and pro­

vides 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 eitimated 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

iipecial cases like appeals, revisions, references, payment

and

re­

covery of wealth tax, refunds and miscellaneous provisions .

. The submissions of Mr. Setalvad, appearing on behalf of the

Union in brief were these : That the inlpugned 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 competence of Parliament under entry 86. read with entry 97, or ent··y 97 by

itself read with Art. 248 of the Constitution: the words "exclusive

of airicultural land"' in ~ntry 86 could not. cut down the scope of

either entry 97 List' I, or Art. 248 of the Constitution.

46 .SUPREME COURT REPORTS [1972] 2 S.C.R.

The submissions of Mr. Palkiwala, who appeared on behalf

of the respondent in the appeal, and the other counsel for the in­

terveners, in brief, were these : It was the scheme of the Consti­

tution to give States exclusive powers to legislate in respect of

agricultural land, income on agricultural land and taxes thereon;

in this context the object and effect of specifically excluding

agri­

cultural land from the scope of entry 86 was also to take it out of

the ambit of entry 97 List I and Art. 248; the High Court was

wrong in holding that the impugned Act wrui not a law in respect

of entry 49 List II.

It was further urged by Mr. Setalvad that the proper way of

testing the validity of a parliamentary statute under our

Consti­

tution was first to see whether the parliamentary legislation was with

respect to a matter or tax mentioned in List II;

if it was not, no

other question would arise. The learned counsel for the

respon­

dent contended that this manner of enquiry had not

been even hinted in any of the decisions of this Court during the

last 20 years of its existence and there must accordingly be some­

thiing wrong with this test. He urged that insofar as this test is

derived from the Canadian decisions, the Canadian Constitution

is very different and those decisions ought not to be followed

here and applied

to our Constitution.

It seems to us that the best way of dealing with the question

of the validity of the impugned Act and with the contentions ~f

the parties is to ask ourselves two questions; first, is the impugned

Act legislation with respect to entry 49 List II? and secondly, if

it

is not, is it beyond the legislative competence of Parliament?

A

B

c

D

E

We have put these questions .in this order and in this form

because we are definitely of the opinion, as explained a little later,

that the scheme of our Constitution and the actual terms of the

re­

levant artitles, namely, Art. 246, Art. 248 and entry 97 List I,

show that ::ny matter, including tax, which has not been allotted F

exclusively to the State Legislatures under List II or concurrently

with Parliament under List III, falls within List I, including entry

97 of that list read with Art. 248.

It

seems to us unthinkable that the Constitution-makers, while

creating a sovereign democratic republic, withheld certain

matters

or taxes beyond the legislative competencv of the legNatures in G

this country either legislating singly or jointly. The language of

the relevant articles on the contrary

is quite clear that this was

not

thie intention of the Constituent Assem b'v. Chapter I of Part

XI of the Constitution deals with "Distribution of Legislative

Powers." Article 246 in this Chapter reads thus :

"246.(1) Notwithstanding anything in clauses (2) and H

(3), Parliament has exclusive power to make laws with

respect to any of the matters enumeratied in ,List I

in the

•

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E

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UNION v. H. S, DHILLON (Sikri, C.J.)

. Seventh Schedule (in this Constitution referred to as tire

"Union List").

(2) Notwithstanding anything in clause (3) Parlia­

ment, 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 Sche­

dule (in this· ConstitutiQU referred to as the "Concurrent

List").

(3) Subject to clauses (1) and (2'), the Legislature

of

any State has exclusive power to make laws for such

State or any part thereof with respect to any of the matters

enumerated in List II in the Seventh Schedule

(in this

Constitution referred to

as the

"State List").

(4) Parliament has power to make laws with respect

to any matter for any part of the territory of India not in­

cluded in a State notwithstanding that such matter is a

matter enumerated in the "State List."

47

Reading Art. 246 with the three Lists jn the Seventh Schediile,

it

is quite clear that Parliament has exclusive power to make laws

with respect to all the matters enumerated in List I and this

not­

withstanding anything in clause ( 2) and ( 3) of Art. 246, The State

Legislatures have exclusive powers to make

laws with respect to

any of the matters enumerated in List II, but this is subject to

clauses

(I) and (2) of Art. 246. The object of this subjection is to

make Parliamentary legislation on matters

in Lists I and

ID para­

mount. Under cl. ( 4) of Art. 246 Parliament is competent also

to legislate on a matter enumerated in State List for any part

of

the territory of India not included in a State. Article 248 gives

the residuary powers of legislation to the

Union Parliament. It

provides·

"248. (1) Parliament has exclusive power to make

any law with respect to any matter not enumerated in

the Concurrent List or State List.

(2) Such power shall include

the power of making

any law imposing a tax not mentioned in either of those

Lists."

Under Art. 250 Parliament can legislate with respect to any matter

in the State List if. a proclamation of emergency is in operation.­

Under Art. 253 Parliament has power to make any law fo; the

whole or part of the territory of India for the purpose of implement­

ing any international treaty, agreement or convention.

This scheme of distribution of legislative power has been deriv­

ed from the Government of India Act, 1935, but in one respect

there

is a great deal of difference, and it seems to us that this makes

48 SUPREME COURT REPORTS [1972] 2 S.C.R.

the scheme different insofar as the present controversy is concerned.

Under the Govt. of India Act, the residuary powers were not given

either to the Central Legislature or to the Provincial Legislatures.

The reason for this

was given in the Report of the.Joint Committee

on Indian Constitutional Reform, volume I, para

5 6. The reason

was that there was profound cleavage of opinion existing in India

with regard to allocation of residuary legislative

,powers. The result

was the enactment of s. 104 of the Govt. of India Act, which

provided:

"104. Residual powers of legislation

(1) The Governor~General may by public notifica­

tion empower either the Federal Legislature or a Pro­

vincial Legislature to enact a law with respect to any

matter npt enumerated in any of the lists in the Seventh

Schedule to this Act, including a law imppsing a tax not

mentioned in any such list and the executive authority

of the Federation or of the Province, an 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

sec­

tion the Governor-General shall act in his discretion."

It appears from para 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 re­

ference to this distribution," and because of apparently irrecon­

cilable difference of opinion that existed between the great Indian

communities v·'th regard to the allocation of residuary powers, the

Joint Cornmi"' .:: found itself unwilling to recommend an altera­

tion of th~ v:nite Paper proposal.

There does not

seem to be

-any dispute that the Constitution­

makers wanted to give residuary powers of legislation to the Union

Parliament. Indeed, this is obvious from Art. 248 and entry 97

List

I. But there is a serious d.ispute about the extent of the

re­

siduary power. It is urged on behalf of the respondent that the

words "exclusive of agricultural land" in entry 86 List I were

words of prohibition, prohibiting Parliament from including capital

value of agricultural land

in any law levying tax on capital value

of assets. Regarding entry 97 List I

it is said that if a matter is

specifically excluded from an entry in List I, it is apparent that it

was not the intention to include it under entry 97 List J: the

words

"exclusive of agricultural land'' in entry 86 by themselves consli ..

tuted a matter and therefore they could not fall within the word>

"any other matter" in entry 97 List J. Our attention was drawn

A

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c

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UNION v. H. S. DHILLON (Sikri, C.J.)

to a number .of entries in List I where certain items have been ex­

cluded from List I. For example, in entry 82, taxes on agricultu­

ral income have

been excluded from the ambit of

"Caxes on in­

come"; in entry 84 there is exclusion of duties of excise on alcholic

liquors for human consumption and on opium, Indian hemp and

other narcotic drugs and narcotics; in entry 86, agricultural land

has been excluded from the field of taxes on the capital value of

the assets; in entry 87, ·agricultural land has again been excluded

from the Union Estate duty in respect of property; and in entry

88, agricultural land has been further excluded ftom the incidence

of duties in respect of succession to property.· .It was urged that

the object of these exclusions was to comple'cely deny Parliament

competence to legislate on t:hese excluded matters.

It will be noticed that all the matters and taxes which have

been excluded, except taxes on the capital value of agricultural

land under entry

86 List I fall specifically within one of

the,en­

tries in List II. While taxes on agricultural .income ·have been

excluded from entry

82 List I, they form entry 46 List II; duties

of excise excluded in entry 84 List I have been included in entry

51 List II; agricultural land exempt in

ent;ry 87 has been incorpo­

rated 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 4 7 List II.

It

seems to us that from this scheme of distribution it cannot

be legitimately inferred that taxes on the capital value of

agricul­

tural land were designedly excluded from entry 97 List I. In this

connection it is well to remember· that the first draft of the 3 lists

was attached to the report of the Union Powers Commit!~ dated

July

5, 194 7 (see vol.

V, Constituent Assembly Debates, page

60). List I then consisted of

87 entries and there was no residuary

entry. It

was on August

20, 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 resi­

duary 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 re­

port liad been presented, we were relieved of the shackles

which we had imposed on ourselves on account of the

acceptance of

the

Cabinet Mission Plan ~nd the Com­

mittee came to the conclusion that we should make the

Centre

in this country as strong as possible consistent

with leaving a farily wide range of subjects to the

provi­

nces 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 exclusive

50 SUPREME COURT REPORTS [1972] 2 S.C.R.

~ists, 01_1e of the Fe<Jeral subjects, another of the Provin­

cial

~ubiec;ts

and the third of the Concurrent subjects and

tha~ if there was any re~idue left at all, if in the future any

sub1ect cropped up which could not be accommodated

in

one of these three Lists, then that subject should be

deem­

ed to remain with the Centre so far as the' Provinces are

concerned.

This decision, ·however, is not one which the Com­

mittee has ·applied to the States. You will find a refer­

ence to this in the Report. What is said !here is that

these residuary subjects will remain with the States un­

less the. States are willing to cede them to the Centre.

Well, I do not know if those who represent the States in

this House will take any decision of the kind which per­

haps the Committee hoped for when it said so; but we

have got to take things as they are.

There

is another matter which it is important

that

we should recognise. Residuary subjects in the case of

provinces are subjects which are not accommodated in

any of the three long Lists that we have appended to the

Report. Residuary subjects in the case of the States

would really mean all subjects which are not included in

the Federal List. I want to draw attention to this, be­

cause I know my Hon'bb friend Dr. Ambedkar would

rather see that the States accede also on certain illems

which are included in the Concurrent List, if not the

whole of that list. There

is a school of opinion in

fav­

our of that. But, as things st'and now, the report stands

today, all the subjects included in the Provincial List,

all the subjects included

in the Concurrent List and

what­

ever subjects may not be included in the federal list are

with the States."

If the residuary subJects had ultimately been assigned to the States

could

it hav

bieen seriously argued that vis-a-vis the States the

matter of Taxes on "Capital value of agricultural land" would have

been outside the powers of States? Obviously not, If so, there

can be no reason for excluding it from the residuary powers ulti­

mately conferred on Parliament. The content of the residuary

power does not change with

its conferment on Parliament.

It may be that

it was

thou'!ht that a tax on capital value of

adficultural land was included in entiy 49 List II. This conten­

tion will be examined a little later. But if on a proper interpreta­

tion of entry 49 List II, read in the light of entry 86 List I, it is

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UNION v. H.

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held that tax on the capital value of agricultural land is not in­

cluded within entry 49 List II or that the tax iniposed by the inI­

pugned 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 liniit the width of art. 248 and

entry 97 List I by the words "exclusive of agricultural 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 1-96 Listl 1. 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 1-96 List

I and not to matters on ',Vhich it has. not been given power to legis­

late. The matter in entry 86 List I is the whole entry and not the

entry without the words "exclusive·of agricultural land". The mat­

ter in entry 86 List I again

is not tax on capital value of assets

but the whole entry. We may illustrate this point with reference

to some other entries.

In entry 9 List I

"Preventive Detention for

reasons connected with defence, foreign affairs or the security

of India" the matter is not Preventive Detention but the whole en­

try. Similatly, in entry 3 List III "Preventive Detention for rea­

sons connected with the Security of the State, the maintenance of

public order or the maintenance of supplies and services essential

to the community" the matter is not Preventive De!~ntion but the

whole entry.

It would be erroneous to say that entry 9 List I and

entry 3 List

III deal with the same matter. Similarly, it would,

we think, be erroneous to treat entry 82 List I (Taxes on income

other than agricultural income)

as containing two matters, one,

tax on income, and the other,

as

"other than agricultural income".

It would serve no useful purpose to multiply illustrations.

It seems to

us that the

function of Art. 246( I), read with entries

1-96 List I, is to give positive power to Parliament to legislate in

respect of these entries. Object

is not to debar Parliament from legisfaling on a matter, even if other provisions of the Constitution

enable

it to do so. Accordingly,

we· do not interpret the words

"any other matter" occurring in entry 97 List I to mean a topic

mentioned by way of exclusion. These words really refer to the

matters contained in each of the entries 1 to 96. The words "any

other matter" had to be used because entry 97 List I follows en­

tries 1-96 List

I. It is true

that the field of legislation is demar­

cated by entries 1-96 List I,

but demarcation does not mean that

if

eptry 97 List I confers additional powers we should refuse to

give. effect to !t. At any rate, whatever doubt there m;1v be on

the mterpretation of entry 97 List I is removed by the wide terms

of Art. 248: It is framed in the widest omsible terms. On its terms

the only question to be asked is : Is the matter sought to be legiS~

lated on included in List II or in List III or is \he tax sou2ht to be

levied mentioned in List· II or in List III ? No question has to be

52 SUPREME COURT REPORTS [1972] 2 S.C.R.

asked about List I. If the answer is in the negative, then it fol­

lows 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

The Governor-General in Council v. the Re/eigh 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

bet.ween the Fede­

ral and the Provincial Legislatures the powers which

had been conferred by

ss. 99 and

100 of the Act."

In Harakchand Ratanchand Banthia v. Union of India(")

Rounaswami, J., speaking on behalf of the Court, while dealing

with the Gold (Control) Act (45 of 1968) observed:

"Before construing these entries it is usefurto 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 legislature by Art. 246 of the

Consti­

tution. The entries in the three Lists are only legislative

heads or fields of legislation; they dernarc_~te the area

over which the appropriate legislatures can operate."

We are compelled to give full effect to Art. 248 because we

know of no principle of construction by which we can cut down

the wide words of a substantive article like Art. 248 by the word­

ing of an entry

in Schedule

VII. If the argument of the respondent

is ace'epted, Art. 248 would have to be re-drafted as follows :

"Parliament has exclusive power to make any law

with respect to any matter not mentioned i·n the Concur­

rent List or State List, provided it has not been men­

tioned

by way of exclusion in any entry in List

I."

We simply have not the power to add a proviso like this to Art.

248.

We must also mention that no material has been placed before

us to show that it was ever in the mind of anybody, who had to

deal

with the making of the

Constitution, that it was the intention

to prohibit all the legislatures in this country from legis!a'ting on

a particular topic.

(!) fllH: F. C.R. 229,261. <2) !1970/ 15.C.R. 479, 489.

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UNION V. If. S. DHILLON (Sikri, C.J.) 53

Mr. Palkiwala referred to the following extract from para 2

of the report of the Union Powers Committee, dated July 5, 1947

(Constituent Assembly Debates, Vol. 5, page 58):

"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 there

be included now in the

lists."

Basing himself on this extract he said that the !'ax on "net

wealth" was well-known and if it had been the desire to include

it, it would havi;: been mentioned.

We do not think it is a legitimate manner of interpreiation.

The debates show that notwithstanding that certain taxes were

known to the members of the Constituent

A.ssembly they were not

mentioned

in the final list.

Yet it can hardly be argued that they

would not fall within the residuary powers.

In the report of the Expert Commit~ee on Financial Provi­

sions, dated December 5, 1947, (Constituent Assembly Debates,

Volume 7, page 53), it

is stated that one of the terms of reference

was:

"IX. On the basis that the residuary powers are

vested in the Centre in the new Constitution

so far as the Provinces are concerned, and in the States so far as the

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 para 72

as follows :

It appears that under the new

Constitution, residuary

powers will be vested in the Centre so far

as the

Pro­

vinces 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 whe­

ther, as a consequence, as many specific taxes

as

po~f­

ble should not be entered in the Provincial List oJ sub­

jects. 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 includ­

ing 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

54 SUPREME COURT REPORTS [1972] 2 s.c.R.

its residuary powers, there will be nothing to prevent

the proceeds of the whole or a part of this t;ax being

distributed

for the benefit of the Provinces only. As

a matter of abundant caution, however, it may

be laid

down

in the Constitution that if any tax is levied by the

Centre in future under its residuary powers, and to the

extent that the States do not agree to accede to the

Centre in respect of the corresponding subject, the

whole or a part of the proceeds of 'the tax shall be

dis­

tributed between the Provinces and the acceding States

only.

This disposes of item

IX of our Terms of Re­

ference."

The Committee recommended certain articles :

"198. Salt duties and excise duties.--(!) No duties

on salt shall

be levied by the Federation.

"

"198-A. Taxes not enumerated in any of the lists

in the Ninth Schedule. If any tax not mentioned in any

of the lists in the Ninth Schedule to this Constitution is

imposed by Act of the Federal Parliament by virtue of

entry 90 of the Federal Legislative List, such fax shall

be levied and collected by the Federation but a prescribed

percentage of the net proceeds in any financial year of

any such tax, except in so far as those proceeds repre­

sent proceeds attributable to Chief Commissioners' Pro­

vinces, shall not form part of the revenue of the Federa­

tion. but shall be assigned to the units within which that

tax is leviable in that year, and shall be distributed

among the units in accordance with such principles of

distribution

as may

be prescribed."

The Committee further recommended that in the Provincial

Legislative List in the Ninth Schedule, for entry 50, the following

may

be substituted, namely :

"50. Taxes on the sale, turnover rn; purchase of

goods including taxes in lieu thereof on the use or con­

sumption within the Province of goods liable to

taxes

within the Province on sale, turnover or purchase; taxes

on

advertisement."

Two points emerge from this. The Constituent Assembly

knew how to prohibit Parliament from levying a tax (see proposed

Art. 198-A

set out above). Secondly, they knew of certain taxes

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UNION v. H.

S. DHILLON (Sikri, CJ.) 55

as taxes on the use or consumption of goods. The' proposal to

include them in the Provincial List was not accepted. Indeed,

Shri T. T. Krishnamachari said this about this proposal:•

"Sir, one other recommendation of t;he Expert Com­

mittee is, I am afraid, rather mischievous. That is, they

have suggested in regard to Sales Tax-which is item 5 8

in List 2-that the definition should be enlarged so as to

include Use Tax as well, going undoubtedly on the ex­

perience of the American State Use Tax which, I think,

is a pernicious recommendation. I think, it finds a re­

flection in the mention of Sale; 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 grounu tha~ 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 prin­

ciple of interpretation !lo 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

die Con­

stituent 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 nar­

rowly but fairly in the light of the broad and high purposes of t'hc

Constitution, but without doing violence to the language. To

interpret Art. 248 in the way suggested by the respondent wo.!ld

in our opinion be to do violence to the language.

We are, however, glad to find from the following extracts from

the debates that our interpretation accords with what was intended.

Entry

91 in the draft

Constitution corresponds to the present

Entry 97, List

I. Article 217 of the draft Constitution

corres­

ponds to Art. 246 of the Constitution. Art. 223 of the draft Con­

stitution corresponds to Art. 248 pf the Constitution.

While dealing with· entry 91 List I of the draft Constitution,

Sardar Hukam Singh moved the fo!lowing amendment :

"That in entry 91 of List I, the word 'other' be

deleted."

Extracts from the debates on the proposed amendment are

reproduced below :

Sardar H ukam Singh (Constituent Assembly De-

bates, Vol. 9 page 854) : ....................... .

•constituent Assembly Debates Vol. 7, p, 232.

56 SUPREME COURT REPORTS (1972] 2 S.C.R.

"The object of this entry 91 is, whatever is not included

in Lists

II and III must be deemed to have been included

in this List. I feel that it could be said in

very· simple

words, if the word 'other' were omitted,

.and then there

would be no need for this list absolutely. Ultimately,

it comes

to this that

whatever is not covered by Lists II

and III is all embraced in the Union List. This could

be said in very Sim[>le word.s and we need not have taken

all this trouble· which we have take.n."

Mr. Naziruddin Ahmad (Constituent Assembly De­

bate's, Vol. 9 page 855): "Mr. President, $ir, I do not

wish

to oppose entry .91. It is too late to do it, but I

should submit that the moment

we adopted entry

91,-it

would involve serious redrafting of certain articles and

entries. Under article 217 we have stated in substance

that entries in List I will belong to Union, List II to States

and List

III common

to both. That was the original

arrangement 'under which

we started. We took the

scheme

lrom the Governm~nt of India Act. When an

entry No. 91, article 217 '!nd a few other articles would

that the residuary

_power should be with the Centre.

This was

an innovation, as

there was nothing like it in

the Government of India Act. As soon as

we accept

entry No. 91, article 217 and a

few other articles would

require redrafting and entries l

to

90 would be redun­

dant. In fact all the previous entries--from I to 90

would be rendered absolutely unnecessary. I fail to see

the point now retaining entries I to 90. If every subject

which

is not mentioned in

Lis!s II and III is to go to the

·Centre what is the point in enumerating entries 1 to 90

of List I ? That would amount to absolutely 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 ill are assig•

ned to the Centre and the States c.oncurrently and that

every other conceivable subject must. come within the

purview of the Centre. There was nothing more simple

or

logical then 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

ac­

cepted, the drafting should have been altered according­

ly. Article 217 should have been re-written on the

above lines and matters would have been simplified.

Mny I suggest even at this late stage that these needless

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UNION V. H. S. DHILLON ( Sikri, C.J,)

entries be scrapped and article 217 be re-wri'tten 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 con­

sideration by the

House."

Prof. Shibban Lal Saksena (Constituent Assembly

debates, Vol.

9 page 855-856) :

"Sir, today is a great

day that

we are passing this entry ahnost without dis­

cussion. This matter has been the subject of discus­

sion in this country for several years for about two

decades. Today it

is being allowed to be passed with­

out any discussion. The point of view of Mr. Nazi­

ruddin Ahmad

is not correct. In fact Dr. Ambedkar

has said that if there

is anything left, it will be .included

in this item 91.

I therefore think that it is a very

important entry. There should not be any deletion of

items

1 to

90. I know this entry will include every­

thing that

is already contained in the first

90 entries as

well

as whatever is left. This entry will strengthen

the

Centre and weld our nation into one single nation

behind a strong Centre. Throughout the last decade

the fight was that provincial autonomy should be so

complete that the Centre should not be able to inter­

fere with the provinces, but now the times are changed.

We are now for a strong Centre. In fact some friends

would like to do away with provincial autonomy and

would like a unitary Government. This entry gives

powers to the Centre to have legislation on any subject

which has escaped the scrutiny of the House. I sup­

port this entry."

The Honourable Dr. B. R. Ambetlkar (Constituent

Assembly Debates, Vol. 9, page 856-857) : "My Pre­

sident, I propose to deal with the objection raised by

my Friend Sardar Hukam Singh. I do not think he

has realised what

is the purpose of entry 91 and I

should therefore like to state very clearly what the

purpose of

91 in List I is. It 1s really to define a

limit or scope of List I and I think

we could have dealt

with this matter.

vi::. .. of the definition of and scope of

List II and

111 by adding an entry such as 67 which

would

read:

"Anything not included in List IT or III shall

be deemed .to fall in List 1~.

That is really the purpose of it. It could have been serv­

ed in two different ways, either having an entry such as

5-L256 SnpC 1'72

57

58 SUPREME COURT REPORTS (I 972] 2 S.C.R

the one 91 included in List I or to have an entry such as

the one which I have suggested.-'that anything not

included in List II or III shall fall in List

l'. That is

the purpose of it. But such an entry is necessary and

there can

be no question about it. Now I come to the

other objection

which has been repeated if not openly

at least whispered

as to why we are having these

91

entries in List I when as a matter of fact we have an

article such

as 223 which is called residuary article

which

is

'Parliament has exclusive power to make any

Jaw with respect to any matter not enumerated in the

Concurrent List or State List'. The01etically 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

un­

necessary to enumerate these· categories which we have

specified in List

I. The reason why this 1s 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

thP Centre will have only

residuary powers. Just

to allay the fears of the

Pro­

vinces and the fears of the Indian States, we had to

particularise what is included in the symbolic phrase

"residuary p01yers". That is the reason why we had

to undergo this Jabour, notwit,hstanding the fact that

we had article 223.

I may also say that there is nothing very ridicu­

lous about this, so far as our Constitution is concerned,

for the simple reason that it has been the practice of

all

federal constitutions to enumerate the powers of the

Centre,

even those federations which have got

resi­

duary powers given to the Centre. Take for instance

the Canadian Constitution. Like

the Indian

Constitu­

tion, the Canadian constitution also gives what are

called residuary powers

to the Canadian

Parliament.

Certain specified and enumerated powers are given to

the Provinces. Notwithstanding this fact, the Canadian

constitution, I think in article

99, proceeds to

enume­

rate certain categories and certain entries on which the

Parliament of Canada can )(lgislate. That again was

done in order to allay the fears of the French Pro-.

vinces which were going to be part and parcel of the

Canadian Federation. Similarly also

in the

Govern­

ment of Iridia Act; the same scheme has been laid

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down there and section 104 of the Government of

Indian Act, 1935

is similar to article 223 here. It

also lays down the proposition that the Central Govern­

ment

will have residuary powers. Notwithstanding that,

it had

its List I. Therefore, there is no reason, no

ground to be over critical about this matter.

In doing

this we have only followed as I said, the requirements

of the various Provinces to know specifically what

these residuary powers are, and also we have followed

well-known conventions which have been followed in

any other federal constitutions. I hope the House will

not accept either the amendment of my Friend Sardar

Hukam Singh nor take very seriously the utterings of

my Friend Mr. Naziruddin

Ahmad."

59

It seems to us that this discussion clearly shows that it was

realised that the old entry 91 would cover every matter which is

not included in Lists II and Ill, and that entries were enumerated

in List I following the precedent of the Canadian Constitution

and

also to inform the provinces and particularly the Indian

States

as to the legislative powers the

Union was going to have.

The same conclusion

is also arrived at if we look at some of

the speeches made when the third reading of the Constitution

was taken up. Extracts from those speeches are reproduced

below:

Shri Alladi Krishnaswami Ayyar (Constituent

Assembly Debates, Vol. 11, 838) :

"In regard to the distribution and allocation of

legislative power, this Assembly has taken into account

the political and economic conditions obtaining

in the

country

at. present and has not proceeded on any a

priori theories as to the principles of distribution iR 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. Krishnamachari (Constituent Assembly

Debates, Vol. 11, 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 Cons~itution makes it a unitary Constitution. It

was. I thmk. further emphasised by my honourable

60 SUPREME COURT REPORTS [1972] 2 S.C.R.

Friend Mr. Gupta in the course of his speech. He

said : 'The test is there. The residuary power is

vested in .the Cl:ntre.' I am taking my Friend Mr.

Gu pt.a qmte seriously, because he appears to be a

carefµl stud~nt who has called out this particular point

from some text book on federalism. I would like

to

tell honourable Members that it is not a very

impor­

tant matter in assessing whether a particular Constitu­

tion is based on a federal system from the point of

view whether the residuary power is vested in the States

or

in the Central Government. Mr. K. C. Wheare

w))o

has written recently a book on Federalism has dealt

with this point."

"Now if you ask me why we havf~ really kept the

residuary power with the Centre and whether it means

anything at all, I

will say that it is because we have

gone to such absolute length to enumerate the powers

of the Centre and of the

States and also the powers that

are to

be exercised by both of them in the concurrent

field. In fact, to quote Professor Wheare

·again, who

has made a superficial survey of the Government of

India Act the best point in the Government of

Jndia Act is the complete. and exhaustive enumeration

of powers in Schedule VII. To m)l mind there seems

to be the possibility of* only one pqwer that has not

been enumerated, which might be 'exercised in* the

f!'ture by means of the use of the residuary power,

namely the capital levy 011 agricultural land. This

power has not been assigned either to the Centre or

to

the Units. It may be that following the scheme of

Estate Duty and succession duty on urban and

agricul­

tural property, even if the Centre has to take over this

power under the residuary power after some time, it

would assign the proceeds of this levy to the' provinces,

because all things that

are supposed to be associated

with agriculture

are assigned to the provinces. I think

the vesting of the residuary power

is only a

ma.tier of

academic significance today. To

say that because

residuary power

is vested in 'the

0Jntre and not in tl!e

provinces this is not a Federation would not be

correct."

The above speech of Mr. T. T. Krishnamachari shows that

A

B

c

D

E

F

G

the members were

a~are that certain known taxes had not been H

included specifically

in the three lists.

•(ETI1hasis suopliP!d),

·• '..

A

B

c

D

E

F

G

H

UNION v. H. S. DHILLON (Sikri, C.J.) 61

It is, therefore, difficult to escape from the conclusion that in

India there

is no field of legislation which has not been allotted

either to Parliament or

to the

State legislatures. In Attorney­

Gen~ral for Ontario v. Attorney-Genera/ for Canada(!), Lord

Jow1tt, L.C., recalled the following words of Lord Loreburn,

L.C.,

in Attorney-General for

Omario v. Attorney-General for

Canada(') and reiterated them:

"Now, there can be no doubt that under this orga­

nic instrument the powers distributed between the

Dominion on the one hand and the provinces on the

other hand, cover the whole area ot self-government

within the whole area of Canada. It would be sub­

versive of the entire 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

sCOJJe of

residuary 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 Parilament.

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 diffe­

rent from the Indian Constitution. It is true that the wording of

ss. 91 and 92 of the Canadian Constitution is different and the

Judicial Committee has interpreted these sedions differently at

different periods, but whatever the interpretation, it has always

held that the lists are exhaustive. The scheme of distribution of

Legislative powers between the Dominion and the Provinces

is

essentiaIIy the same as under our Constitution. In this matter it

is best to quote the words of the Judicial Committee or some

learned authors rather than interpret

ss. 91 and 92 ourselves.

In

Canada's Federal

System by Lefroy it is stated at Jiage 120

as foilows :

"In determining the validity of a Dominion Act,

the first question to be determined is, whether the Act

faIIs within any of the classes of subjects enumerated in

(1) [1947] A .. C. 12i, 150. (2) [t9121 A.C. 571, 58t,

62 SUPREME COURT REPORTS [1972] 2 S.C.R.

section 92, and assigned exclusively 1;0 the legislatures

of the provinces.

If it does, then the further question

will arise, whether the subject of the Act does not also

fall within one of the enumerated

classes of subjects in

section 91, and so

does not still belong to tlie Dominion

Parliament. But if the Act

does not fall within any of

the classes of subjects

in section 92, no further question

will

remain."

The learned author cited four Privy Council cases in support

of the above statement. In one case Russel v. The Queen(')

the Privy Council was. concerned with the validity of the Canada

Temperance Act, 1878. In this connection Sir Montague C.

Smith, observed :

"The general scheme of the British North America

Act with· regard to the distribution of legislative

powers, and the general scope and effect of secs. 91

and 92, and their relation to each other, were fully con­

sidered and commented on by this Board in the case of

Citizens Insurance Company v. Parsons(

2

). Accord­

ing to the principle of construction there pointed out,

the first question

to be determined is, whether the Act

now in question falls within any of the classes of

sub­

jects enumerated in Sec. 92, and assigned exclusively

to the Legislatures of the Province~. If it does, then

the further question would arise, viz. .. whether the sub­

ject of the Act does not also fall within one of the

enumerated

classes of subjects in

Sec. 91, and so does

not still belong to the Dominion Parliament. But if

the Act does not fall within any of the classes of sub­

jects in sec. 91, no further question will remain, for it

cannot be contended, and indeed was not contended at

their. Lordships bar, that, if the Act does not come

within one of the classes of

subjec:ts assigned to the

Provincial Legislatures, the Parliament

of Canada had

not,

by its general power

"to mak•~ laws for the peace.

order, and good government of Canada", full legisla­

tive authority to pass it."

In Halsbury's Laws of England (Third Edition, Volume 5,

page 49?) the rule is put thus :

· "In determining the validity of' legislation the gene­

ral 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

(!)

[1881-82] 7 AC 836 (2) 7. A.C. 96.

A

c

D

E

F

G

H

A

B

c

D

E

F

G

H

UNION v. H. S. DHILLON (Sikri, C.J.)

even if it does appear to come within those classes, the

exclusive power still belongs

to Parliament if it also

falls within the enumerated

class within the legislative

authority

of

Parliament."

In Attorney-General for Canada v. Attorney-General for

British Columbia('),

Lord Tomlin, after

referring to ss. 91

and 92 of the Canadian Constitution, observed as follows :

"Questions of conflict between the jurisdiction of

the Parliament of the Dominion and p.rovincial jurisdic­

tion have frequently come before their Lordships'

Board, and

as the result of the decisions of the Board

the following propositions may be stated

:-

( 1) The legislation of the Parliament of the

Domi­

nion; so long as it strictly relates to subjects of

legislation expressly enumerated in

s. 91, is of

paramount authority, even though it trenches

upon matters assigned to the provincial

legisla­

tures by s. 92; see Tenant v. Union Bank of

India(').

(2) The general power of legislation conferred

upon the Parliament

of the Dominion by s. 91

of the Act in supplement of the power to

legis­

late upon the subjects expressly enumerated

must be strictly confined to such matters

as are

unquestionably

of national interest and

impor­

tance, and must not trench on any of the sub­

jects enumerated in s. 92 as within the scope

of provincial legislation, unless these matters

have attained such dimensions

as to affect the

body politic of

the Dominion : see Attrirney­

General for Ontario v. Attorney-General for

the Dominion(').

( 3) It is within the competence of the Dominion

Parliament to provide for matters which, though

otherwise within the legislative competence of

the provincial legislature, are necessarily

inci­

dental to effective legislation by the Parliament

of the Dominion upon a subject of legis1ation

expressly enumerated in s. 91 : see Attorney­

General of Ontario v. 4ttorney-General for the

--~~~~--~

63

(I} [1930) A.C.lll, 118. (2) [1894] A.C' 31

(3) [189"] A.C. 348.

64 SUPREME COURT REPORTS [1972] 2

Dominion(') and Attorney-General for Ontario

v. Attorney-General for the Dominion(").

( 4) There can be a domain in which provincial and

Dominion legislation

may overlap, in which

case

neithe{ legislation will be ultra vires if the

A

field is clear, but if the field is not clear and B

the two legislations must meet the Dominion

legiSlation must prevail; see Grand Trunk Ry.

of Canada v. Attomey-General of Canada(')."

This statement was approved of in In re The Regulation, and

Control of Aeronautics in Canada('); in In re Silver Brothers. c

Ltd.("); and in Canadian Pacific Railway Company v. Attomcy­

General for British Columbia(').

It would be noticed that the second propositio11 was based on

Attorney-General for Ontario v. Attorney General for the Domi­

nion(') and the words "In supplement" are said to have been

used for the first time by the Privy Council. D

It is quite true, as Mr. Palkiwala points out, that one way of

reading ss. 91 and 92 of the Canadian Constitution is that s. 91

gives general powers and then gives certain specific powers by

way of illustration, and that apparently was the interpretation

placed on the Act

by the

Privy Council before A ttomey-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. The Queen(

8

)

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. Jin Chhotabhai Jethabhai Patel v. The 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 pro-

fessions, 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

(I) [1894) A.C. 189. (9) [1816) A.C. 34S.

(3) (1907] A.C. 65. (4) ]1932) A.C. 54.

(5) [1932] A.C. 514. (6) [1950[ A.C. 122.

(7) [1896] A.C. 348. (8) [1882) 7A.C. 829.

(9) [1962] Supp. 2 S. C, R. I.

E

F

(,

II

J

1

A

l:

F

t

UNION V. H. S. DHILLON (Sikri, C.J.) 65

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

-0f Madras v. Messrs. Boddu

Paidanna(') the Federal Court was concerned with the inter­

pretation of entry

45 List I of the Government of India Act (duties of excise on tobacco .... ) and entry 48 List II (taxes

on the sale of' goods and on advertisements). On these matters

the Canadian cases could not possibly be of any assistance

or relevance,

In State of Bombay v. Chamarbugwala(') this Court rightly

held that the decisions of the American Supreme Court and the

decisions of the Australian High Court and of

the Privy

Coun·

cil on s. 92 of the Australian Constitution should be used \

0

.th

caution and circumspection, because our Constitution was d;d'e­

rent and it had provided adequate safeguards in cl. ( 6) of art. 19

and in arts. 302-325.

In Atiabari Tea Co. v. The State of Assam("), this Court

was again dealing with art. 301 and art. 304 of the Constitution.

Sinha, CJ., speaking for himself, observed that he had delibera­

tely refrained from milking references to or relying upon decisions

from other countries like the U.S.A. or Australia.

Again in the A 11tomobile Transport ( Rajasthan) v. The State

of Rajasthan('), Das, J., referring to the Australian decisions

under s. 92, observed :

"Valuable as those decisions rnight be in showing

how the problem of freedom of trade, commerce and

intercourse was dealt with in other federal constitutions,

the

provisio·ns of our Constitution must be interpreted

against the historical background in which out Consti­

tution was made; the background of problems which

the Constitution makers tried to solve according to the

genius of the Indian people whom the Constitution­

i11akers represented in the Constituent Assembly."

On the contrary, in Subrabmanyan Chettiar v. Muttu.nvami

Goundan(°) while interpreiing s. 100 of the Government of

India Act, which corresponds to s. 246 of the Constitution,

twyer CJ., observed at p. 200 :

"The British North Ari1erica Act, 1867, contains

analogous provisions llild it can scarcely be doubted

~-- ~·' ..

(l) (1942] F.C.R. 9o. (2) [1957) S.C.R. 874, 918.

(3) {196111. S.C.R. 809, 838. (4) [1963] I S.C.R. 491, 511>

(5) [ 1940] F.C.R. 188. .

66 SUPREME COURT REPORTS [1972] 2 S.C.R.

that Parliament had those provisions in mind when it A

enacted the later Act."

Then he referred to ss. 91 and 92 of the British North

America Act and observed at page 201 :

"As interpreted by the Judicial Committee the

British No:th America act presents an exact a:ialogy B

to the India Act, even to the overriding provisions in

s. 100 (I) of the latter :

. "The rule of construction is that general language

m the heads of s. 92 yields to particular expressions in

s. 91, where the latter are unambiguous." per Lord

Haldane in

Great

We.11 Sadd/ery Co. v. The King(') C

The principles laid down

by the Judicial Committee in

a long series

o.f decisions for the

interpretation of the

two sections of the British North America Act may

ther~fc~re be ac.c~pted. as a guide for the interpretation

of similar prov1S1ons m the Government of India Act."

D

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 legis­

lation with respect to matters

in this list or that list bu't at least his

judgment shows that where the provisions are similar, the princi­

ples laid

down by the Judicial Committee, should be accepted as E

a guide.

Similarly, Varadachariar J., observed at

p. 235 :

"It seems to me necessary to point out that the

assumption in the Patna case that the scheme of s. 100

of the Constitution Ace is radically different from that

of

ss. 91 and 92 of the British North America Act is

not warranted. A Jong line of decisions beginning at

least

as early-as Citizen Insurance

Company of Canada

v. Parsons(') have interpreted these provisions of the

Canadian Constitution in a manner that almost assimi-

lates their scheme to that adopted

in s.

100 of the

Government of India Act. . . . . . . . The position of

the Provincial Legislatures under the: Indian Constitu-

tion Act

in

respect of the subjects enumerated in List

H, and in relation to the subjects specified in List J is

in essence the same as that above stated in regard to the

powers of the Provincial Legislature under s. 92 of the

British North America Act. It will

be clear from the

decisions that the rules of interpretation

ado11ted in the

(1) [19211 2 A.C. 9t, 1 t6 (2) [188t] 7 ft .. C. 96.

F

G

H

.,

A

B

c

D

E

F

G

H

UNION V. H. S. DHILLON (Sikri, C),)

Canadian cases were evolved only as a matter of rea­

sonableness and common sense and out of the necessity of

satisfactorily solving conflicts arising from the inevita~

ble overlapping of subjects in any system of distribution

of legislative powers. That they need not be limited to

any special system of federal constitution is made clear

by the

fact that in Gallagher v.

Ly1111 ('), Lord Atkin

applied the "pith and substance" rule when dealing

with a question arising under the Government of Ireland

Act-which did not embody a federal system of at

all-and in Shannon v. Lower M ainlalld Dairy Pro­

ducts Board(

2

), when dealing with a Canadian case,

he embodied

in the judgment the principles enumerated

in the Irish

case."

67

It was said that we would be destroying the federal structure

of our Constitution if

we adopted this line of enquiry. It seems

to

us that this test was perhaps

applied by this Court in Gift Tax

Officer

v.

Na~areth(

3

) where Hidayatullah, C.J., observed in

dealing with the question of the gift tax :

"Therefore, either the pitch and substance of the

Gift Tax Act

falls within entry 49 of

State List or it

does not.

If it does, then Parliament

will hav,e no

power to

levy the tax even under the residuary powers. If is does not, then Parliament must undoubtedly

possess that power under Art. 248 and entry 97 of the

Union List."

Be that as it may, we are unable to see how the adoption of

this mode of enquiry will destroy the federal structure of our

Constitution. The State Legislatures have full legislative autho­

rity to pass Jaws in respect of entries in List II, and subject to

legislation

by Parliament on matters in List III.

It was also said that if this

Wali the intention of the Constitu­

tion makers they need not have formulated 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 IT in the light of

Lists I and

IT.

If there had been no Lisi I, mll!ly items in List

II would perhaps have been

given much wider hiterpretation 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

(I) [1937} A.C. 863, 869. (2) [1938! A.C. 708, 719-720.

(3) [1971] 1 S.C.R, 195, 200.

68 SUPl!.EME COURT REPORTS [1972] 2 S.C.R.

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

we are of the opinion . that they interpreted entry 49 List II correctly.

Sudhir Chand Newn v: Wealth Tax Officer(') this Coun

was concerned w_ith the validity of the Wealth Tax Act, 1957, as

it originally stood. This Court proceeded on the assumption

that the Wealth Tax Act was enacted in exercise of the powers

under Entry 86, List

I. It was argued before the Court 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.

In rejecting this argument the Court observed :

"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 valua­

ti<~n date. The tax is not imposed .on the components

of the asset~ of the assessee; it is imposed on the total

assets which the assessee owns, and in detennining the

net Wealth not only the encumbrances specifically

charged against any item of asset, but the general liabi­

lity of the assessee to pay his debts and to discharge

his lawfnl obligations have to be taken into account

..

. . . . . . Again entry 49 List II of the Seventh Schedule

contemplates the levy of tax on lands

.and buildings or

both as units. It is nonnaly not concerned with the

division of interest

or ownership in the units of lands

or buildings which are brought to tax. Tax on

la~ds

and buildings is directly imposed on lands and bmld­

ings, and bears a definite relation to it. Tax · <_>n the

capital value of assets bears no definable relation to

lands and buildings which may form a component of

the total assets of the assessee.

By legislation in

exer­

cise of power under entry 86 List I tax is contemplated

(0 !1969] I S.C.R. 108. 110

B

c

D

E

F

G

H

A

8

c

D

E

F

G

H

UNION v. H. S. DHILLON \Sikri, C.J.)

to be levied on the value of the assets. For the pur­

pose of levying tax under entry

49 List II the

State

Legislature may adopt 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 liabi­

lity will not, in our judgment, make the fields

of

legislation under the two entries

overlapping."

6S

It was urged on behalf of the respondent that in Assistanf

Commissioner of Urban Land Tax v. The Buckingham & Carna­

lic Co. Lid.('), this Court held thal a tax on the capital va:ue of

land and buildings could be impo,sed 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 the

entries 86 and 87 of List I preclude the State Legisla­

ture from taxing capital value of lands and buildings

under Entry

49 of List

11."

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 prin­

ciple of aggregation and

is imposed on the totality of

the value

of all the assets. It is

imposed~OI\· the tofal

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 lia­

bility of the as*5see to pay his debts and to discharge

his lawful obligations have to be taken into account ..

But 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 bui!dings

1

and bears a definite relation to it. Tax

on the capital value of

asse·ts bears no definable rela­

tion to lands and buildings which may form a compo­

nent of the total assets of the assessee. By legislation

I) [19701 I S.C.R. 268.

70 SUPREME COURT REPORTS [1972] 2 S.C.R.

in exercise of power under entry 86, List I tax is con­

templated to be levied on the value of the assets. For

the purpose of levying tax under entry 49, List II the

State Legislature may adopt for determining the inci­

dence 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 enti­

rely different in their basic concept and fall on different

subject matters." (emphasis supplied).

In Fift Tax Officer v. D. H. Nazareth(') this Court, while

considering

the validity of the Gift Tax Ac:t, 1958, considered the

scope of legislation under entry 49, List lll. Hidayatullah, C.J.,

observed:

' "Nor is it possible to read a clear cut division of

agricultural land in favour of the States although the

intention

is to put land in most of its aspects in the State List. But howe:ver wide that entry, it cannot

still authorise a tax not expressly mentioned."

The Court further observed :

"Since entry 49 of the State List c:ontemplates a tax

directly levied by reason of the general ownership of

lands and buildings, it cannot include the gift tax as

levied by Parliament."

The requisites of a tax under entry 49', List II may be sum·

marised thus :

(I) It must be a tax on units, that -is lands and

buildings separately as units.

(2) The tax cannot be a tax on totality, i.e., it is

not a composite tax

on the value of all lands

and buildings.

A

B

c

D

E

F

( 3) The tax is not concerned with the division of

interest in the building or land. In other

words, it

is not concerned whether one person G

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

((I) [197111S.C.R.195, 200.

H

' /

UNION v. H. S. DHJLLON (Sikri, C.J.) 71

A under the Wealth Tax Act, as 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 pro­

perty' is clearly brought out in the following extracts, and sup­

B ports the conclusion arrived at by this Court.

c

D

E

F

Readings on Taxation in Developing Countries by Fird and

Oldman elucidates the concept of Wealth Tax as follows, at

page 281 :

"The term 'net weal th tax' is usually defined as a

tax annually imposed on the net value of all assets less

liabilities of particular tax-payers-especially indivi­

duals. 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 infreqµent intervals-<mce a

generation­

while the latter is a one-time charge, usually with the

primary purpose of redeeming a wartime national

debt. The net wealth tax

is really intended to tax the

annual yield of capital rather than the principal itself

as do death duties or a capital levy, even though it is

levied on the value of the principal.

Since it taxes net

wealth, it also differs from property taxes imposed on

the gross value of property-primarily real

property-

in a number of countries. The net wealth tax gives

consideration to the taxpayer's

taxaWe capacity

through the deduction of all outstanding liabilities and

personal exemptions

as well as through other devices,

while the property tax generally does not take these

factors into account. The net wealth tax

is therefore

deemed to be imposed on the person of the taxpayer,

while the property tax

is often deemed to be imposed

on an

object-the property

itself."

In Harvard Law School World Tax Series-Taxation in

G

Columbia-Net Wealth Tax is defined at page 451 thus :

"As a general rule, all debts owed by a taxpayer,

whether to residents or to non-residents, are deductible

if their existence

is established in conformity with the

legal

requir~ments. The usual test of deductibility, as

applied by the Division Qf National Taxes, is whether

or not there

is an

actual, enforceable legal obligation,

the amount of which

is fixed or computable as on 31

December of the tax

year."

72 ·SUJ'REME COURT REPORTS (1972] 2 S.C.R.

According to Harvard Law School World Tax Series-.

Taxation in Swed·~n-this tax has been levied in Sweden since a

long time. Now it

is regulated by law enacted in 1947. "Taxable Wealth" has been defined at pa~e 625 as follows :

"Taxable wealth consists of the capital value of the

taxpayer's assets.

as those are defined in the Jaw, to the

extent that this value exceeds the capital value of his debts."

In Harvard Law School World Tax Series-Taxation in the

Federal Republic of

Germany-it is stated at page 152 that

"the

taxes on capital which are summarised in this chapter are the net

worth tax, the real property iax, . and the capital levy under the

Equalization of Burdens Law." It is further stated thus :

"Some of the taxes on capital are deemed to be

imposed on the person of the taxpayer while others are

deemed to be imposed on an object. Examples of the

former are the net worth tax and the capital levy under

the Equalization of Burdens Law, while the real pro­

perty tax and the trade tax

on business capital are

dassified in the latter category. The main importance

of this distinction

is that taxes in the first group pre­

suppose a taxpayer with independent legal existence,

that is, an individual

or a legal entity (juridical per­

son), 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 com­

bination of persons without separate: legal existence.

Taxes of the first type give consideration to the tax­

payer'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 wlth entry 97, List I, or entry 97 List I, standing by itself.

Although we have held th~t the impugned Act does not

impose a tax mentioned

in entry 49, List II, we would like to

caution

·that in case the real effect of a Central Act, wl1ether

called a Wealth Tax Act or not, is to impose a tax mentioned in

entry 49 List

II ihe tax may be bad as encroaching upon the .domain of State legislatures. ·

A

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UNlON v. H. S. DHILLON (Sikri, C.J.) 73

In this connection the following words of the Judicial Com­

mittee may be borne in mind.

In Attorney-General for Canada v.

Attorney-General

for

Ontario(!) the Judicial Committee observ­

ed:

In other words, Dominion legislation, even though it

deals with Dominion property, may yet be so framed as

to invade civil rights within the Province, or encroach

upon the classes of subjects which are reserved to Pro­

vincial competence.

It is not necessary that it should be

a colourable device, or a pretence.

If on the true view

of the legislation it

is found that in reality in pith and

substance the

lagislation invades civil rights within the

Province, or in respect of other classes of subjects

otherwise encroaches upon the provincial field, the legis­

lation will be invalid. To hold otherwise would afford

the Dominion an easy passage into the Provincial

Domain."-

In Attorney-General for Alberta v. Attorney-General for

Canada(

2

)

the Judicial

Committee observed :

"It is not competent either for the Dominion or a

Province under the guise,

or the pretence, or in the form

of an exercise of its

own.powers, to carry out an object

which is beyond its powers and a trespass on the exclu­

sive powers of the other : Attorney-General for Ontario

v. Reciprocal Insurance(

3

); In re The Insurance Act of

Canada ( •). Here again, matters of which the Court

would take judicial notice must

be borne in mind, and

other evidence in a case which calls for it.

'It must be

remembered that the object or purpose of the Act, in so

far as it does not plainly appear from its terms and its

probable effect, is that of an incorporeal entity, namely,

the Legislature, and, generally speaking, the speeches of

individuals would have little evidential weight."

Although it is not necessary to decide the question whether the

impugned Act falls within entry 86 List I, read with entry 97

List I, or entry 97 List I alone, as some of our brethren are of the

view that the original Wealth Tax Act fell under entry 86 List I,

we might express 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 eRtry 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

(1) [1937] A. C. 355, 367.

(3) [1924] A.C. 328,

342.

(2) [1939] A.C. 117, 130.

(4) [1932] A.C. 41.

'-L2 56 SupCl/72

74 SUPREME COURT REPORTS [1972J 2 S.C.R.

deduction of debts while legislating in respect of 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 Par­

liament to provide for deduction

of debts. It would also be

noticed that entry 86 List I deals only with individuals and com­

panies but net wealth tax can be levied not only on individuals

but on other entities and associations

also. It is true that under

entry 86 List

r aggregation is necessary because it is a tax on the

capital value

of assets of an individual but it does not follow from

this that Parliament

is obliged to provide for deduction of debts

in order to

determ~ne the capital value of assets of an individual

or a company. Therefore, it seems to us that the whole of the

impugned Act clearly

falls within entry 97 List I. We may men­

tion that this Court has never held that the original Wealth Tax

Act

fell under entry 86 List I. It was only assumed that the

original Wealth Tax Act

fell within entry 86 List I and on that

assumption this entry

was analysed and contrasted with entry 49

List II. Be that

as it may, we are clearly of the opinion that no

part of the impugned legislation

falls within entry 86 List I.

However, assuming that the Wealth Tax Act,

as originally

enacted,

is held to be legislation under entry 8 6 List I, there is

nothing

in the Constitution to prevent Parliament from combining

its powers under entry 86 List I with its

P.owers under entry 97

I. There is no principle that we know of which debars Parliament

from relying on the powers under specified entries 1 to 96, List I,

and supplement them with the powers under entry

97 List I and

art. 248, and for that matter powers under entries in the Concur­

rent List.

In Subrama_nyan Chettiar v. Muttuswami Goundan(1) Gwyer,

C.J., while dealing with the validity of the Madras Agriculturists

Relief Act, 193

8, observed :

"That the provisions of the Act in their application

to the decree obtained by the appellant were within the

competence of the Madras Legislature to enact does

not

.seems to

me open to doubt. They may be justified

by reference to entry no. 4 and no.

15

o:f List ill, per­

haps also to entry no. 2 in List II; I do not say that there

may not be

others,-but these will

suffice."

(I) [19401F.C.R.188,208~

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UNION v. H. s. DHILLON (She/at, I.) 75

In State of Bombay v. Narothamdas Jethabhai(

1

)

Patanjali

Sastri and Das, JJ., as they then were, relied on both items t ·Bnd

2 of List II of the Government of India Act, 1935, to uphold the

Bombay City Civil Court Act, 1948.

It was contended that the case of residuary powers was

ditf~

rent but we are unable to see any difference in principle. Resi­

duary power is as much a power as the power conferred under

art. 246 of the Constitution in respect of a specified item.

In

Jn re The Regulation and Control of

Aeronauties in

Canada(') the Privy Council upheld the validity. of a Parliamen­

tary statute after supplementing the powers under the specified

items in

s. 91 with the residuary powers. It observed :

"To sum up, having regard (a) to the terms of s.

132; (b) to the terms of the Convention which covers

almost every conceivable matter relating to aerial navi­

gation; and ( c) to the fact that further legislative powers

in relation to aerial navigation reside in the Parliament

of Canada by virtue of s. 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

por­

tion 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 facts that

the subject of aerial navigation and the fulfilment of

Canadian obligations under

s. 132 are matters of

natio­

nal mterest-and importance; and that aerial navigation

is a class of subject which has attained such dimensions

as to affect the body politic of the Dominion. (emphasis

supplied).

In conclusion

we hold that the impugned Act is valid. The

appeal is accordingly allowed and the judgment and order of the

High Court set aside and Civil Writ No. 2291 of 1970 in the High

Court dismissed. There

will be no order as to costs, either here

or in the High Court.

Sbelat,

J. We have had the opportunity to going

t!hrough

the j~dgl!l~nt of the lear~ed .Chief Justice just delivered. but regret

our mab1hty

to

agree with 1t. The reasons tor our disa~reement

are as stated hereinafter. e

(1) [1951] S.CR. 51. (2l fl932] A.C. 54,'77.

76 SUPREME COURT REPO!lTS [1972] 2 S.C.R.

The Wealth-Tax Act, 27 of 1957, as originally passed in

September 1957, imposed, by its sec. 3, tax on the gipital value

of net wealih °<.in the relevant valuation date of every individual,

Hindu undivided family and company.

Net wealth, as defined

under sec. 2 (

m), means the amount by which

ti1'~ aggregate value

computed in accordance with the provisicms of -the Act on all

assets belonging

to an assessee on the

vahiation date is in excess

over the aggregati: value· of debts owed by him on such valuation

date. Assets, as defined in sec. 2

(e), means property of every descritytion, moveable or immoveable, but does not include agri­

cultural land, growing crops, grass or standing trees on such

land.

By sec. 24 of the Finance Act, 1969, sec.

2(e) was amended

omitting the

no_n-inclusion of agricuHural land for the assessment

year commencing from April

1, 1970 and for all subsequent

assessment years, thus including agricultlural land in the definition

of

assets.

The respondent filed a writ petition in the High Court of

Punjab, from out of which the present appeal arises, challenging

the validity of the amendment by which the non-inclusion of agri­

cultural land from the assets of an assessec: was done away wi!h.

The challenge was based principally on two grounds :

( 1) that such a tax on agricultural land could be

imposed under entry 49 in List

II in

the Seventh Schedule

to the Constitution by the Stateli and not by the Union,

and

(2) that even if that was not so, Parliament had

no competence

to enact

aa act imposing such a tax on

agricultural land either under Art.

246 read

wHh entry

86 in Li.s.t I or under its residuary power under Art.

248 read with entry 97 in that list .

. 1!1 view of the importaQce 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 sec. 24 of the

.Finance Act,

1969 to the exient that it included agricultural

land

within the definition of assets for the purpo[>es 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. by the. respondent was con­

cerned, the High Court held, in view of tl\e decisions of this Court

in Sudhir Chandra Nawn v. Wealth-Tax Officer, Calcuita(1)

Assistant Commissioner of Urban Land Tax & Ors. v. The Buc­

kingham &: Carnatic Co. Ltd. (

2

) and Shri Prithvi Cotton Mills

(I) [1969] 1 S.C.R. 108. (2) [19701 LS.C.R. 268.

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. UNION v. H. s. DHILLON (She/at, J.) 77

Ltd. v. Broach Borough Municipality(1) to which we shall pre­

sently come, that a tax levied on th~ capital value ~f all assets

taken in their totality under entry 86 m List .I read with Art. 246

or one which included agricultural land and levied under the

power conferred

by Art. 248 read with entry 97 in List I was

not a

tax under

·~ntry 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 value of all assets, even

if it

in­

cluded agricultural land within the meaning of such assets, did

not fall within, no~ entrenched upon State power ll!Ldi;.r entry 49

of List II. In the light of these decisions, the High Court felt

that entry 86 in List I and ·~ntry 49 in List II covered di!Ierent

fields, one net entrenching on 'the other, and that therefore, a tax

levied under and

by virtue of the former could not be said to

entrench on the sphere of taxation of lands and buildings reserved

to the

State~.

On the second issue, the High Court acceptec!, the wnten­

tions urg~d on behalf of the respondent that (a) in the light of

the relevant entries in the Lists the Constitution, by and large,

left the subject of agriculture and agricultural land both as regards

legislation and taxation

to

'the States, ( b) that in the light of

that constitutional policy, the Constitution excluded from the

field

o.f entry 86 in List I the power to impose the tax on the

capital value

of agricultural land, and (c) that that being so, it

could

not be held that the residuary power contained in Art. 248

read with entry 97 in List I included the power to

levy a tax of

the kind contemplated in entry 86

so as to take

into its sweep

agricultural lands ·~xpressly exc!1,1ded therefrom and thus n:illify

the restriction or exclusion of that class of property. Therefore,

the Union could not resort to Art. 248 and or entry 97 in List I

to jnstify the deletion of the non-inclusion of agricultural land by

sec. 24

nf the Finance Act, 1969 .

.

M.r.

~et~lvad challenged the correctness of 'the High Court's

ma1onty 1uugment. Relymg on Art. 248 and entry 97 in List I,

he argued that under the federal scheme of our Constitution the

policy

was to vest

'the residuary powers in the Centre, that the

Hig~ Court had misapprehended the true interpretation of entry

9? 111 List I and was 1herefore in error in holding that that entry

did not contam the power to levy a tax of the kind we have here

on agriculturnl land, though that power was withheld in entry 86

in 1:-ist I. His conto:ntion was that the power to levy a tax on

capital value of agncultural land was derived from Art. 248 and

entry

97 in List I, as it was not a matter enumerated in Lists JI

and III, and

therefore, fel! squarely under .entry 97. That in brief

was the sum total of .his contentions. He did not argue on the

(I) [1970] 1 S.C.R. 388.

78 SUPREME COURT REPORTS p972] 2 S.C.R.

first question as it was decided by the High Court in his favour.

Counsel for the respondent contested the correctness of the con­

tentions urged

on behalf of the Union of India and,

after an elabo­

rate analysis . of the relevant entries and the Anicles, supported

the majority jµdgment of the High Court.

Before we proceed to examine these rival ·contentions i

1

l is

necessary to set QUt broadly the scheme of distribution of legisla­

tive powers between the Union and tlle States laid down in Ch. I

of Part XI of rthe Constitution. Under Art. 245, Parliament can

mak~ 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 differenl'ltopics or matters of legislation are set out in

the three Lists in the Seventh Schedule. List I, known as the

Union List, .enumerates 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 Jaws.

By reason of .the non-obstante clause in cl. (1) of Art. 246, if

there is a conflict

or overlapping of

th>.:: subject-matter of legisla­

tion, it is tbe Jaw made by Parliament which prevails over the

State law. List III, called the Concurrent Lis_t, has topics in res­

pect of which both Parliament and the State Legislatures have

power to m<_!ke laws. Again, as a result of the non-obstante clause

i.n cl. ( 1) of Art. 246, if there is any inconsistency between the

laws made by Parliament

and the laws made by

State Legislatures,

both acting under cl. (

3) of Art. 246 and

List III. that is resolved

by making the law passed by Pariiament to prevail over the State

law. So Jong as the P<_!rliamentary law continues, the State law

remRins inoperativ_e. bu·t becomes operative ono~ the Parliamentary

law is removed. Under cl. (

4) of Art. 246,

Parliament has the

power to m11ke laws with respect to any matter including those in

List II for any part of India not iJJcluded in a State, e.g., Union

territory. Art. 248 declares rthat Parliament has the exclusive

power to legislate

on

matters not enumerated in List III or List II

and to impose a tax not mentioned in either of those Li~ts. To

avoid any doubts, entry 97 is inserted in List I, which sets out the

field of legislation thereunder as follows :

"Any other matter not enumerated in List II or

List HI including any tax not mentioned in either of

those Lists."

Art. 246 thus lays down the powers of the respective legislatures

in respect of the matters enumerated iii the three Lists. Where

those Lists come into conflict, the non-obstanu clause

in els.

(I )

and (2) shows that List I has priority over Lists ill and II, and

List

III has priority over List II.

D.!spite the dominant part

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UNION v. H. s. DHILLON (She/at, J.) 79

given to Parliament in this Article, th.e State legislatures, however,

have the exclusive jurisdiC'tion over matters set out in List II and

the principle underlying the 11011-obsta11te clause can be resorted

to only in cases of conflict which are not caru1.ble of being re­

conciled. [see In re C.P. & Berar Act, No. XIV of 1938(1)].

Unlike some of the constFtutions with a foderal and distributive

system of powers, our Constitution, in consonance with its being

a centrally oriented Constitution, has conferred on Parliament

under Art. 24~ "exclusive power to make any law with respect to

any matter not enumerated

in the Concurrent

List or State List".

Such power includes also the power "of making a law imposing a

tax not mentioned

in either of these

Lists".

The expression "any matter not enumerated in the Concurrent

List or State List" in Art. 248 must mean, in the context oh:!.

(I ) of Art. 2'46, which gives Parliament exclusive power in res­

pect 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 Art. ,248 cannot include power which is exclu­

sively giver1 to Parliament on matters in List I already conferred

under cl. (

1 ) of Art. 246, so tha1 an attempt to distinguish the

words

"any matter" in Art. 248 and "any other matter" in entry

97 in Li~t 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 Art. 248 and

its

consequence translated in entry 97 in List I, there can be no

gain­

saying 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 contemplated. This is clear from the fact,

as poin­

ted out by counsel, that the Lists contain as many as 209 matters

which are couched in careful and elaborate words with inclusive

and excluding language in the case of some, which has made the

Constitution, JO use the words of Gwyer, C.J., in In re the C.P. &

Berar Act No. XIV of 1938,(') "unique among federal constitu­

tions in the length and detail of its legislative Lists". In the lay­

put of such elaborately worded matters in the Lists and in the

context of Art.

246(1), the re;iduary power contained in

Art.

248 and entry 97, List I must be construed as meaning power in

respect of matters not enumerated

in any of the three Lists.

Such

a residuary power cannot, therefore, be ordinarily claimed in

respect

of a matter already dealt with under an Article or an

entry

in any one of

the three Lists.

(!) [1939] F.C.R. 18, at 38.

80 SUPREME COURT REPORTS

[1972] 2.S.C.R.

Principles of interpretating constitutional provisions, when

conflict£ between legislative bodies with separate powers entrusted

to them arise are well-settled and need no>t therefore be here re­

peated. Two of them, however, bear repetition, for, they have a

direct bearing

on what we are called upon

in-this appear to decide.

The first one laid down in Att.-Genl. for New South Wales v.

Brewery Employees Union(') is that although the words of a cons­

titution are to be interpreted in the same way as courts interpret

other statutes, it has to be borne in mind, while doing

so, that

what

is interpreted is a constitution, a mechanism under which

laws are to be made and not an Act which declares what that law

is to be. This

is specially so in the case of a federal constitution,

with its nicely drawn balance of jurisdictions. Thus, a broad and

liberal spirit should inspire those on whom the duty

to. interpret

falls. Where the language is explicit, it has to be giv~n effect to;

it cannot be unduly stretched so that it is distorted to supply any

supposed error or omission. The other

is, to quote the language

of

Att.-Genl. for Ontario v. Att.-Genl. for

Canada(') cited with

approval in

Jn re

/he Central Provinces & Berar Act XIV of

1938(") "if the text is explicit, the text is conclusive, alike in what

it directs and what

it

forbids". If the text is ambiguous, i.e., where

the words establishing two mutually exclusive jurisdictions are

wide enough •to bring a particular power within either, recourse

must

be had to the context and the scheme of the Act. The

pre.­

sumption, unless there is anything tp the contrary, is that the

power is not withheld or that it does not ex.ist at all; is it there in

some quarter.

To ascertain where it is, it becomes necessary at the very

thres­

hold to know the nature of the impugned tax. The Act is

designated by itsnrst section-the Wealth Tax Act, 1957. Though

it

is the

subs~ance and not the form or designation which matters.

the Act was passed, as conceded by Mr. Setalvad, in exercise of

the power contained

in Art. 246 (I)

tead with entrv 86 of List I.

Under sec. 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 sec. 2(e} and

sec.

Z(m}. The fact that it is the capital value of the net w~alth.

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 anythinl!: else than the weal1h tax as the Parliament legislatively

declared it to be. A legislature may, either

as a

m~tter of policy

or because its power is a restricted one, exclude or not include

within the ambit of a tax, which it enacts, certain assets and may

(I)

[1908) 6 C. L. R. 469, 611. (2) [1912] A.C. 571.

(3) [1939] F.C.R. 18, 31

8

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UNION v. H. s. DHILLON (She/at, J.) St

tax 1the rest. It may also decide that in fairness and justice to the

assessee the tax shall be imposed not

on the gross amount

but on

the net amount arrived at after deducting his debts and liabilities.

That fact by itself would not mean that it is a tax any the different

from what the Legislature itself d·~clares it to be. Fortunately,

we do not have to consider in details the nature,. of !he tax con­

'lemDlated by entry 86 in List I and that under the impugned

Amending Act in the light of works on Public Finance and other

allied subjects, as the Act has no more than one occasion been

upheld

by this Court as one falling under entry 86 of List I. Even

counsel for the

Union conceded that the Act as originally passed

in

1957 was a 'tax falling under that entry. Since, however, the

question as

to !he nature of a tax on the capital value of

a1sets

was debated at one stage of the hearing of the appeal, we may

briefly set out the views of some of the writers on public finance

brought to our notice.

Entry 86 in List I, as aforesaid, deals with a tax on the capital

value of the assets, exclusive of agriculttiral land of an individual,

Hindu Undivided Family or a company.

Tax on

th·~ capitaf of

a company, which

is the other tax mentioned there, is left out

from consideration

as we are not concerned with such a

tax for

the present. The question

is. whether the tax

imposed under the

Wealth Tax Act,

1957 is a tax on the capital value of the

as1ets?

The tax is imposed on the net wealth (sec. 3), which mearis value

of assets. an assessee holds on the valuation dat·~ (sec. 4). The

net wealth is arrived at by computing the value in the manner

provided

in the Act and deducting therefrom all debts and

liabili­

ties. The tax is one on ·the capital value of the 'total assets and

though each asset is valued separately, the tax is assessed on the

value of all the assets (except agricultural land) as a whole.

It

was. however. said tha't the tax levied under the Act is different

from the tax on the capital value of the assets

as contemplated by

en

tr:.· 86 in List I for two reasons; (a) that it do~s not take in all

1

thc asse!s inasmuch as it excludes agricultural land. and (b) that

it computes net wealth by deducting the debts and liabilities of the

assessee. The fallacy in such an argument lies in the confusion

hetwecn the basis of the tax and its incidence. Th·~ basis of the

tax

is the capital value of the assets

·~xcept 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 restrict•w by a definite policy in distributing power

under which th.~ field of )egislation 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 8,6 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·

82 SUPREME COURT REPORTS

[1972] 2 S.C.R.

.as well take into account various factors such as fairness to the

.assessee and tax the capital valu.e 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 was

.imposed, himself thought that the tax fell under entry 8 6 in List I.

· His recomrrrendation was that on the grounds of both equity and

administrative efficiency, the

tax should be comprehensive, i.e.,

eX!tending to all forms of property, but that such a tax which would .foclude agricultural land would necessitate a constitutional amend­

ment. He would not have stated so

1

if he thought the tax, he was

suggesting, did not fall under entry 86 in List I.(') According

to Tanabe, the term "Net Wealth Tax" is a tax annually imposed

on the net value of all assets !es~ liabilities. Such a deduction

distinguishes the tax from property taxes, in that it is not directly

-on the property and unlike tax·~s, such as death duties and capital

levy,

it takes into consideration the taxable capacity of the assessee

by

deducting his debts and liabilities from the gross value of his

assets. The· tax, therefore, is on the person of th.e assessec as

against the property tax which is imposed on the property itself

directly('). In Sweden also, where the wealth tax

has been a "feature of •tho~ tax structure, taxable wealth is defined as the capital

value· of an assessee's assets at the end of his income year to the

extent that that value exceeds the capital value of

his

debts(').

A

B

c

D

The basis of the wealth tax thus is the capital value of the assets E

·held by an assessee on the rdevant-valuation date. The fact that·

a particular tax excludes one or more of the assets or allows from

its incidence certain deductions, such

as

debts and liabilities, per­

tain to the field of computation and not the basis of the tax which

is the capital value of assets. lnde>~. in all cases which have so

far come up before this Court or before the High Courts, it was

never the ccnofention of the Union of India that the Wealth Tax

Act did not fall under entry 86

in List I.

In

S. C. Nawn v. Wealth Tax Officer('), an order of assess­

ment an<J penalty, and notices of demand for •th.e recovery oi the

tax under the Act were challenged on three grounds; (i) that the

F

tax was chargeable only on the accretion of wealth during the G

financial year,

i.e., on the wealth

whieh accrued during the account-

ing year. (ii) that it could not have been the intention of Parlia­

ment to charge the same assets or wealth year after year, and

(I) Prof. Kaldor, Report o• lndia• Tax Reform, (1956), p. 26.

(2) Richard M. Bird and Oilver Oldman, R•adiNKS on Taxation In H

0-/op/nf Countri•s, p. 281.

(3) William Barnes, World Tax Series, Tqxatiun in Sweden, p. 617.

(4) (1969] I S.C.R. 108

•

A

UNION v. H. s. DHILLON (She/at, J.) 83

(iii) that since 'the "net wealth" as defined by the Act included

non-agricultural lands and buildings and ·~ntry 49 in List !I re­

served the power to impose tax on lands and buildings to the

States, the tax suffered from legislative incompetence. This Court

rejected all the three corrtentions and held that s. 3 of the Act

charged the capital value of net wealth on the corresponding valu-

B ation date, and was not on accretion of w.~alth 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

hieing 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

c

D

F

G

ff

the capital value of the a<'ets of an as<.~ssee 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 im­

posed und·~r entry 49 of List II, and therefore, there was no en­

trenchment on the Sta!les' power to levy a tax on lands and build­

ings 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 a position was asrnmcd in

an earlier decision of th;s Court in Banarsi Das v. Wealth-Tax

Officer(

1

)

and therefore, confined his

challenge IO the ground

of encroachment on States' power under entry 49 of List II. But

the following passage from the report at page

111 shows that the Court agreed with the position accepted by counsel and held that

the subject-ma'tter of the Act fell under entry 86 of List I :

''Tax on lands and buildings is directly imposed on

lands and buildings and bears a definite relation to

it.

Tax on the capi'tal value of assets bears no definite

relation to lands and buildings which may form a

component to the total assets of the assessee. By

legis­

lation in exercise of pow~r under entry 86 of List I

'lax

is contemplated to be levied on the value of the a55ets. For the purpose of levying tax under entry,49

in List II the State legislature may adopt for determin­

ing 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, in

our judgment,

make the fields of

legislation under the two entries

overlapping."

In support of the view that the subject-matter of the Act fell

under entry 86 of List I and that there was no overlapping for conflict between such a tax and the one under entry

(I) 56 l.T.R. 224.

84 SUPREME COURT REPORTS [1972] 2 S.C.R.

49 of List II, the Court cited three decisions in which the It.

High Courts of Kerala, Orissa and Myso're had also taken the

same view. (see

Khan

Bahadur C. K. Mammad Devi v.

WealthcTax Ofjicer(1), V. B. Narayana Murthy v. Commissioner

of Wealth-Tax(

2

)

and

Sri Krishna Rao L. Balekai v. Third

Wealth-Tax Officer(').

In Assistant Commissioner of Urban Land Tax v. Buckingham

& Carnatic

Co. Lid.(') the same question was raised, though in

a reverse order.

The challenge was to

the Madras Urban Land

Tax Act, 1966 by which a tax was imposed at the rate of 0.4%

on the market value of urban land. The Madras High Court

upheld the legislaitive competence of the State Legislature to en­

act the Act, but held it to be violative of Arts. 14 and (19) (1)

(f). In the" appeal to this Court against tha't judgment, the con­

tention was that the impugned Act fell und1~r entry 86 of List I

and not under entry 49 of List II. Ramaswami, J., who spoke for

the Bench, which had on it both Shah,

J. (as he then was)_ and Mitter, J., who were also parties to the earlkr judgment, rejected

B

c

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

h.e 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 tb~ amplitude of power in that entry, was competent to levy it on

E

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

r

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 between the two

powers. thus lay in the agJ!fegation

being the basis of the tax under entry 86 of List I. which made the

two taxes conceptually different and distinguishable both in their G

incidence and the subject-matter of their burden. Both the

legislatures can imoose a tax on the capital value of the relevant

property

but they are, as held by the learned Judge, conceptually

different:

In Prithvi

Cotton Mills v. Broach Borough Munici­

pality(•), it was held that after S., C. Nawn's ca5c(

8

). where the

respeotive ambits of entry 86 of List I and entry 49 of List II H

(I) 44 1.T.R. 277. (2) S61. T. R. 298. (3) A.1.R. 1963 Mys. lit.

14) (19701 IS C.R. 268. (~) (1970] IS.C.R. 388. (6l [1969] IS.C.R. 108.

•

..

•

UNION v. H. s. DHILLON (She/at, J.) 85

A were explained, it could no longer be questioned that the State

Legislature, in that case of Gujarat, had power under en~ry. 49

of List II to levy a tax on 1he caprtal value of lands and bmldmgs

and

sec. 99 of the Gujarat Municipalities Act was therefore

valid.

B

c

D

E

r

G

H

Gift Tax Officer v. Nazateth(

1

)

challenged Parliament's

competence

to pass the Gift Tax Aot, XVIII of 1958, on

1he

ground that entry 49 read with entry 18 of List II reserved the

power

to tax lands and buildings to the State legislatures and Parliament could not, therefore, use i1s residuary power conferred

by Art. 248 and entry 97 of List I. Hidayatu!lah, C.J ., speak-

ing for the Bench relied on

Nawn's case(

2

)

and drew, as. was

done in that decision, the differentiation between a tax directly

on lands and buildings and a tax, conceptually different from

such a tax,

viz., on the gift of property which might

i•n some cases

include lands and buildings. "There is no tax upon lands and

buildings

as units of

taxation", he observed. "Indeed, the lands

and buildings are valued to jjnd out the total amount of the gift

and what

is taxed is the gift.

The value of the lands and build­

in,gs is only the measure of the value of the gift. A gift tax is

thus not a tax on lands and building& as such (which is a tax

resting upon the general ownership of land and building) but is a

levy upon a particular

use, which is transmission of title by

gift.

The two are not the same thing and the incidence of tax is not

the same". The validity of the Gift Tax Act was upheld on the

ground that since none of the three lists enumernted such a tax,

there

was no question of

Parliament having entrenched upon the

State's power under entries 18 and 49 of List II. The Act was

held to have been enacted under the residuary power vested in

Parliament by Art. 248 read with entry 97 in List I.

The aforesaid analysis of the three decisions clearly demons­

trates 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

i1 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 build­

ings (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 8 6 of List I, which, in 1he words of

Ramaswami,

J., in the case of the Madras

Urban Land Tax

Act(

3

)

was conceptually different by reason of its characteristic

of aggregation as held in Nawn's case(') and different in its sub­

ject-matter as well as incidence. In all the three cases, the

question directly arose on account

of the nature of the challenge

(l) [1971] I

S.C.R. 195. (2) [1969] 11.C.R. 108. (3) [1970] I S.C.R. 268.

86 SUPREME COURT REPORTS (1972] 2 S.C.R.

involved in each o.f 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 of

List I in the third case. The Wealth-Tax Act, 1957 has thus

been. clearly held to fall under Art. 246(1) read wi~ entry 86

of List I both in Nawn's case(1) and in the case of the Madras

Urban Land Tax Act, 1966(') where, as already stated, the con­

tention was that that Act did not fall under entry_ 49 of J,ist II

but under entry

86 of List I. The enunciation of the concept

of aggregation in

Nawn's case(') and

tha't of conceptual diffe­

rence in the

Madras

Urban Land Tax Act's case{') and both

adopted in the case of

Gift Tax Act(

3

)

for the purpose of deli­

neating the respective powers of the Centre and the

States have

decisively brought the WeaHh Tax to fall under entry 86 of

List I.

Such being the position, a valid tax on the capi'tal value of

assets including agricultural land cannot be imposed under the

power under Art. 246 (I) read with entry 86 in List I as entry

86 in List I, which is the only entry aU'thorising such a tax, res­

tricts in express tenns

the power to impose a tax on the capital

value of assets, exclusive of

a11ricultural land, of individuals and

companies.

It

is true that these entries are enwneratio simplex of broad

categories. A catena of cases have laid down that they should

be construed in a liberal spirit

so as to include within each of

them all that

is subsidiary and incidental 'to the power thereunder

enumerated. But

an interpretation of

the content and scope of

such power, however liberal. cannot

be adopted to include within

i't anything which the entry in positive terms excludes or res­tricts. Therefore. "hen entry 86 was framed, its restrictive terms

made it clear that though Parliament would have the power to

impose a tax on

the capital value of assets, that power was cir­

cumscribed

so as not to include in 1he

charj!,'~able assets agricul­

tural land.

The reason for such exclusion

is to be found in

the three Lists

themselves and the scheme of distribution of

fields of legislation

and 'taxation therein. A perusal of the

Lists indicates that the

entire subject of agriculture, including subjects . even remotely

allied to it, has been left to the States. Thus, entries 82, 86,

87

and 88 in Ljst I dealing with taxes on income, on capital value

of assets, estate and succession duties,

all uniformally exclude

agricultural land. Likewise, entries 6 and 7 in List III dealing

with transfer of property and contracts exclude from their

fields

of

operation agricultural land. On the other hand, entry 41 in

that List dealing with custody, management and disposal of

(1) [1969] 1S.C.R.108. (2) [1970] 1 S.C.R. 268. (3) [1971] 1 S.C.R.195.

A

B

c

D

E

F

G

H

A

B

c

D

E

F

G

H

UNION v. H. s. DHILLON (She/at, J.) 87

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 indi­

vidual States. Entries 14, 18, 28, 30, 45, 46, 47, 48 and 49

in List II, which deal with agriculture and agricultural land,

directly or even incidentally, !tave 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

tota!Vty of the assessee's world 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 exclu­

sion 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

Stat.e legislature can levy a tax on lands, including

agri­

cultural land, on 'the basis of their capital value. Agricultural

lands are likewise excluded in

the matter of estate and succession

duties from the purview of Parliament's power.

Under entries 4 7

and

48 of List II, the power to impose those

duties in respect of

agricu!rtural land has been entrusted to the States. The reason

for excluding agricultural land from entry 86 of List I

is,

there­

fore, clear, viz., that under the scheme of distribution o.f powers

underlying the three Lists, agriculture with

all its subsidiary and

incidental

aspects including taxation has been left to be dealt

with by the States. That was also done in the 1935 Act, for,

entries 54, 55, 56 and 56A

of List I there excluded agricultural

land from the purview of income-tax, tax

on the capital value of

assets, duties in respect of .succession to property

anc estate duty

leviable thereunder

by the Federal Legislature and entries 41, 42,

43 and 43A in

Li&t II had allotted that power to the Provincial

Legislatures so far as agricultural land was concerned. It is clear

that the Constitution has bodily taken and adopted that very

principle of distribution while framing the Lists.

If the above analysis is correct and the power to levy a tax on

the capital value of agricultural land

is not to be found in Art.

246(1) read with entry 86 of List I by reason of exclusion

there­

from of agricultural land, the question is, where else.is that power

located, if at

all it is vested in

Parliament ?

On that question, counsel for the Union urged two conten­

tions. The first was that it is independently located in Art. 248

read with entry 97 of List I. The second was that that Arti~le

is Clearly akjn to s. 91 of the British North America Act, 1867,

and confers residuary powers on Parliament with respect to any

matt~r not dealt with in List II or List III. The argument there­

fore, was that if a matter is not in either of those two Lists, it

88 SUPREME COURT REPORTS

[1972] 2 S.C.R.

.must necessarily be held to be with Parliament. Obviously, it

cannot be found in List III as that List contains no entry dealing

with taxes. Th·~refore, once it is found 1that there is no such

power in List II, it must necessarily be with Parliament. Since

the power to tax on the capital value of all assets including agri,

cuHural land is nei.ther in entry 49 of List II nor in entry 8 6 of

List I, the power falls within the residuary power independently

granted under Art. 248

(2). Mr. Setalvad conceded that Nawn's

case

(1) and the two cas·~s 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

~. tax on

the capital value of assets including agricultural land cannot fall

under that entry and

'the

Stictes obviously have no power to im­

pose such a tax on the total assets of a person under entry 49 of

List II or any other entry in that List, th·~ amending Act must

fall under Art. 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

1Jerson 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, Art. 248 ( 2) provid­

ing residuary power cannot be construed to confer a power which,

though confef!l"...d 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 restriction, which restriction

prevents imposition of such a tax including that on agricultural

land under any other entry including entry 97 of List I.

Art. 248 by its first clause confers on Parliament exclusive

-power to make a law with respect to any matter not enumerated

in List III or List

II and by its second clause includes in such pow!r the power of imposing a tax not mentioned in either of

those Lists. Entry 97 in List I which sets out the field of legis­

lation and taxation under Art. 248 reads

as follows :

"Any other matter not enumerated in List II or

List

III including any tax not mentioned in either of those Lists."

The argument was that the amending Act which deleted the

exclusion of agricultural land and thereby included such pro­

perty within the s.weep of the wealth-tax is competent by reason

of the fac! that )he po~er to impose a .tax on the cap~tal value of

all assets mcluding agricultural land 1s neither to be found in

(I) [19691 1 S.C.R. 108.

A

B

c

D

E

F

G

H

UNION v. H. S. DHILLON (She/at, ]. ) 89

A entry 86 of List I, nor in entry 49 of List II, nor in List 11_1, and

therefore, it falls in enl!ry 97 of List I by reason of the residuary

power conferred on Parliament

by Art. 248 (2). Such a contention in our opinion is not acceptable. As held

in

Nawn's case(') and

the 'two cases following it, the subject-matter

relating to a tax on the aggregate capital value of all the assets

B of an assessee is located in entry 86 of List I and granted to Parlia­

ment. But, while doing so, !he framers of the Constitution, pre­

sumably on

the ground that the entire subject of agriculture had,

on their scheme of distribution of power,

. been allotted to State

Legislatures, excluded from the ambit of the power under en.try

86 of List I the power to tax on 1the capi1al value of agricultural

land. Constitution makers may, as a matter of principle

or policy,

C while dealing with or granting power, do so in a qualified

or res­

tricted manner, There

is no warrant for

saying· tha1 ithere must be

found vested

in one single

authority an absolute power to legislate

wholly with respect to a given subject('). Indeed, there are

sewral ell!tries in Lis•t I, such as entries 9, 52, 53, 54, 62, 64 and

80, which confer on Parliament restricted power, either because

D the topics they deal with are distributed between 1he Central

Legislature and the State Legislatures or because it was thought

proper to confer power with restrictions. Thus, entry 9 of List

I, which deals with the 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 3 in List III

E for reasons connected with the security of a

State, mainl!enance

of order or maintenance of supplies and services essential 1o 'lhe

community. The power to make a law authorising preventive de­

tention

is thus restricted to the six reasons set out in

1the 1wo en-

1ries and not for any other reason. Tho! power having been so

dealt _with, it is impossible 10 say ithat the matter of preventive

detent10n is not enumerated or that that which is excluded therefrom

F was intended to or must fall under a provision or an entry dealing

with re.siduary po:ver. If counsel for the Union were to be right,

the Umon can claim the power to make a law for preventive deten­

tion

on

groqnds other than those specified in the two entries on the

ground thirt lt has residuary power to do so under Art. 248 and

ent.IJ'. 97, List I. If _that were so, ther~ was no point at all in pre-

G scnbmg the reasons m 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 matter which was not

f<;>reseen or contemp~ated then and which by reasol) of changed

circumstaneo~s has ansen and which could not therefore be dealt

with when th.~ Lists were framed. To accept fue interpretatior,

• H suggested by counsel. fo~ the Union would. mean that though the

framers of the c;onst1tut10n dehberately omiNed the power with

reference to agricultural land while granting it in respect of the

0) {1969] I $.C.R. 108. (2) Lefroy. Ca11adia11 Federal System (1913 ed.) p, 97.

7-L256 Suti. C.T.172

90

SUPREME COURT REPORTS

(1972] 2 S.C.R.

rest of the properties, <they at the same time nullified that exclusion

by providing power for it in the residuary provision. Su~h a c?n­

tention cannot be accepted for the reason that no such mten11on

can legitima1ely be attributed to the Constitution-makers, who

clearly had in their minds a scheme of distribwtion of powers, under

which the subject of agriculture including the power of taxation

on agricultural land, both on income and on corpus, was handed

over to the States.

Such an interpreta!tion on Art. 248 and entry 97 in List I finds.

support in at least two precedents. In Subrahmanyan Chettier v.

Muthuswami(1), the attack on the validity of the Madras Agri­

culturists Relief Aot, 1938 ori the ground that it fell under the

residuary power provided in sec. 104 of the Government of India

Act, 1935 and not under List

II or List III of the

Seventh Sche­

dule to that Act, and that therefore, the Aot suffered from lack of

competence of the State Legislature, was turned down. Suleiman,

J., at page 212 of the repoit observed :

"But resort to that residuary power should be the

very last refuge.

It is only when all the categories in

the three lists are absolutely

exhausted that one can think

of falling back upon a non-descript." (emphasis

supplied).

It is true that the Federal Court there was dealing with s. 104 of

the J;935 Constitwtion Act under which the Governor-General was

authorised to empower either the Federal or a Provincial Legisla­

ture to enact a law with respect to any matter not enumerated in

any of the lists, including a tax not mentioned in any such

List

and not with a provision such as Art. 248 or entry 97 in List I.

But

the only difference between the two is that instead of the

residuary power being in the Governor-General, the Constitution

has vested it in Parliament. The two provisions are similar and

bear the same interpretation especially

as the language of Art.

248

closely follows that of sec .. 104 of the 1935 Act.

In Gift Tax Officer v. Nazareth(') Hidayatullah, C.J., deal­

ing specificallv with entry 97 in List I, because of his conclusion

that the Gift Tax Act, 1958 fell under the residuary

field of

legis­

lature under that entry, analysed first the scheme of distribution

of power under Arts. 245, 246 and 248, and then the impact of

the three lists on such distribution. Dealing with Art. 248 and

entry 97 in List I, he construed them at pp. 197 and 198 of the

report as follows :

''Then there is the declaration in Art. 248 of the

residuary powers of legislation. Parliament has exclu­

(IJ [1940] F.C.R. 188. (2) [1!>71] 1 s.c.R. 195.

A

B

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D

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A

B

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UNION v. H. s.

DHILLON (Shelat, J.)

sive power to make any law in respect to any matter not

enumerated

in

i\he Concurrent List or State List and thi~

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 tire three lists covers it, then

it must be regarded

as a

matter not enumerated in any

of the three lists. Then it belongs exclusively to Parlia­

ment under entry 97 of the Union List as a topic of

legislation."

91

It will be noticed th:JJt the learned Chief Justice mentioned all the

three lists in this passage while describing the scope of the resi­

duary power of Parliament although both Art. 248 and entry 97

in List I refer to only Lists

II and Ill.

The Coostitution by Art. 246 (1) has had already granted

ex­

clusive power of legislation and taxation to Parliament in matters

set out in entries 1 to 96 in List I. Any State law entrenching in

its pith and substance upon a Parliamentary Act would be invalid.

Having so provided in respect

of List I, the only matters left for

legislation would

be those in Lists II and III and such of the

matters not to be found in those two lists. The last, therefore,

could only be the residuary matters

in respect of which exclusive

power had

to be granted to Parliament. This must mean that a

field of

legisla'!ion not dealt with in any of the three lists only

could be the subject-matter of residuary power under Art. 248.

Such a construction of Art. 248

is in consonance with the

cons­

truction given by the Federal Court to s. 104 of the Government

of India Act, 1935, following which Art. 248

was framed and

also with the words of

entry 97 in List I. The words in that entry

viz., "any other matter not enumerated in List II or List Ill" must

mea!1 any matt:r n?t being in the entries preceding it, that is,

entnes 1 to 96 m List I and any matter not enumerated in Li!!! II

and List III. The residuary power declared by Art. 248, and of

which the ~eld is defined in entry 97 of List I, must, therefore, be

the power m respect

of a field or category of legislation not

to be found in

any one of the three Lists. Taxes such as the Gift

tax, the expenditure tax and the Annuity deposit sclreme are

matters which are nCYt to be found in any of the three lists and

therefore, enactments in regard to them would fal! without doubt

under Art. 248 read with entry 97 of List I. ' '

92 SUPREME COURT REPORTS p972J 2 s.c.R.

But, can it be said rthat a tax on the capital value of assets in­

cluding agricultural land is one such tax, not mentioned in any of

the three lists, and therefore, falls under entry 97 of Lis I? When

counsel for the Union opened his cas·~. his con\ention was 'that

since entry 86 in List I exclude agricultural Jand therefrom, that

field

of legislation and tax must be said to be one not enumerated

and not mentioned

in that List and being a tax on aggregation,

conceptually different

from one which can be levied by the States

under entry 49 in List II, rt 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

coµtention 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 i't 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 ~ 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 restnotions. In the latter case, 1though the power can be acted upon in as plenary a

way

as pOSSible, it can be exercised subject to restrictions imposed

in

re2ard to it. (cf. Att.-Gen. for the Dominion of Canada v.

Att. Gen. for the Province of Alberta(

2

). The fact that a power

is eonferred, not in its entirety, but with a restriction upon it, can­

not mean that rthe subiect-matter in respect of H has not been dealt

with, and therefore,

faUs under

the provision dealing with the resi­

duary matters. If the decision in Nawn's case(

3

)

and the two

decisions following it, were

to be adhered to as having been

cor­

rectly decided, the tax on the capital value of assets of an assessee.

excluding that

of agricultural iarid falls under entrv 86 in

List I.

In that view. Parliament must be said to have enacted the Wealth­

Tax Act, 1957 in exercise of its exclusive power under Art. 246( 1)

read wi'th {hat entry.

Ts it possible then to say that by deleting the exclusion of

.agricultural land

bv s. 24 of the

'Finance Act. 1969 and thereby

mcluding agricultural land within the purview of s. 3 of the

amended Act, 'the Act ceased to be the Act passed under entry 86

of List I or that it acquired a character different than it had so

th.at it ceased to fall under Art. 246 (1) read with entry 86 ' of

List I ? The answer has to b~ in the negative. The reason is

(I) 6 C.D.R. 41 at 42. (2) [1916) A.C. 588 at 595. (3) [1969] l S.C.R. 108.

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'UNION v. H. S. DHILLON (S~lm, I.) 93

that, as held in Nawn's case(

1

), the Act was enacted in pursuance

of and under entry 86 of List I, it boing an Act levying a tax on

the aggregate capital value of all the assets of an assessee barring

agricukural land. It was, therefore, passed under Art. 246( 1)

on a matter enumerated in List I in respect of which Parliament

had exclusive power.

In deciding the question as to the

provi­

sion under which it was enacted, the distinction between the sub­

ject matter of the Act and the scope of power in respect of it bas

to be observed. The subject-ma«er of the Act is, as aforesaid,

the capital value of the total assets; its scope

or field of operation

is the capital value of all the assets excluding agricultural land.

It

is impossible to say that the exclusion of agricultural land in the

entry splits the matter into two matters, the permissible and the

excluded. The matter

is one, viz., the capital

value of all assets

except that the power

in relation

to it is restricted by the exclusion

therefrom

of one kind of asset. Consequently, it is impossible to say that there are two matters, one permissible under entry 86 in

List I and the other not enumerated anywhere else and therefore

falling under Art. 248 and/ or entry 97 in that List.

If it were

so, as contended, the restriction in entry 86 in regard to

agricultu­

ral 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 Art. 248

and entry 97.

But, it was said that if the interpretation of eotries 8 6 and 97

in List I, we COIIlllJend, were to be true, it would mean that neither

Parliament nor

the

State Legislatures can ever levy wealth_.ax 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 Legislallure impose

such a tax under entry 49 in List II. This does not ~an that a

tax

on

1he capital value of agricultural land cannot at all be im­

posed. Such a power is contained in entry 49, List II. But

there

is nothing

surprising in such a consequence, for, even in the

matter of income-tax, neither of llhem can impose that tax on the

entire income of an asscssce. Parliament cannot do so because

o( the restriction in entry 82 in List I; the States cannot impose

such a 'tax as their power is restricted to agricultural income only

under entry 46 in List II. That

is also the case in the

mMter of

succession and cstaie duties. The power of both ihe Legislatures

to make a law or impose a tax on any one of the matters in these

entries is restricted, though within the field allocated to each of

them, each has a plenary power.

The restriction

to such a power

may, as already ~tailed, be on account of distribution of power in

rapect of a particular field of Je~islation between the Union and

l1l [1969] l S.C.R. l08.

94 SUPREME COURT REPORTS [1972) 2 S.C.R.

!he. State Legislatures or .b_ecause the topic or field of legislation A

is itself hedged by cond1hons for reasons of policy. But that

does not mean that the excluded or the restricted field, in respect

of which either both the Legislatures have no power or one or ihe

~ther h~s no power, can be said to fall under the provisibn provid-

IDg residuary power. .on~e a topic or a field of legislation ii

e~umerated and dealt with m any one of the entries in one of the B

Lists'. whether the. topic is in _it.s entirety or restricted; there is no

quest.ion of the residuary pro".1s10n being resorted to· on the ground

t~at 1t operates on the remamder. Such a construction would

either nullify ~e intenti?n t.o c~nfer power only on the partial

fie!~ of the topic of legislahon m question or set at naught the

delicate system of distribution of power effected through the three C

elaborately worded Lists.

Counsel for

rthe Union in his opening address had argued the

appeal on the footing that the

inlpugned amending Act was no

encroachment on the

field reserved to the

States under entry 49

of List

II, as the nature of the tax is such that it could not be levied

by any law passed under that entry. His argument then was that

the

tax fell squarely within the power of Parliament by the com­

bined effect on entry 86 in List I and the residuary power in Art.

248(2) and entry 97 in List I. In his reply, however, he enlarged

his argument and urged that once it was found that the inlpugned

Act did not entrench on entry 49 in List II, Parliament could

inlpose it independently of entry 86 in List I under Art. 248.

The argument was that Art. 248 conferred an independent and

distinct power on Parliament in all matters nO'I 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 Art. 248 was in pari

materia with s. 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

Ir and that if it did not, the

power must necessarily be held to reside in Parliament. Jn sup­

port of this contention be 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 Art. 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

quea­

tion such as the one before us, the proper . inquiry would be

whether the inlpugned tax entrenched upon entry 49 in List II,

that being the only relevant entry, and if it were found that it did

not, the p0wer must be said to reside in Parliament, in other words,

that which is not in List II must be said to be with Parliament. On

the assumption that Art. 248 was in pari materia with the first

part of s. 91 of the Canadian Constitution Act, he relied on certain

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UNION v. H. s. DHILLON (Size/at, /.} 95

passages from Lefroy's Canada's Federal System (1913 ed.) at

p. 120, on Russel v. The Queen (1) and the observations made

by the Federal Court in connection with that Constitution

in

Subrahman,van v. Muttuswami('). He next

argueif that entry

49 of List II gave power to the States to impose a tax on lands

and buildings; that power was to impose a tax directly on lands

and buildings as units of taxation by reason of the ownership of

an assessee in such lands and biuldings. Such a tax would be

different in concept, subject-matter and incidence from the im­

pugned tax which. was one on the capital value of the totality of

assets of

an assessee as held in Nawn's

ca5e(8). Consequently,

such a tax, which the States could not levy under entry 49 in

List II, cannot be said to entrench on that power. That being so,

the power to levy the impugned tax, including on agricultural·

land, must be held to be under Art. 248.

The question is; does the Canadian constitution Act furnish

an apposite analogy and can the decisions on the interpretation of

ss. 91 and 92 of that Act be relied on for the purpose of inter­

preting the scheme of distribution of legislative power in our

Constitution ?

The ~tructure of s. 91 of the Canada Act falls into four parts.

The first in the initial part which says that Parliament shall have

power

to make laws

"for the Peace, Order, and good Government

of Canada" in relation to all matters not coming within •the classes

of subjects assigned exclusively to the Provincial Legislatures.

Lord Watson speaking for the Privy Council in Att.-Gen. for

Ontario v. Att.-Gen. for the Dominion(') thought that the

power contained in this part was supplementary to the powers

contained in the next part which sets out twenty-nine classes

or

heads of subjects. The theory of the

first part supplementing the

power on the enumerated subjects did not, however, commend it­

self to Lord Birkenhead in Canadian Pacific Wine Co. Ltd. v.

Tulev(") and to Lord Atkin in P1:oprietary Articles Trade

Association

v. Att.-Gen. for Canada(

6

), where both of them

held in categorical words that it was the first

part of the

section

which conferred poy,-er on Parliament and that the enumerated

subjects in the second part merely 'illustrated that cetiain subjects

fell under the general description,

viz.,

"Peace, Order and good

Government

of

Canada". The second part contains the declara­

tion of the exclusive power of Parliament in respect of the classes

of subjects there enun~erated. This declaration, however, in no

way affects the generahty of power initially assigned to Parlia­

ment, or its exclusive power to make laws for peace, order and

good government.

The third part

enumerates twenty-nine classes

(I) (1881] 7 App, Cas. 829 at 836. (2) [1940] F.C.R. t88 \3) {196911 S.C.R.108.

(4) [1896] A.C. 348. (5) [1921] 2 A. C. 417. (6} [1931] A.C. 310.

96 SUPREME COURT REPORTS [1972] 2 S.C.R.

or heads of subjeots. 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 6e deemed to come within the class of matters of a local

A

or priv3!le nature comprised in the enumerated classes of sub~ts

assigned exclusively to the Provincial Legislature in s. 92. The

result

is that if a

matter falls within any of the twenty-nine heads B

enumerated in the third part of

1the section, it

i~ deemed not to

fall within any class of matter assigned to 1he Provincial Legisla­

tures. The power assigned to the Dominion in the initial part of

s. 91, viz., with respect to matters concerning peace, order and

good government and helld 16 in sec. 92, viz., "generally all

matters of a merely local or private nature in the Province"

clearly show that the distributive system in the Canada Act is

what has been itermed "interlacing" and not dis.iunctive, where

the two would have independent powers assigned respectively to

them as in our Constitution. Such an interlacing is further seen

from head 29 in the enumerated subjects in s. 91, by which power

is given to 1the Dominion in respect of such subjects as are ex­

pressly excepted in the en11meration of the classes of subjects

assigned exclusively to tho Provincial Legislatures.

It was on the basis of such a peculiar scheme of distribution of

powers that in

Russel v. Queen('), the

Privy Council, fo low­

ing ~ts earlier decision in the Citizens Insurance Company v.

Parsons(

2

), stated that whenever a question arose with regard to

the respective powers of the legislatures of the Dominion and the

Provinces, the first question 'to be determined would be whether

the statute in question fell within any of the classes of subjects

enumerated in

s. 92. If it did, then only the further

question

would arise whether the subject of the Act did not fal! within one

of the enumerated subjects

in s. 91, and so did not still belong

10

the Dominion Parliament But if the Act did not fall within any

of the classes of subjects assigned ·~xclusively to 1the Provinces by

s. 92, no further question would remain, and the Act would fall

within the general words of the first part of

s. 91. Since then

the .

Privy Council have, on several occasions, while construing

ss. 91 and 92, made shifts in emphasis. But amidst all the varia­

tions there emerges a code of interpretation crystallized into four

propositions

as summarised by Lord Tomlin in Att.-Gen. for

Canada v. Att.-Gen. for British Columbia(

3

). These were

ap­

proved in In re the Regulation and Control of Aeronautics in

Canada('), In re Silver Bros. Ltd.(~), and finally, in Canadian

(I) [188ll 7 A.C. 829 at 836. (2) [1881-188217 App. Ca,, 96. (3) !19301 A.C. Ill.

(4) [1932] A.C. 54. (S) (19321 A.C.514.

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UNION v. H. s. DHILLON (She/at, J.) 97

Pacific Ra.ilway Co. v. Att.-Gen. for British Co/umbia(1), and

therefore, can fairly be said to be well-settled principles of inter­

pretation of these two sections. These are :

( 1) The legislation of the Parliament,

so long as it

strictly

relates to subjects expressly enumerated

ins. 91, is of paramount authority, even though

it trenches upon matters assigned to the Pro­

vincial Legislatures by s. 92.

( 2) The general power

of legislation conferred on

the Parliament by s. 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

inte­

res'I and importance.

(

3) It is within

Parliament's competence to provide

for matters which, though otherwise within the

competence of Provincial legislatures, are neces­

sarily incidental to effective legislation by it upon

one of the enumerated subjects in

s. 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 vius if the field is clear, but if the field is not

clear

and rthe two

lel1'islations meet, the Dominion

legislation must prevail(').

Providing such a distribution of powers in general terms had·

a two-fold ob;ject, (a) to avoid inflexibility, which it was appre­

hended elaborate lists might result in, and (b) not to have any

power reserved or withheld. The clear objective, while framing

the Constitution Act, was to model it on the lines of the British

Constitution with Parliamentary supremacy

as

one of its princi­

pal features. and therefore, to leave no power uncovered by S-' .• 91

and 92. The preamble of the Act itself declares that its ob1ect

was to give a Canada "a Constitution similar i~ principle to th~t

of ·the United Kingdom". That and the pecuhar langu~ge ~n

ss. 91 and 92 }~d the Privy Council in the Att.-Gen. for 0,11tano

,., Att.-Gen. for Canada(") to observe that the powers d~stnbuted

between the Dominion on the one hand, and the Provmces, on

the other, covered the whole area of self-government within the

whole area of Canada and that it "would be subversive of the·

(!) [1950] A.C. 122.

(2) Varcoe, ~. P .. Th• Distribution of Legislative Po•·er in Canada (1954 ed.)•

pp, 73-78. (l) f19t2] A. c. 571.

98 SUPREME COURT REPORTS [1972] 2 S.C.R.

~hole scheme and policy of the Act to assume othat any part of

mtemal self-government is withheld from Canada". As Lefrov

.observes (1) : ·

"The scheme of our Federation Act was to have no

reserved power; but that there should

be, in Canada,

the same kind of

legisla•tive power as there is in the

British parliament, so far

as that was consistent with the confederation of the provinces and 'our position as

a Dominion within the Empire."

Since the British Parliament was the mod.el, pre-eminence was

firstly given to the laws mad.e by Parliament, and secondly, pro­

vision was made that all powers not expressly assigned to provin­

cial legislatures were to be treated as vested in Parliament. (Valin

v. Langlots(

2

).

It is thus clear that there is no similarity either in the content

·Or the scheme between the disotributive system in the Canadian

Act and that in our Constitution. There

is no declaration in

general and unspecified terms

in our Constitution as

there is in

the first part of s. 91, nor is there the interlacing of powers brought

about

by expressions such as

"for the Peace, Order and good

Government of Canada" and "in relation to all Matters not coming

within the Classes of Subjects by this Act assigned exclusively to

the Legisla1ures of the Provinces" as in s. 91. The powers of the

Union Legislature and the State Legislatures under Art. 246 and

the field of legislation delineated in the three Lists are well-defiiued

in elaborate and precise terms, and are disjunctive and indepen­

dent. The State Legislatures are not the delegates of, nor do they

derive their powers from the Union Legislature, and enjoy within

their

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. pre-eminence of Parliamentary

legislation

by reason of

the non-obstante clause in Art. 24'6 arises

only where there

is over-lapping 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

s. 91 of the Canadian Act is analogous to Art. 248

and its second part

to Art. 246 (1), and therefore, decisions on

s. 91 and s. 92 of that Act apply for the purpose of construing

the distribution of powers in our Constitution

is unacceptable.

It is true that

m Subrahman,van v. Muthuswami(

3

) Gwyer.

C.1., at p. 200 of the report did speak of the Canadian Act as

containing analogous provisions and of the British Parliament

(I) at p. 95. (2) (1879] 5 App. Cas. 155.

(3) [1940] F.C.R. 188.

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UNION v. H. s. DHILLON (She/at, !.) 99

having those provisions in mind when it enacted s. 100 of the

Government of India Act,

1935. But it is

clear from the cantext

that those observations were made in connection with overlapping

of legislative powers and the preeminence of the Central law in

that contingency, and not in relation to the distributive schemes in

the two Acts. That decision, therefore,

is no authority for the

proposition that there

is any analogy betweens.

100 of the 1935

Act and s. 91 and s. 92 of the Canadiain Act, 1867. Indeed, at

page 200 of the report, the learned Chief Justice talked of "the two

lists of mutually exclusive powers" as contrasted.with .the Canadian

"interlacing" of powers. That was because none of the parties con­

cerned with the enactment of the 1935 Act had expressed any

desire,

as was the case with the Canadian Act, to have a

"Consti­

tution similar in principle to that of the United Kingdom". The

speech of Sir Samual Hoare, who piloted the Constitution Bill of

1935 in the Parliament on the draft section corresponding to s.

104 clearly shows that there was acute controversy amongst the

parties in India regarding the distribution of legislative power!.

It was because of that controversy that three Lists had to be made

"each as exhaustive as we could make it, so exhaustive, as to

leave little or nothing for the residuary field", and therefore, "all

that is likely to go into the residuary field are perhaps some quite

unknown spheres of activity that neither my Hon. Friend nor

I can contemplate at the moment''.(')

As a matter of fact, Gwver, C.J., had, only a year ago, uttered

a warning against applying decisions on other Constitutions to

the provisions of the

1935 India

Acit, in foe following words :

" ... there are few subjects on which the decisions

of other Courts require

to

be treated with greater cau­

tion than that of federal and provincial powers, for,

in the last analysis the decision must depend upon the

words of the Constitution which the Court

is

interpre­

ting; and since no two Constitutions ar~ in identical

terms, it

is extremely unsafe to assume that a decision

on one of them can

be applied without qualification to

another. This may be so even where

the words or ex­

pressions used are the same in both cases; for a word

O: a phrase may take a colour from its context or bear

different senses accordingly."

In The Province of Mad;asv. M/s. Boddu Paidanna & Sons(2)

the Federal Court, while discussing the powers of taxation of the

Centre and the Provinces in <the matter of excise and sales Tax,

(I) Cited in N. Rajagopala Aiyanager, Goi•trnment of Tndia Act,

1935, It p, 133,

(2) 1942 F.C.R. 90 •t 105.

100 SUPREME COURT REPORTS [1972] 2 S.C.R.

brought out the difference between the distribution of powers in A

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 fonner at

the expense of the latter; and this indeed is the princi­

ple upon which the Judicial Committee have for the

most part ·interpreted ss. 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 defin~te tenns."

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c

In Manikkasundara Bhattar v. Nayudu(

1

), the Federal Court

once again uttered similar words

of caution, observing that in

view

of s. 104 of the 1935 Act expresssly 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 p0wer, which if it is

absent there must necessarily be aittributed to the general pool

of power in the Dominion : D

"In the Canadian Constitution Act there is no pro­

vision in respect of omitted subjeots of legislation. Every

subjeot must

be held to be either within the legislative

powers

of the Dominion Parliament or of the Provincial

Legislatures.

Jin the Indian Constitution, s. 104 has been

inserted for the very purpose of enabling legislation to be

enacted in respect of subjects omitted from the three

Lists in the Seventh Schedule."

These pronouncements clearly point out (a) the difference

between the two systems/of distribution

of power, and (b) the

danger

of

applying Canadian precedents to our Constitution. Since

the present Constitution is, as repeatedly stated by this Court, in

many ways based on the provisions of the 1935 Act, particularly

in the matter

of

distribution of legislative pov.~rs, what has been

said about that Act must equally apply to the Constitution.

We may now turn 1to Art. 248. There can be no two opinious

that that Article deals with residuary power and that that power

is an independent power conferred by that Article and not by

entry 97 in List I.

It is well settled that

entries in the three Lists

do not by themselves confer power. They, however, delineate

the fields in which the respective powers are conferred on the Le­

gislatures by the relevant Article of the Constitutiqn.

The controversy is about the extent of the power under Art.

248. Counsel for the Union availed himself of the fact that the

(I) [I 946] F.C.R. 67, 87-88.

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UNION v. H. s. DHILLON (She/at, J.) 101

Article speaks of 1he Parliament's exclusive pow~r with respect

to any m~tter not enumerated in List III or List II and to impqse

by law a tax not mentioned in either of the two Lists. True it

is that the Article does not speak of List I; in other words, it does

not say in express terms that that power is only in respect of matters

and

'taxes not enumerated or mentioned in any

one of the three

Lists. But

when one talks about residuary power, the question

at once arises : what it

is residuary of '? The marginal note to

the Article

st~nes that the power confeww is residuary. A margi­

nal note can serve as guidance when there is amijiguity or doubt

about the 'true meaning of the provision.

As earlier stated, Art.

246(1)

havin~ given exclusive power ito the Union Legislature,

surely the power

in

t>~spect of the very matters therein provided

for could not have been once again granted by Art. 248. Obviously

therefore, the residuary power conferred by Art. 248 means

power

in

respect of maNers not dealt with in Art. 246, and not

to be found

in any of the three Lists.

In this connection, Mr.

Setalvad hims.elf pointed out to us

the debate in the Constitue.nt 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 Alimed thought

that if Art. 231 (equivalent to the present Art. 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 word "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 1o 90 in List

I". This construction was akin to the one urged before us by

Mr. Setalvad,

viz., that one need only turn to

Lis1 II, and if the

power

in

question is not there, the power must be assumed to be

with the Centre

by reason of Art. 248. The point urged by

Mr. Naziruddin was at once demurred by

Prof. Shibban Lal

Saksena who point>~d out that Mr. Naziruddin's point of view was

incorrect as "Dr. Ambedkar has said that if th.~re is anything

left, it will be included in entry 91." That must mean that if in

the enumeratioa of powers in the three Ji~ts any topic of legisla·

tion was left out, such a topic would fall in the residuary power

conferred on the Centre. Dr. Ambedkar then explamed the

purpose for which entry

91 was

inse11ted in List I, which he said

was to define the limit and scope of List I. That, he poi~ted out'.

could have been achieved in two ways; (i) by having entry 91

102 SUPREME COURT REPORTS [1972] 2 S.C.R.

defining the scope of List I, or ( 2) by defining the scope of Lists

II and III by adding in entry 91 the words :

"anything not included in List II or List Ill."

He added that when Art. 223 ( equivalen1 to the present Art.

248) provided that Parliament had exclusive power with respect

to any matter not enumerated in List III

or

List II, it would

theoretically

be unnecessary to enhmerate

1the categories in List I.

''The reason wlfy this is done is this. Many States' people,

and particularly the Indian States

at the beginning of the labours

of

ithe 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 Provinoes 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." A little later, he further explained that the Goverrunetnt

of India Act, 1935, by s.104 in it had the same scheme and that

section was similar to Art. 223. This speech indicates that the

purpose

of inserting entry 91 was to define the

scope of residuary

powers conferred

on the Centre and

that was that the Centre

was to have exclusive

pow.er

not only on matters enumerated in

the preceding entries

but also on matters not enumerated in Lists

II and III('). More instructive is the second report, dated

July

5, 1947 of the

Union Powers Committee, of which Pandit

Nehru was the Chairman, wherein it was stated that while the

residuary powers should be with the Centre, in view "of the ex·

haustive nature of the 'three lists drawn up by us, the residuary

subjects 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 1he lists". Sir Gopalaswami

Ayyangar in his speech moving this report on August 20, 1947.

::\!so said that after making ."three exhaustive lists", if there was

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llny

residue left at all, if in the future any subject cropped up

.which could not be accommodated in one of these three lists, then

tliilt subject should be deemed to remain with the Centre .... "('). G

Therefore, what emerges from this discussion· is that the residuary

· p6wer lodged in Art. 248 was in respect qf matiters which could

hilt 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 Krishnama­

~Itari during the debate on the Centre's residuary power. On a

(I) Constituent Assembly Debates, Vol. IX, pp. 855-857.

(2) B. Shivrao, 71ze Framing of India's ConstUution, Vol. IT, p. 867

and onwai'ds.

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lJNION v. H. s. DHILLON (She/at, J.) 103'

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 Art. 248 and entry 97

of List

I.

The propositions, he sought to make, were (a) that one

of the best points of the

1935 Constitution Act, according to

Prpf.

Wheare, was the enumeration of powers in the Seventh Schedu e;

(b) that that having been done, a provision for residuary power

became necessary, and ( c) that the Lists being almost "complete

and exhaustive" there was not much left in the content of the

residuary power. He, however, added that one possible use to

which the provision for residuary power can

be put in future

would be

to impose a capital levy on agricultural land, but that

if that were done, he thought that the Centre would assign its

proceeds to the States as all matters supposed to be associated

with agriculture were allotted to the States. "I think", he observ­

ed, "the vesting of the residuary power is only a matter of acade­

mic significance to-day". It is undoubtedly true that he ex­

pressed his individual opinion as to the possible exercise in future

of the residuary power under Art. 248 and entry 97 in List

I for imposing a capital levy on agricultural land. But he did

not refer to the other entries in the Lists such as entry 86 in List

I

or

ell'try 49 in List II, and their impact or significance on the

extent of the residuary power. Nor does the debate show that any

other member took up or agreed with his suggestion. It is, there­

fore, not possible to spell out, as Mr. Setalvad tried to do, any

consensus of opinion in the Assembly or an awareness on

the

nart

of its members of the residuarv nnwer he;no C"nable of being usccl

in future for a tax such as the one impugned here(').

The question then is whether the impugned Act is in pursu­

ance of 1the power under Art 248. If it falls under entry 86 of

List I, it cannot fall under Art. 248 or entry 97 in List I. The

argument

was that since entry 86 of List I is in respect of a tax

on capital value of assets excluding agricultural land, the impugned tax which includes agricultural land, is not a legislation falling under

entry

86 but falls under Art. 248 (2) and/or entry 97 in List I.

In answer to a specific question put to him, Mr. Setalvad stated

that the power to impose a

tax on capital value of assets, barr:.1g

agricultural land, was one field of legislation and which fell under

entry

86 in List I, while the power to impose a similar

tax which

included agricultural land was another distinct field of legislation

and f~ll under entry 97 in List I, and Art. 248 (2). That being so.

he said, the Weal~h Tax Act, as amended by the Finance Act, 1969,

fell under the residuary power in Art. 248 and entry 97 ofList I.

We frankly concede our inability to appreciare this conten­

tion. Can it be said that the Wealth Tax Act when passed in

(!) Constituent Assembly Debates, Vol. 2, 838-839; 952-954

104 SUPREME COURT REPORTS (1972] 2 S.C.R.

1957 fell under entry 86 of List I, but that it ceased •to be so when

it was amended in 1969

by including within

i'ts 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 Art. 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 agricul­

tural 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 Art. 248

and/or entry 97 of List I.

It is not uncommon for constitution-makers to confer a restric­

ted legislative power on a particular subject or subjects. Counsel

for the respondents pointed out to

us as a sample of such

restricted

power entries 9 in Lis•t I and 3 in List III. The first is with resp~ct

to the power to make law providing for preventive detention on

three grounds,

viz., defence, foreign affairs and security of India

The second

provides for the same power, but on three other

grounds, viz., security of the State, maintenance of public order and

of supplies and services essential to the community. The two

entries read together clearly show that in the matter of preventive

detention, the Constitution, as a marter of policy, provided a

restricted field within which the power could be exercised, that

is to say, for the six reasons set out in the

two entries. As stated

before, if counsel for the Union were right, the Union can claim

power to make a law in respect

of preventive detention on

grounds other than

those specified in the two entries on the foot­

ing that it has residuary power u1nder Art. 248 and/ or entry 97

in List I. Surely, such a

field of legislation is not one which was not foreseen, or thought of, or was not "identifiable" in the

words of Pandi1 Nehru and for which only Art. 248 and entry 97

in List I were enacied. 'Entry 86 in List I is yet another example

where a restricted legislative power has been provided

for,

pr~­

sumably because under the distribution of powers in •the Consti­

tution, the

field of agriculture and agricultural land was almost

wholly entrusted to

<the States. Such a restriction must be held to

be tire result of a calculated policy, for, in a country such as ours.

agricultural land would b~ by far the largest asset and capable of

·bringing a verv substantial amount of tax. Those who excluded

such an asset from entry 86 and gave power over it to the States

-could not possibly have thought of including such an excluded

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UNION v. H. s. DHILLON (Mitter, /.) !05

item of taxation in the residuary power of the Union under Art.

248 ( 2). These reasons must compel us to reject the argument

that a tax on the capital value of agricultural land falls under the

residuary power or that it is a field of legislation distinct from that

in entry 86 not dealt with therein,

or that therefore, the amending

Act does not fall under entry 86,

List I.

In this view, we are unable to accept the contentions urged on

behalf of the Union. The amending Act, in our opinion, rell

under entry 86 of List I, and not under Art. 248 and/or entry 97

of List

I. It follows that the impugned Act, by reason of the

res­

tricted field in entry 86, Lis·t I, suffered from legislative compe­

tence. The majority judgment of the High Court must, conse­

quently, be upheld and the appeal dismissed. We order accord·

ingly 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

s. 24 of the Finance Act of

1969 amending the definition of

"net wealth" in the Wealth-tax

Act (No. 27 of 1957) by the inclusion of agricultural land

in

the assets for the purpose of computation of net wealth was

be­

yond 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

compe­

tency of Parliament. It was therefore not open to Parliament to

enact such a measure

in exercise of its power under Entry 97 of

the said List. Although arguments were advanced before the

High Court on behalf of the respondent that Entry 49 of List

II

empowered the

State to impose a wealth tax on agricultural land.

this contention

was ultimately given up before the High Court.

In the view of the majority Judges:

"The. effect of the impugned legislation in its pith

and substance

is to impose a tax on the capital value of

the assets, including agricultural land. Thus in effect

the words of prohibition

in Entry 86, namely,

"exclud­

ing agricultural land", have been treated as non-existent.

In doing so, Parliament has altogether gone beyond

the limitations within which it has competence

to

legis­

late."

According to the fifth learned Judge:

"The State Legislature had no power to impose a

·tax on the capital value of the assets in the form of

8-L256Sup.CJ 72

106 SUPREME COURT REPORTS (l~i2j 2 S.C.R.

agricultural land of an individi..al under Entry 49 and

as there

was no proh1b1Uon m the way of

Pawam<nt

makmg a Jaw unposmg such a tax the legis1at1on was

beyond challenge."

In view of the great importance of the question and the far­

reaching consequences of the amendment of 196'.:I, the app~al

has been placed before a Bench of seven Judges and argu!llenl8

on both sides, and specially on behalf of the respondents, ranged

far and wiue inc.uding the topic as to whe,her the .egis.at1ve com­

petence of ParlJament and the States and the heads of legisla1iou

in the first

two Lists of the Seventh Schedule to the

Constitution

should be interpreted in the same way as the corresponding pro­

v1s1ons m ss. 91 and 92 of the British North America Act of

1867.

The propositions put forward by Mr. Setalvad for the appel­

lant were as follows :-

( 1) The real question to be determined in the appeal was

whether the impugned tax fell within the ambit of Entry 49 in

List II of the Seventh Schedule

in which case no further question

would arise and the respondent would

be entitled to succeed.

But

in case the tax was not to be found within the ambit of Entry

49

Parliament would be competent to impose such a tax.

(2) In order to determine the true nature of the imposition,

we must consider the pith and substance or the essential charac­

ter of the tax with special reference to the unit of taxation.

(3) Entry 49 of List II envisaged taxation of lands and

buildings

as separate .units. The entry did not contemplate the

aggregation of all lands, agricultural

or otherwise, and

buildin~

held by a person as one unit and consequently the State Legisla­

ture 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 owner of !he

property might be subject. The unit for the purpose of taxation

as described

in the Weal'h-tax Act as net wealth is not contem­

plated 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

power, 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 ex­

clusive powers of Parliament to legislate upon and this

was not­

withstanding anything in clauses

(2) and (3) of Art. 246. The

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UNION v. H. s. DHILLON (Mitter, J.) 107

exclusive power of the legislature of a State with respect to mat­

ters enumerated in List

ll was however subject to els. ( 1) and

(2) of Art. 246.

(

5) The legislative power

conferred upon Parliament as

above was supplemented by Art. 248. Under cl. ( l) of thm

article Parliament had exclusive power to make any Jaw with

respect

to any matter not enumerated in the Concurrent List or

State List, and by virtue of cl.(2) such power included the

power of making

any law imposing a tax not mentioned in either

of those Lists. The net result

was that if there was a matter

or

a tax which though not expressly -mentioned in any of the items

in List I, was also not included in List II or List Ill, the same

was to be a matter upon which 'Parliament alone was competent

to legislate.

(

6) Proceeding on the basis of the decisions of this Court

that tax on net wealth

was covered by Entry 86 in List I it did

not matter that the head of legislation under that entry read

as

"tax on the capital value of assets exclusive of agricultural lands"

inasmuch as net wealth on agricultural land could not be ;he

subject matter of any entry in List II; legislation on the topic

of taxation of net wealth inclu;ive of agricultural land would fall

within Entry

97 of List I read with Art. 248.

(

7) The baste principle of the Constitution was that there

should not

be any matter which would be beyond the scope of

legislation either at the hands

of the

Union Parliament or at those

of the State Legislatures, The Constitution did not envisage any

power vacuum,

( 8) ·The words of Entry 86 of List I "exclusive of agricul­

tural land" were not to be read as a prohibition on Parliament

from taxing the capital value

of such assets which were ascribable

to agricultural

land, The words were to be read as words of ex­

clusion. In other words, without

u'sing the words

"exclusive of

agricultural lands" Parliament might have specified in the entry

all kinds of known assets, omitting any reference to agricultural

lands.

So interpreted, there would be no question of any prohi­

bition on Parliament imposing a tax on the capital value of assets

including agricultural land therein by the combined operation of

Art. 248 and Entry

97 in List I.

Entry

97 in List I was meant to comprise all matters which

were not to

be found in List II or List III including any tax not

mentioned

in those two Lists. Entry 97 was really a supplement

to Art.

248(1).

The scheme of the distribution of legislative power with re­

gard to various matters adopted

in the Indian Constitution had a

· I 08 SUPREME COURT REPORTS [ l 972] 2 S.C.R

close parallel to ss. 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 Art. 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

S. C. Nawn v. Wealth­

tax Officer('). Asst. Commissioner

v. B. and C.

Ltd.(') and

Prithvi Mills v. Broach Municipality(') show that

(a) a direct tax on lands and buildings was covered

by Entry 49 in List IT 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 assets;

(

c) despite the State's power under Entry 49 to

levy a tax which was directly on the capital

value of lands and buildings, the

Union Parlia­

ment has power under Entry 86 to impose a tax

on the capital value of assets including buildings

and non-agricultural lands;

A

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(d) The result is that so far as non-agricultural

i:

lands are concerned they can be subject to two

separate taxes, a land tax by the State and a

Wealth-tax or capital levy by the Union.

( 3) Tne Constitution expressly excluded agricultural lands

from this two-fold burden. The express words

in Entry 86 res-

trict the scope of the

Union's power to legislate in respect of G

capital levy or wealth-tax.

(

4) The said scheme is apparent from other Entries in the

said two Lists.

(5) Neither the

Union nor the State has power to levy

wealth-tax in respect of the total value of the entire wealth of II

(I} [1969)-1 S.C.R. !OR.

f)J [1970]-l S.C.R. JSR.

12J [1970]-l S.C.R. 263,

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UNION v. H. s. DHILLON (Mitter, J.) 109

an ass~see which would include agricultural lands just as neither

the Umon nor the State has power to levy income-tax in respect

of total income inclusive of agricultural income

or to levy estate

duty

or succession duty in respect of properties passing on death

including agricultural land.

(

6) The scheme of the

Constitution being exclusion of agri­

cultural land from the purview of legislative power of the Union,

it did not matter that there

was no entry in List II which was in

terms corresponding to those in Entry 86 to List I.

(7) Wealth-tax in respect of agricultural land would not

be covered by Entry 97 in the

Union List. The opening words

of the entry

i.e.

"any other matter" go to show that the matters

which are specified in Entries 1 to 96 are alike excluded from

Entry 97

as matters enumerated in List II or List III.

(

8) The scope of Art. 248 was not wider than that of Entry

97· in the Union List. If a matter was specifically enumerated in

the Union List Art. 248 could have no application to such a

matter and

as Entry 86 envisaged the levy of wealth-tax on assets

exclusive of agricultural land wealth tax on assets which included

agricultural land could not come under Entry 97.

(

9) The extension of wealth-tax to agricultural lands would

be an encroachment on the State's power under Entry

49 of List

II. Taxes direct

or indirect so far as agricultural lands are

con­

cerned are comprised in Entry 49 of List II. If Entry 49 is llO

read it would be beyond the competence of Parliament to enact

legislation which would have the effect of levying a tax on th&

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

pur­

pose of this appeal. Under s. 2(a) "assets" includes property of

every description, movable or immovable, but does not includo--

( i) agricultural land and growing crops, grass or stand­

ing 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

re·

quires as a dwelling-house or a store house or an out-house;

(iii) I

(iv) }-not relevant

(v) J

ll 0 SUPREME COURT REPORTS [1972] 2 S.C.R.

S.2(m) ran as follows:

"net wealth" means the amount by which the aggre­

gate 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 asse.s

required to be included in his net wealth as on thdt date

under this Act,

is in excess of the aggregate value of all

the debts owned by the assessee on the valuation date

other than

.....

( i) debts which under section 6 are nor to be taken

iiito account;

(ii)

(iii) } not relevant.

Section 3 was the charging section and provided that :

"Subject to the other conditions contained in this

Act, there shall be charged for every assessment year

commencing on and from the first day of April, 1957,

a tax (hereinafter referred

to as wealth-tax) in respect

of the net wealth on the corresponding valuation date of

every

indi•:idual, Hindu undivided family and company

at the rate or rates specified in the Schedule."

Under s. 4 net wealth was to include certain assets specified

therein. Section 5 provided for exemption of certain assets held bv

an

a:ssessee. The notable exemptions were the interest of the ilssessee in the coparcenary property of any Hindu undivided

family of which he was a member and any one house or part of

a house belonging to the assessee exclusively used by him for

residential purpose's provided that the value thereof did not ex­

ceed the amount specified. Under s. 6 debts and assets outside

India were to be excluded. Under s. 7 the value of any asset

was to 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.

By the Finance Act 14 of 1969

s. 2 ( e) was amended and the

relevant portion thereof reads :

""assets" include property of every description, mov­

able or immovable, but does not include,-

( I) in relation to the assessment year commencing

on the I st day of April, 1969 or any earlier assessment

year-

( i) agricultural land and growing crops, grass or

standing trees on such land;

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UNION v. H. s. DlflLLON (Mitter, J.)

(ii) any building owned or occupied by a cultivator

of, or receivef of rent or revenue out of, agri­

cultural land :

Provided that the building

is on or in the immediate

vicinity of the land and

is a building which the

cultiva­

tor 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 outhouse;

(iii) <1nimals

(iv) certain right to annuities

( v) certain interests in property

Ht

(2) in relation to the assessment year commencing on tlle

ht day of April 1970 or any subsequent assessment year--

( i) animals;

(ii) certJin rights to annuities

(iii) certain interests

in property." The exemptions provided in s. 5 were considerably augmented by

iliclusion of the following relevant clauses in sub-s. (I) of ~. 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 or part of a house

.,ituate in a p'acc with

a population exceeding ten thousand and to which the

provi>ions of clause (iv) apo'y and the value of such

house or pa•t of a house together with the value of the

agricultural land exceeds one hundred and

fifty thousand

rupees, then the amount that shall

n')t be included h the

net wealth of the assessee under this clause shal · 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);

*

* e * *

(viii-a) growing crops (including fruits on trees)

on agricultural land and grass on such lands;

(ix) the tools, il'.lplements and equipment used by

the assessee for the cultivation, conservation, improve­

ment or maintenance of agricultural land, or for the

raising or harvesting of any agricultural or horticultural

produce

on such land.

112 SUPREME COURT REPORTS [1972] 2 S.C.R.

Explanation.-For the purpose of this clause, tools,

implements and equipment do not include any plant or

machinery used in any tea or other plantation in con­

nection with the processing of any agricultural produce

or in the manufacture of any article from such produce;

(x) to (xxi)

In effect the rigour of the inclusion of agricultural land,

grow­

ing crops, grass etc. was mitigated by exempting land of the above

character to a maximum of

Rs.

1,50,000 in value, besides grow­

ing crops including fruit trees on such land, tools, implements

and equipment used by the assessee for the cultivation etc. of

agricultural land. The scheme of the Wealth-tax Act both before

and after the amendment of

1969 thus appears to be to impose

an annual tax on the value of all the assets of an assessee which

are in excess of the aggregate value of all his debts on the

valua­

tion date other than debts which are expressly excluded. This

is to be subject to inclusion of certain assets mentioned in s. 4,

exemption of other assets in s. 5 and exclusion of assets and debll

outside India in tenns of s. 6. Thus before 1969, if an assessee

had ow<!d a debt secured on a non-agricultural property or a

debt which he had incurred in relation to such property, the same

would be deductible from the value of the assets owned by him.

If such a debt was in respect of agricultural property the same

would not have been excludible. As a result of the Amendment

of

1969 any debt secured on any property, be it agricultural land

or otherwise and any debt incurred in relation to any property,

unless the property was one

in respect of which wealth-tax was

not chargeable, would have to be deducted from the total value

of the assets for

comput~tion of the net wealth of the assessee.

The taxation was to be based on the net worth of an individual,

that

is to say, his total assets less his debts. It is therefore

possi­

ble for an assessee who though seemingly in possession of assets

of great value not to be subject to proportionately high taxation

if he owes large debts to others within th·e meaning of the defini­

tion clause of s. 2(m) on the valuation date.

The overall change by the Amendment Act of 1969 lay in

that in respect of assets

in relation to the assessment year

com­

mencing from I st April 1970 and any subsequent year agricul­

tural 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 com­

petence of Parlian1ent.

The vires of the Wealth Tax of 1957 was challenged before

different High Courts prior lo the decision appealed from and the

matter ~!so came up to this Court as is to be found in at least

A

B

c

D

E

'

G

II

A

B

c

D

E

F

G

H

UNION v. H. s. DHILLON (Mitter, /.) !13

three decisions which have come to my notice. But as no ques­

tion 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

im­

!lOsition of wealth-tax on the aggregation of assets. It will there­

fore not be out of place to consider the competence of Parliament

to legislate on this field not on any pre-conceived notions nor on

the basis of

any decisions already rendered.

The Constitution of India forged by

the Constituent Assembly

after deliberation for a very

long time was meant to be as com­

plete a Code as possible by which all prior laws and all law-mak­

ing powers were to be tested and guided. As India was to be a

sovereign democratic Republic composed of a Union of States,

it was necessary for the Constitution-makers to define with as

much precision

as possible the respective functions of the Union

and the

States' Legislatures as also the relations between the

Union and the States. As both the Union and the States were to

have legislative powers, it became necessary to distribute legislative

powers among them and to provide for

as clear a demarcation of

these powers

as was feasible. This was sought to be done in

Chap­

ter I of Part XI of the Constitution containing Arts. 245 to 255.

The territorial extent of the

laws to be made by

Par iament and the

State Legislatures is dealt with in Art. 245 which provides that

subject to the provisions of the Constitution Parliament has the

power to make

laws for the whole or any part of the territory

of India while the

legi,lature of a State can make laws for the

whole or any part of the State concerned and a law made by

Parliament

is not to be treated as invalid on the ground that it

would have extra-territorial operation. Art. 246 of the

Cons­

titution seeks to divide the subject matters of legislation in three

Lists enumerated

in the

Seventh Schedule to the Constitution and

indicating the legislative body competent

to deal with any such

subject matter. Cl.

(I) of Art. 246 gives ParHament the ex­

clusive power to make laws with respect to any of the matters

enumerated

in List I in the

Seventh Schedule and this is notwith­

standing anything in els. (2) and (3). By cl. (2) Parliament as

also the Legislature of any State are both given power to make

laws with respect to the matters enumerated in List III in the

Seventh Schedule, nowithstanding anything in cl. ( 3). By

cl. ( 3) the Legislature of a State is given exclusive power to

make

laws for such part or any part thereof with respect to

matters enumerated in List II but

this is to be subject to els. (1)

and ( 2). Broadly speaking, the scheme under this article is that

Parliament is to have exclusive power to make laws with respect

114 SUPREME COURT REPORTS [1972 J 2 S.C.R.

to ·matters in List I, the State is to have such exclusive power

with regard to matters in List II subject to the powers of Parlia­

ment in respect of matters in List I and List III while matters in

List III could be the subject matter of legislation bo h by Parlia­

ment and the State Legislatures. By cl. ( 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, notwithstaPd­

ing that such matter is a matter enumerated in the State List.

Obviously the Canstitution gave Parliament the power to make

laws with respect to Union territories mentioned in sub-cl. (b)

B

()f cl. ( 3) of article 1 of the Consti'ution and o~her territories

mentioned. in sub,cl. ( c) of the said clause as might be acquired

~fter the commencement of the Constitu'ion. The Constitution- c

makers envisaged a possibility of the existence or occurrence of

.SU_bject matters of legislation not enumerated either in List Il

(the State List) or List III, the Concurrent List. This was sought

to be provided for

in Art. 248 of the Constitution which reads :-

" ( 1 ) Parliament has exclusive power to make any law

with respect to any matter not enumerated

in D

the Concurrent List or State List.

(2) Such power shall include the power of making

any

law imposing a tax not mentioned in either

of those

Lists."

E

The above three articles thereafter make it clear that the Con­

stitution-makers were careful to see that the law making power

wi'th respect to 11ny ma'ter which until the date of the Cons•i•u­

tion had not been thought of as fit for legislation or had by some

chance been omitted from the fold of Li~ts TT and ITT were to be

Within the exclusive jurisdic•ion of Parliament to legislate. Such

ll!w-m~king power was to extend to the imposition of tax not F

tnentioned in either of those Lists.

The Constitution-makers were also alive

to the possibility of

laws made

by a State Leg,slature impmging upon laws made by

Parliament in its competence and sought to remove the diffi­

Wlty by providing in Art. 254 that laws made by Parliament, G

whether passed before or after the laws made by a State legisla­

tttre, were to prevail in such a contingency. This is howev~r to

·be subject to dame (2). Art. 250 was aimed at giving Parlia­

ment the power to make laws for the whole or any. part of the

territory of India with respect to any of the matters enumerated

in

the State List while a proclamation of emergency was in opera-H

tkln. ln normal circumstances the extent of legisla'ive nower of

·P«r!iament and the State Legislatures have to be worked out in

te:tins ·of Arts. 246 and 248 of the Constitution.

I

-

•

c

D

UNION v. H. s. DHILLON (Mitter, J.) ll5

The Seventh Scbedule which is divided in three Lists.. sets

forth 209 heads or subject matters o,f legislation : 86 enLies in

List I, 66 entries in List II and 4 7 in List Ill besides Entry 97

in List I reading "Any other matter not enumerated in List II

or List

Ill including any tax not mentioned in ei her of those Lists". Few Constitutions have attempted such precise enumera­

tion of subject matters of legistation. Schedule VII of

the

Govern­

ment of India Act, 1935 containing the Legislative Lis~s had no

more than 59 entries in List I known as the Federal Legislative

List, 54 in List II known

as the

Provincial Legislative List and .3 6

in List III known as the Concurrent Legislative List. Even a cur-

sory comparison between List I of the Constitution and List I of the

Government of India Act will

show some additions of

subject mat­

ters which either did not exist or could not be thought of at the

time when the Government of India Act was enacted. For instance

Entry 6

in present List I reads :

"Atomic energy and mineral re-

10urces necessary for its production" and Entry 12 "United

Nations Organisation": atomic energy in 1935 was only in the

minds of th~ 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

treat;es 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 mat­

ter~ of legislation when 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; em­

p~oyment a1nd unemployment"

in present List III had no counter-part i]1 any of the Lists in the

G Seventh Schedule to the Government of India Act. But what

is

necessary for our present purpose is to note that there was noth­

ing like present Entry 97

in List I in the Government of India

Act. Section

104 of the said Act which is analogous to Art. 248'

of our Constitution read:

" (I ) The Governor-General may by public notifica-

H tion empower either the Federal Le~Mature or a Pro­

vincial Legislature to enact a law with respect to any

matter not enumerated in any of the Lists in the Beventh

Schedule to this Act, including a law imposing a tax not

116 SUPREME COURT REPORTS (1972 j 2 S.C.R.

mentioned in any such List, and the executive autho­

rity of the Federation or of the Province, as the case

may

be, shall extend to the administration of any Jaw

so made, unless the Governor-General otherwise directs.

(2) In the discharge of his functions under the

section the Governor-General shall act in

his

discre­

tion."

It will be noted that the Imperial Parliament was alive to the

fact that there might be subject matters

of legislation not covered

by any of the three Lists

of the Seventh Schedule but the same

were not committed to the care

of the Federal Legislature or

even attempted

to be divided between the Feder.al Legislature

and the

State Legislatures. It was the function of the Governor­

General to empower either the Federal Legislature or a Provin­

dal Legislature by public notification to enact a Jaw with respect

to

any law not enumerated in the Seventh Schedule including a

tax not mentioned in any such list and in the discharge of

this

function, the Governor-General was to act in his discretion. The

Explanation for

this is to be found in the speech of

Sir Samuel

Hoare recorded in the Parliamentary debates to the effect that

"Indian opinion was very definitely divided between

the Hindus who wanted to keep the predominant powers

in the Centre and the Moslems

who wished to keep the

predomim!nt power

in the provinces. The extent of

that feeling made each of these communities look with

greatest suspicion

at the residuary field the Hindus

de­

manding it with the Centre and the Moslems demand­

ing with the Provinces."

It would appear from the same speech that all attempts to bridge

the difference only resulted

in making the Federal List, the

Pro­

vincial List and the Concurrent List each as exhaustive as possi-

ble to leave little or nothing for the residuary field. The sa.id

1>peaker hoped that "all that was likely to go into the residuary

field were perhaps some quite 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

Assem­

bly contains the following statement :

A

B

c

D

E

F

G

"We think that residuary powers should remain li

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

I

A

B

UNION v. H. s. DHILLON (Mitter, /.) 117

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, 194 7 said inter a/ia as follows:-

c

"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 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 so far

as the Provinces are

concerned." (see the Constituent Assembly Debates

Vol. V. p. 38).

D

E

It will be noted that Gopalaswami Aiyangar's speech is almost

on the same lines

as that made by

Sir Samuel Hoare in explain­

ing the principle adopted in framing the kgislative lists and in

particular the decision to leave the residuary field to the care of

the Governor-Genera under the said section without making

the matter the subject of an entry

in List I of the Seventh

Sche-

dule. A glance at these Lists shows that in some cases broad

classes of subject matters of legislation were divided under more

than one head and placed

in different lists. Thus while generally

"industries" are to be within the legislative power of List II under

F Entry 24 of that List, a portion of industries

is carved out of that

Entry and placed within the exclusive competence of Parliament

under List

J. These portions are mentioned in Entry 7 of the

Union List i.e. "Industries declared by Parliament by Jaw to be

necessary for the purpose of defence or for the prosecution of

war" and in Entry 62 "industries the control of which by the

G Union is declared by Parliament by law to be expedient in the

public interest". To take another instance "preventive detention

occurs both

in List I and List III. Entry 9 of List I reads

"Pre­

vent~ve detention f~r reasons connected with Defence, Foreign

~ff~~rs. <?r t~e security of India; persons subjected to such deten­

tion

whI!e

Preven,tive detention for reasons connected with the

H security of a

Stat.e. the maint.enance of public order, or the

main­

tenance ?f supplies and services essential to the community· per­

s~n~ su?iected to such detention" finds a place in the Conc~rrent

L1st as Item 3. So far as preventive detention in its aspects men-

118 SUPREME COURT REPORTS [1972] 2 S.C.It.

tioned in Entry 9 of List I is concerned Parliament bas tho ex-;.

elusive power. The competence of the State Legislature to legi.!­

Jate wit.h regard to preven~ive detention can only be under Entry

3 of Liq Ill but even then it cannot encroach on the field set

apart for exclusive legislation by Parliament though the two fie!~

of legis'ation may, in certain circumstances, have a common

border difficult of definition. B

So far as "Lands", whether agricultural or otherwise, agri­

culture, agricultural income and taxes with regard to any of then

matters the specification appears to be as follows:-

Lisl l

Entry 82. Taxes on income other than agrjs;utural income.

Entry 86. Taxes on the capital value of the assets, exclusi\'G

of agricultural land, of individuals and companies; taxes on the

capital of companies.

c

Entry 87. Estate duty in respect of property other than

D

a?ricultural land.

Entry 88. Duties m rc'ipcct of succession to property other

than agricultural land.

List Jl

Entry J 8. 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.

1 nt')' 46. Taxes on agricultural income.

Entry 4

7. 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 lll

Entry 6. Transfer of property other than

agricultural land;

registration of deeds and documents.

Entry 7. Contracts, including partnership, agency, _contra.cts

of carriage, and other special fonns of contracts, but not mcludmg·

contracts relating to agricultural land.

Entry 41. Custody, management and disposal or property

(including agricultural land) declared by

Jaw to be evacuoe

property.

E

F

G

•

I

UNION V. H. s. DHILLON (Mitter, !.) 119

A

B

Entry 42. Acquisition and requisitioning of property.

Scanning the lists and specially the entries mentioned above,

there can

be little doubt that the Constitution-makers took care

to insert subject matters of legislation regarding land and parti­

cularly agricultural land and matters incidental to the holding of

agricultural land .in the exclusive jurisdiction of State Legisla­

tures. Although

Parliament is competent to legislate on transfer~

ot property and contracts generally, the legislative power in thtj

regard is not to be exercised over agricultural land but when

evacuee property includes agricultural land, Parliament is com­

petent to legislate with respect to custody, management and dis­

posal of the same under Entry

41 of List III. Similarly, when a

question of acquisition or requisitioning of property including

agricultural land

is concerned, both

Parliament and the State

Legislatures are competent to exercise legislative powers.

c

D

It may also be noted that so far as some specific matters of legislation with regard to agricultural land are concerned, they

have been set forth in List II while there are corresponding entries

in List I which expressly exclude agricultural land. Thus Entry

46

in List II reads

"taxes on agricultural income". Ent·y 82 in

List I mentions "taxes on income other than agricu'tural income".

Again Entry 4 7 in List II "Du' ies in respect of succession to agri­

cultural land" has its counter-part in Entry 88 of List I "Dut'es in

respect of succession to property other than agricultural land''.

E Entry 48

in List II 'Estate duty in respect of agricu'tural land' has

its counter-part in Entry 87 of List I 'Estate duty in respect of

property other than

ag·icultura] land'. But whi'e Entry 86 in

List I reads "Taxes on the capital value of the assets, exclmive of

agricultural land, of individuals and companies; taxes

on the

capital of

con:ipanies" there is. no corresponding entry with regard

to tax on capital value of agncultural lands, the nearest aporoach

to it being Entry 49

in List II

"Taxes on lands and buildin~s."

F

In order to find out the true nature of the Wealth-Tax Act one

must lo_ok ~t the charging section to ascertain the exact scope cf

the leg1slat10n. In the words of the Judicial Committee of the

G Privy Council in Provincial Trea<urer of A lber1a & A nr. v. C. E.

Ken:

& another(')

"the iden.tification of the subject matte· of the

tax 1~ na.turaliy to ~ found m the charging section of the statute,

and

1t w1H only

~e m the case of some ambiguity in the •errns of

the chargmg section

tha.t recourse to. other sections is

necessary."

The scheme .of the Act 1~ substance 1s tn treat the indiviclual as if

~e was a busmess, ·ascertam the price which the said business would

11 fetch by deducting its liab.ilities from its tangible assets an'1 im!Jose

a tax on the balance which is the net wealth of an individual.

(I) p933] A. C. 710.

120 SUPREME COURT REPORTS (1972] 2 S.C.R.

Whereas under the Wealth-Tax Act as o ;ginally enacted a portion

of the assets, namely, agricultural land

was not to be taken into

consideration, the amendment of 1969

brouqht 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 Lis_t I, the only

entry which might suggest itself would be Entry 86 and there

would be no entry either in List

II or List III carrying such a

suggestion unless one was to take the view that Entry 49 in List

II

would comprehend that portion

of the wealth of an individual which

had its base in lands and buildings.

We may therefore examine the true scope

of the two entries,

viz., Entry 49 in List II and Entry 86 in List I.

If the Act does

not fall in any of these two entries, it must be covered by Entry 97

A

B

c

in List I and be within the legislative competence of Parliament

under Art. 248 of the Constitution. Under the express words

of D

clause (

1) of Art. 248 one has only to consider whether the sub-

ject matter of legislation

is comprised in List II or List III : if it is

not, Parliament is competent to legislate on it irrespective of the

inclusion

of a kindred subject in List I or the specified limits of

such subject in this List.

Before the passing of the Wealth-tax Act of 1957 little atten­

tion was paid to Entry 55 in List I of the Seventh Schedule to the

Government of India Act, 1935 or its successor, the present Ent(y

86. No Act of the Federal Legislature was ever traced directly

\o Entry 55. Attempts had however been made to impugn taxes

imposed by the Provincal Legislature or the State Legislature as

covering the subject matter of Entry 55 or Entry 86. These cases

will

be noted in due course.

The expression

"capital value" has not been defined in any Act

either English or Indian, but

is a term well known to the English

Law of Rating. According

to Ryde on Rating, Eleventh Edition,

page 433 :

"Where property is of a kind that is rarely let from

year to year, recourse

is sometimes had to interest on

capital value, or on the actual cost, of land and buildings,

as a guide to the ascertainment of annual

value."

Further, according to the learned author :

"Where better evidence is in the circumstances of a

particular hereditament impossible, resort may be had

to either capital value

or cost of construction, either of

E

F

G

H

A

8

c

UNION v. H. s. DHILLON (Mitter, J.)

which can, with appropriate corrections, be converted

into approximately equivalent terms of annual value.

(See p. 436 quoting the rule expressed by Scott, L.J. in

Robinson Brothers (Brewers) Ltd. v. Houghton and

Chester-le-Street Assessment Committee-[1937]

2 K.B.

445, at 481)

."

According to Farady on Rating (5th Edition) p. 42 :

""Effective capital value" is a term commonly used

by valuers, but,

so far, 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."

121

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

D difficulty of defining 'effective capital value'. It

is

sub­

mitted that the substantive definition of this expression

is 'the selling price between a willing seller and a willing ·

purchaser of the property in qu<;stion, subject to the

restriction that it can only

be occupied substantially in

its present condition'; this takes into consideration all I 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 :

F

"Where neither the 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

hereditameot, or of a substitute hereditameot,

is

some­

times taken as evidence. The value taken is sometimes

called the 'effective' capital value, that

is to say, the

G capital value leaving out of account expenditure on

un­

necessary ornamentation, or accommodation surplus to

requirements and after allowing, if necessary, for age

and obsolescence."

It

is stated further :

H

"This method of valuation has been applied, for

instance,

to the directly productive parts of

~u~lic

utility undertakings (such as water works), to mumc1pal

9-L256Sup.Cl/72

122 SUPREME COURT REPORTS

(1972) 2 S.C.R.

property (such as schools, sewerage systems, a town hall,

a fire station, a swimming pool, to colleges and univer­

sity buildings, public schools, a light house, an old

people's home etc."

A

B

Except in the Law of Rating, the expression "capital value" does

not seem to have been used in any branch of English Law. There

is no reference to it in Stroud's Judicial Dictionary or Jowitt's Law

Dictionary. Yet the expression was used in the Government of

India Ac'!, 1935-a statute passed by the Parliament of England

and drawn up by people expected to be familiar with words and

expressions known to lawyers in England. It will therefore not

be improper to interpret the expression "capital value of assets" C

~ meaning the aggregate value of the assets which a willing pur­

chaser would offer a willing seller for the property in its condition

at the time of the transaction. Naturally, a purchaser would

enquire into encumbrances on the property and charges thereon

created by the seller but he would not be concerned with any other

debts

or liabilities incurred by the seller for the purpose

oi acquir­

ing the property

or maintaining it. So interpreted the expression "capital value of assets of an individual" will take _in only the

assets less the charges secured but not any other liability.

D

Entry 49 in List II of the Constitution had a fore-runner in

Entry 42 in List II to the Seventh Schedule to the Government of E

India Act, 1935 which read

"taxes o,n lands and buildings, hearths

and windows". The inclusion of hearths and windows lnade little

difference to the entry and it

was therefore dropped from the list

in the Constitution.

In

Sir Byramjee Jeejeebho,v v. Province of

Bombay(') the scope of entry 42 in List II came to be examined

in juxtaposition to that of entry 55

in List I which is identical with

Entry 86

of List I of the Constitution. In that case. the jurisdic­

tion

of the State Legislature to levy a tax called the

Urban Immov­

able 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.

S. 20 of the said Part

6

of the Bombay Finance Act directed that inclusion of the

said

Part was to extend to the Citv of Bombay and the other places

therein mentioned. S. 21 defined "an,nual 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 Bon:ibay M~nicipal Act, I 888. S. 22 which was the charging

sectJOn provided that there shall be levied and paid to the Provin­

cial Government a tax on buildings and lands called the Urban

Immovable Property Tax at I 0 per cent of the annual letting value

(I) A. T. R. 1940 Bombay 65.

F

H

c

D

:E

F

UNION V. H. s. DHILLON (Mitter, /.)

of such buildings or lands. Examining the legislative authority of

the Provincial Government, Beaumont C.J. observed :

"The impugned tax may fall either : (I) 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 noied that item 54 read "taxes on income other than

agricultural income" and item 55 "'taxes on the capital value of the

assets, exclusive of agricultural land, of individuals and companie.<:

laxes on the capital of the companies". According to the learned

Chief Justice the impugned tax was not a tax on income. H~

observed:

"The charging s. 22 imposes the tax on lands and

buildings, and not on income, and the basis of the tax

is

annual value. This is an arbitrary basis which might

be applied as well for ascertaining capital value, as for

ascertaining income. The fact that some concession is

allowed to the small owner, a concession which may be

based as much on political, as on economic considera­

tions and that an allowance may

be made where the

property

is shown to produce no income, a fact which

may be taken

to show that the estimated

yalue was found

to be erroneous, cannot alter the nature of the tax."

Addressing himself to the question as to whether the tax was one

on the capital value of the assets, the learned Chief Justice said :

"An analysis of the language employed in items 54

and 55 respectively affords scope for this argument but

whether the contention

be sound or not, in my opinion.

it

is impossible to say that this tax, although it is a tax

on lands and buildings,

is a tax on the capital value of

the

I.ands and buldings. It is imposed without any

relal1on to the

capital value except so far as such value

can be ascertained by reference to rateable value."

G Broomfield. J. made an attempt to ascertain what the expression

"capital value" meant and said :

. "What is meant by the capital value of assets in that

Item (1~em 5.5) is by no means clear, and the argument

~brew h!tl.e light on the matter. It may be that what is

H mtend<:d ts a tax on the total value of assets in the nature

of capllal levy.

In any case the measure of the capital v~lue of assets .would appear to be ,the market price

T.1at would obviously be affected by several factors, e.g:

SUPREME COURT REPORTS [ 1972] 2 S.C.R.

mortgages and charges, of which the impugned tax takes

no account .... Looking at the essential character of

the

tax from the legal point of view, I think it may be

described as a tax on lands and buildings, imposed on

the owners

qua owners, and assessed by a somewhat

arbitrary but not inequitable standard, which

is not

dependent either on the income of the assessee or on the

capital value of the

propenies."

Kania, J. did not thi,nk 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 person's

capital.

In Munici{'al Corporation v. Gordhandas(

1

) 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 'exemp­

tions !hereinafter provided shall

be liable to be charged

the same'.

Rule 243 dealt with the valuation based on capital and

it laid dowil

that valuation based upon capital shall be the capital value of

buildings and lands

as may be de'lermined 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 miglit fur,nish

either of

th~ir own accord or on being called upon to do so. It

was common ground that the corporation derived its authority to

impose taxes or rates under

s. 73 of Bombay Act

XVIII of 1925.

Sub-s. ( 1) of that section empowered a Municipality· to impose

for the purposes of the Act a rate on buildi,ngs or lands or both

situate within the municipal borough. Sub-s. (2) provided for a

limitation : that nothing

in this section was to authorise the

impo­

sition ol any tax which the State Legislature has no power to

impose in the State under the Government of India Act, 1935

under Entry

55, List I. The corporation contended that the rate

in question did not amount to a capital

levy at all, but that it was a

rate on open land and the value

of the capital was utilised merely

as a means or machinery to enable the municipal corporation to

levy a reasonable rate on the said open plot. In support of this.

the corporation relied upon the E:tplanation· to s. 75 of the Muni­

ciul Boroughs Act laying down the procedure preliminary to im­

posing a tax.

It provided that before

imposin.e: a tax a munici­

pality shall, by a resolution passed at a general meeting, specify

among other things (iii)

i,n the case of a rate on buildings or lands

(I) A.1.R. 1954 B~mbay 188.

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UNION v. H. s. DHILLON (Mitter, /.) 125

or both, the basis for each class of the valuation on which such

rate

is to be imposed; and the explanation added that in the case

of lands the basis of valuation may be either capital

or annual

letting value. According to the municipal corporation all that

R.

350-A had purported to do was to adopt the capital value as

the basis of valuation for levying the rate on open lands. In up­

holding the validity of the tax, Gajendragadkar, J. (as he then

was) said

(seep. 191) :

" ...... the Provincial Legislature is given the power

to levy a tax on lands. Entrv 42 of List II, which

confers this power on the Provincial Legislature, intro..

duces no terms of 11mita'tion and does not provide for any

particular manner

in which the tax should be levied. In

other words, the power of the Provincial Legislature to

levy the tax on lands is unqualified and absolute. In

the present case, the power of the Municipal

Corpora­

tion to levy a tax on the open land is similar in extent

to the power of the local legislature ... U, by adopting

this basis, i the inevitable result would be that the rate

which

is ultima'tely levied amounts to a capital levy and

is, therefore ultra vires, it would be necessary to hold

that, not only

R.

350A ultra vires, but the 'Explanation'

to

s. 75 itself is ultra

vires."

He did not however feel driven to this conclusiOQ as i,n his vie.. :

"a distinctio11 must be made between a rate or tax

which

is levied on land on the basis of

it~ 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 tho

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 ':"ould similarly be open' to the municipality to levy ~

uniform tax on all the lands. The Municipality may,

'1owever 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 municipa!ity

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

Cor­

poration 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."

126 SUPREME COURT REPORTS [ 1972] 2 S.C.R.

The learned Judge went on to consider in what manner Central

Legislature could levy a tax

on the capital value of the assets. He o hserve<l :

"If the asset in question happens to be a land, its

real capital value in the context would be determined

after taking into account the encumbrances to which the

land may

be subject and the other liabilities which may

be enforceable against

it. .... ;The position of the

Municipal Corporation when

it levies a

rale on the same

property, treating it as land,

is not the same or similar.

It would be open to the Municipal

Corporation to take

into account the value of the land

as such. without reie­

rencc

to the encumbrances to which it is subject, and

to levy the rate on the value

o.f the

land so determined.

Jn other words. the municipal rate or tax would not be

concerned to determine the real economic capital value

of the asset in question, but to find out the market value

of the land apart from its real capital value in the eco­

nomic sense and levy its tax on i't. In this way, the

capital value of the open land determined by the Muni­

cipal Corporation under R. 350A would not always or

necessarily be the same as the capital value of the same

land if i't was determined by the Central Legislature for

the purpose of levying a tax under Item 55 in List I."

The l~arned Judge however visualised that in some cases the

capital value may work out to be the same in cases falling under

Entry 55 of List I and those falling under Entry 42 of List II.

The le~rned Judge Vyas, J. said :

"In the context of item 55 the capital value of the

assets means the real capital value, regard being had to

the encumbrances to which the lands may be subject.

If a land whose market value is Rs.

10,000/-is subject

to a mortgage of Rs. I 5,000/-the owner has only an

equity of redemption the val\le whereof may be a minus

quantity. Such

an asset

cou

1d not possibly be liable to

the levy of a tax under entry 55 of Li>t I. All the same

the owner would not be immune ffom the levy of a tax

upon the said land by the municipality under entry 42

for the municipality is not concerned whether the land

is encumbered

or unencumbered."

It must be noted that the above decision was set aside in appeal

to this Court but there is nothing in the judgment of this Court

which goes against the

interpretation of the expression "capital

value" by the High Court. The decision of the majority Judges

of this Court was based

on the fact that the word

"rate" had not

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UNION v. H. s. DHILLON (Mitter, J.) 127

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 res­

pect

to levy of rates and cannot be read to mean

a percentage of

the capital value itself" : Patel Gordhandas Hargobindas v.

B Municipal Commissioner, Ahmedabad(1) .

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.

Entry 49 appears always to have been regarded as contemplat­

ing the

levy of tax on lands and buildings

b~th ·as units. As was

pointed out in

Asst. Commissioner v. B &

C. Mills Ltd. (supra) :

"Entry 49 of List II, contemplates a levy of tax on

lands and buildings or both

as units. It is not con­

cerned with the division of interest or ownership in the

units of lands or buildings which are brought to tax.

Tax on lands and buldings,

is directly imposed on lands

and buildings, and bears 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 annual or the capital value of the

lands and buildings."

In this case it was held that the Madras Urban Land Tax Act 12

of 1966

was in pith and substance one which imposed a tax on

urban land at a percentage of the market value and

was within

the ambit of Entry 49

of List IL The history of this entry was also

E traced in the judgment and it

was held that

"Entry 49 'taxes on

lands and buildings' should be construed

as taxes on lands and

taxes on

buildings."

It may not be out of place to note that the vires of the Punjab

Urban Immovable Property Act of 1940 which contained some­

what similar provisions

was challenged before the Federal Court

F of India in

P..alla Ram v.

Province of East Punjab (

2

). There the

charging section (sec.

3) provided for the levy and payment of

annual tax on buildings and lands situate in the rating area shown

in the Schedule to the Act at a rate prescribed not exceeding twenty

per centum of the annual value of such buildings and lands and

section 5 laid down that the annual value of any land or building

G

was to be ascertained by estimating the gross annual rent at which

&uch land or building might reasonably be expected to let from

year

to year less certain allowances.

One of the grounds urged

was that the impugned tax was 1n substance a tax on income and

as such covered by Entry 54 in List I and not by Entry 42 in

H

List II. Turning down the above contention it was observed :

"The Act is to be read as a whole and having regard

to the elaborate provisions made in it for determining

{l) [1964]-2 S.C.R. 608 at 632. (2) [19481 F.C.R. '1m.

128 SUPREME COURT REPORTS [1972] 2 S.C.R.

the annual value of buildings and to the fact that the

rate actually fixed in the Official Gazette . has a direct

reference

to the annual value, there can be no doubt

that the basis of the tax

is annual

value."

The Court further said that (see p. 220) :

" ..... once it is realised that the annual value is not

necessarily ~ctual income, but is only a standard by

which income may be measured, much 0£ the difficulty

which appears on the surface

is removed. In our opi-

nion, the crucial question

to be answered is whether

merely because the Income-tax Act has adopted the

annual value

as the standard for determining the income,

it must necessarily follow that,

if the same standard is

employed as

a measure for any other tax, that tax

becomes a tax on income ?"

Considering the pith and substance of the legislation the Court said

that (see p. 224) :

"There is however nothing 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 va.lue, 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

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the attention of several High Courts. It would appear that

throughout this

web of decisions the principal and sometimes the G

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 on

"individuals" and "companies". Chronologically the

main decisions are

as follows. In Mahavirprasad Badridas

v.

Yagnik, Second Wealth Tax Officer(') the petitioner before the H

Bombay High Court contended that "to the extent the Union

(I) [1959) 37 I. T. R. 191.

A

UNION v. H. s. DHILLON (Mitter, J.) 129

Paryament authorised the levy of wealth tax on Hindu undivided

families

as units, the legislation is ultra

vires" and in support of

that contention placed reliance on Entry 86, The submission

assumed that

the levy of wealth-tax fell under Entry

8p. The

contention of the petitioner

was repelled by Shah, J. (as he then was) holding that the expression "individuals" used in defining the

II topic of legislation would include an association of individuals

It is to be noted however that the learned Attorney-General

appearing on behalf of the Union of India had contended that even

assuming that by the 86th entry in List I oi the. Seventh Schedule

the Union Parliament was not invested wth power to legislate for

c

levying wealth-tax on the assets of Hindu undivided families, the

Union Parliament was still so invested with authority by Art. 248

of the Constitution and Entry 97 in List I of the Seventh Scheduk.

For the assessee it was submitted that "where the Constitution, in

defining powers to legislate on a topic, has by incorporating wor<h

of limitation expressly placed a restriction upon the competence

of Parliament to enact legislation, relying upon the residuary

powers contained in Art.

248 and Entry 97 in List I, the restric-

D tion cannot be ignored. Shah, J. dealt with this argument by obicrving:

E

"On the view I have taken on the interpretation of the

expression "individuals" in entry 86, I do not think it

necessary to express any opinion on the question whe­

ther in the residuary powers of the Union Parliament,

power to legislate on a topic which is partially dealt with

by a specific entry in the first List may be regarded as

included."

The other learned Judge, Desai, J. expressed himself similarly.

F In N. V. Subramanian v. Wealth Tax

Officer(1) the vires of the

Act was challenged

by a Hindu undivided family

before the

Andhra Pradesh High Court the exact contention being "that the

respondent cannot take action under the provisions of the Wealth­

tax Act, 1957 with respect to a Hindu undivided family on tht.

ground that the Act, in so far as it enables ti}e levy and collection

G of wealth-tax on the capital value of assets of a Hindu undivided

family

is beyond the legislative competence of the

Union Parlia­

ment". 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 ( p. 571) :

H

"The principal question that falls to be determined

is whether the expression 'individuals' in entry 86 can

comprehend a Hindu undivided family."

(I) 40 I.T.R. 567.

130 SUPREME COURT REPORTS [1972] 2 S.C.R.

Reference was made to Mahavirprasad's case (supra) as also

decisions turning on the interpretation of the expression

"individuals" in section 3 of the Income-tax Act ot 1922 and it

was held that the principle of the said decisions applied to the

construction of 'individual' in entry 86. Although the Court men­

tioned 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

P. 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 inapplicable to the case of a Hindu undivided

family.

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In C. K. Mammad Keyi v. Wealth-tax

Officer(') the assessee

raised in the forefront 0.f his contention that "Parliament was not

competent under entry 86 in the Union List to impose a tax ca1led

the wealth-tax on the capital value of the assets of Hindu undivided D

families and of Mappila Marumakkattayam tarwads and also 011

the capital value of the assets of any person to the extent that they

are and may be deemed to be made up of agricultural income."

Examining the different provisions of the Act, Velu Pillai, J.

observed ( s_ee p. 282) :

"These leave no room for doubt in our minds that

the pith and substance or the true nature and character

of the tax is that it is a levy on the capital value

ot

assets, subject to specified inclusions and exclusions in

the content of the term 'assets', agricultural lands being

one of the exclusions.

To this extent, the wealth-tax is

specifically and in substance covered by entry 86 in

the

Union List."

The learned Judge felt no difficulty in accepting the argument that

"lands and buildings" can form part of assets and that "taxes on

lands and buildings"· within the meaning of Entry 49 of the State

List may include a tax thereon on the basis of their capital value.

He remarked that

"the land tax. can be related to the annual or capital

or sale value of the land."

According to him :

"the distinction, real r.nd vital (i.e. between entry 86

and entry

49) between a tax on lands and buildings on

(I) 45 l.T.R. 118. (2) 44 l.T.R. 277.

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UNION v. H. s. DHILLON (Mitter, I.)

the basis of their capital value, and a tax on such capital

value itself treating lands and buildings as an item of

asset, cannot be ignored."

He further observed :

131

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In the case of a tax whose base or object is lands and

buildings. their annual or capital value

is but a

mea;urn

or standard adopted to ensure the justness or reasonable­

ness of the levy, but in the case of a tax on capital

value, such value

is itself the base or object of the

levy."

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According to the learned Judge there was an over apping o

imposts under Entry

86 an<l Entry 49 as in his view :

"To allocate the legislative power to impose a tax on

the capital value of lands and buildings, treating them

as assets, entirely to the

field covered by entry 86 in the

Union List is not, as contended, to rob entry 49 in the

State List of its content,

for even excluding taxes under

entries 45

to 48 in the State List, which have

some

relation to lands or buildiQgs or both, the field is stili

open under entry 49 for legislation for other taxes on

lands and buildings

...... There is, therefore, really no

conflict and no overlapping of jurisdiction in the case of

the

two entries in

question."

1lle learned Judge was' further of the view that :

" ...... enlry 49 must be held to be a general

provision for taxes on lands and buildings and to yield

to ~ntry 86 which must be held to be a special provi­

sion for a particular tax, a tax on the capital value of

assets."

F On the other aspect of ihe case e.g. that a tax on the net wealth

of an assessee to the exteinl 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 illOt purport to tax

any income whatever but only the net wealth of an assessee as

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defined in terms of his assets. He agreed with the view of the

Bombay and the Andhra Pradesh High Courts that a Hindu un­

divided 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.

In this view, he felt it unnecessary

to consider the alterillative argument advanced for the

department·

that even if entry· 86 was not applicable the Act was saved by

Art. 218 read with entry 97 in the Union List.

So far as the Allahabad High Court is concerned' the notable

judgment

is that of a

Beinch of three Judges, Juga/ Kishore v.

132 SUPREME COURT REPORTS [1'172] 2 S.C.R.

Wealth-tax Officer(

1

). The judgment of Gurtu, J. shows that

the argwnent on behalf

of the assessee was that Entry 86 did

not justify

an imposition on Hindu undivided families. He appears

to have started with the assumption that imposition of tax on net

wealth would bie C'overed by Entry 86 but inasmuch as the said

entry would not justify an imposition on a Hindu.undivided family

resort .could be had to the residuary power in Art. 248 to justify a

legislation of this measure (seep. 100). Upadhya, J. was of the

view that "the Act should be declared ultra vires the Parliament

so far as it imposed a tax on the ·capital assets of the Hindu urr­

divided families" (p. 115). Jagdish Sahai, J. concluded that the

Union legislature could have enacted the impugned provison by

virtue of entry 86"-and it was "not necessary to go into the question

whether entry 97 read with Art. 248 could sustain the impugned

provision" (pp. 123-124).

In

Sarjero Appasaheb

Shitole v. Wealth-tax Officer(') the

three main points urged there : (

i) wealth-tax on lands dnd

build­

ings is ultra vires the powers of Parliament; (ii) under any circum­

stances Padiamer:t could not have imposed wealth-tax on Hindu

undivided families; and

(iii) the Wealth-tax Act was violative of

Art.

14 of the Constitution. It was argued on behalf of the

assessee that Entry 86 of List I had

to be read as subject to Bntry 49 in List II; if so read it would be found that the field of

"lands and buildings" was reserved for the State under Entry 49.

The first point was rejected on the basis of the earlier decision in

Balaka's

case(') holding that

"land" other than agricultural land.

being a part of the assets, came within the scope of Entry 86. It

was argued that Entry 86 of List I did not empower Parliament

to levy wealth-tax on undivided families. This point was decided

.against the assessee by the learned Judges observing

(seep. 376) :

"Whenever a question arises as to the source of

power, the task of the court is to locate that power in one

or the other of the Lists

... As mentioned earlier, it is not

the case of the assessee that the power in question can he located either in List II or List HI. Therefore, it

follows that Parliament has power to legislate

on the

sub­

ject either under entry 86, failing that under the re;i­

duary 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 compete.nee to enact a law providing for imposing

wealth-tax on undivided families." -

The Madra' High Court had to deal with the question in

.Raja Sir M. A. Muthiah Chettiar v. Wealth-tax Officer('')_. _The

(I) 44 l.T.R. 94.

'l 48 f.T.R. 472.

(2) 52 I.TR. 372.

(4) 53 I.T.R.504.

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UNION v. H. s. DHILLON (Mitter, J.·) 133

petitioner there asked for the issue of a writ of prohibition to direct.

the Wealth-tax Officer to forbear .from taking proceedin&s pur­

suant to the notices issued and a:lso for a _similar writ restraini.ng

the Expenditure Tax Officer. The only question in the first peti­

tion was, whether s. 3 of the Wealth-tax Act offended Art 14 of

the Constitution in that it left out of its ambit Marummallattayam

tarwards. 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

di~retion

in selectiillg the subjects of legislation. The Kerela case above

referred to came up in appeal to this Court : the judgment there

i5 reported in 52 l.T.R. 605 and allowing the appeals and remJnd­

ing the case to the High Court this Court observed that it was

not necessary to consider whether the view of the High Cou:t oo

the first question relating to legislative competence was or was

not correct.

The judgment of the Special Bench of the Allahabad High

Court already referred to came up for consideration in this Court

in Banarasi Das v. Taxing Officer('). The appellants contended

before this Court that the taxes which Parlianient was empowered

to levy under entry 86 could only be imposed on individuals and

if these bodies were outside the scope of entry 86 they could not

be subjected to such a

levy under Entry 97 "as that entry 1 eferre<I

to matters other tha.n those specified in entries 1 to 96 of J .isc 1

as well as those enumerated in Lists II and III and since Weahh-tax

was a matter specifically enumerate<! in Entry 86, Entry 97 could

1101 be held to take in the said tax." In regard to Art. 248 the

argument was that it must be read with Entry 97 and if wealth-tax

in respect of the capital value of assets of Hindu undivided families

was outside both Entry 86 and Entry 97, the residuary power of

legislation conferred on Parliament by Art. 248 could not

be

invoked

in respect of tax imposed on the capital value of assets of

Hindu undivided families by the impugned provision" (p. 358).

On behalf of the Wealth Tax Officer it was argued tha~ the

impugned provision was primarily valid under Entry 86 in List I.

In the alter:native, it was argued that Entry 97 which was a resi­

duary entry would t&ke in all matters not enumerated in List II or

List Ill including any tax not mentio:1ed ~n either of those Lists.

It wa~ urged that the words "matter" mentioned in Entry 97 cannot

lake in taxes specified in Entry 86, but it refers to the subject

matter in respect of which Parliament seeks to make a Jaw under

Entry_ 97. TI1e bulk of the arguments there turned on the inter­

pretation of the word "individuals" in Entry 86 and as to whether

H the u~e of that word justified the levy of a tax on Hindu undivided

fam1hes. Accordmg to this Court :

~) [1965]2 S.C.R. 355.

134 SUPREME COURT REPORTS [1972] 2 S.C.R.

"the basic assumption on which the appellants'

argument rests

is that .the CQ!lStitution-makers wanted

to exclude

the capital value

of the assets of Hindu un­

divided families from taxes. That is why their conten­

tion is that the impugned provision would not be

sustained either under entry 86 or U111der entry 97 of

List or even under Art. 248." (p. 360).

To this the Court's reaction was :

"On the face of it, it is impossible to assume !hat

while thinking of levying taxes on the capital value of

assets, Hindu u.ndivided families could possibly have

been intended to be left out". (p. 361).

lt was further said (p. 364) :

"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

un­

divided 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 (see at p. 364) :

"This question has been considered by several High

Courts and the reported decisions

.show consensus in

judicial opinion

in favour of the construction of Entry

86

which we have

adopted."

This is followed by reference to the decisions of the Bombay High

Court, Andhra Pradesh High Court; Mysore High Court and the

Madras High Court which have been already noted. According

to this Court :

" ..... these reported decisions show that the vali­

dity of the impugned provision was challenged before the

High Courts on the ground that the Hindu undivided

family

is an association and as

su'ch, the capital va!Ue

of its assets could not be taxed under Entry 86."

The Court observed at p. 365 :

"Since we have come to the conclusion that Entry 86

covers

cases of Hindu undivided families, it follows that

the impugned provision

is valid under the said

Bntry

itself. That being so, it is unnecessary to consider whe­

ther the validity of the impugned provision can be sus-

A

B

c

D

E

F

G

JI

UNION v. H. S. DHILLON (ltfitter, J.)

tained under Emtry 97 or under Art. 24i8 of the

Constitution."

135

It will be noted that .the argument there was not whether a

tax

or net wealth was covered by the entry

"capital value of the

assets" but whether "individuals" on whom the burden was to fall

under that entry, could include Hindu undivided families and this

B Court was really not called upon to examine this aspect of the

matter.

In

S. C. Nawn v. Wealth-tax O.lficer (supra) the substance of

the argument

was that wealth-tax was chargeable only on Lhe

accre­

tion of wealth during the financial year and that Parliam.!nt could

not have intended that the same assets should continue to be

C charged to tax year after year. It is to be noted that in the writ

petition filed in this Court, the assessee did not contend that the

tax on net wealth was not chargeable under the Act of 1957 under

Entry 86 or in any other Entry of the Union List and naturally

there was no occasicm for this Court to go into that queslion as

D

E

G

ff

is clear

from a passage as p. 110 of the judgment :

"The Parliament enacted the Wealth-tax Act in

exercise of the power under List I

of the Seventh

Schedule entry

86---"Taxes on the capital value of assets,

exclusive of agricultural lands,

or individuals and

com­

panies; taxes on the capital of companies". That Wal>

so assumed in the decision of this Court in Banarsi Dass

v. Wealth Tax Officer, Special Circle, Meerut (supra),

and counsel for the petitioner accepts that tqe subject

of Wealth-tax Act falls within the terms of entry 86

List I of the Seventh Schedule. What he argued how-

ever

was that. ....... since the expression

'inet 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. the Parliament is Incompetent

to legislate for the levy of wealth-tax on the capital

value of assets which include non-agricultural l~nds 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 ind!viduals and companies, on the

valuntion

date. The tax is not imposed on the components of the

ass~ts of the assessee : it is imposed on the total assets

which the assessee owns, and in determining the net

we~lth not ?nly the encumbrances specifically charged

aga,nst any item ~f asset, but the g~neral liability of the

assessee to pay his debts and to discharge his lawful

136 SUPREME COURT RliPORTS [1972] 2 l.C.Jl.

obligations have to .be taken into account. In certain

exceptional cases, where a person owes no debts and is

under no enforceable obligation to discharge any liability

out of his assets, it may be possible to break up the tax

which

is leviable on the total assets into componentS and

attribute a component to lands and buildings owned

by

an assessee. In such a ca~c, the component out or

the total tax attributable to lands and buildings may in

the manner of computation bear similarity to tax on

lands and buildings levied on the capital or annual value

under.entry 49 List II. But the legislative authority

of

Parliament is not determined by visualizing the possi­

bility of exceptional cases of taxes under two differea:it

heads operating similarly on tax-payers."

The Court went on

to add

:

"Again entry 49 List II of the Seventh Schedule

contemplates the levy of tax on lands and buildings or

both

as units. It is normally not concerned

with the

division of interesi 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. bears a definite relation to it. Tax on the capital

val.ue of assets bears no definable relation to

lainds aml

buildings which may form a component oi the total

assets of the assessee.

By legislation in exercise

of

power under entry 86 List I tax is contemplated to be

levied on the value of the assets. For the purpose of

levying tax under entry 49 List

JJ the

State Legislature

may adopt for determining the incidence of tax the

annual or the capital value of the lands and buildings.

But the adoption or the annual or capital value of land~

and buildings for determining tax liabili!y will not, in our

judgment, mak_e the fields of legislation under the two

cm.tries overlapping."

It is therefore quite clear that the whole discussion proceeded

on the assumption that imposition of tax on i!;e net wealth was

justified under Entry 86 List 1. The assessee's contention wa~

that capital value of lands and buildings would fall under entry 49

and would therefore fall within the exclusive field of legislation

of the State. This was turned down by the Court holding that

the concept of a

tax on net wealth which included not only the

value of the assets but excluded the general liability of the

as5essee

to pay his debts was one entirely different from a concept of tax

attributable

to lands

and buildings as such. With respect, this

was the proper approach to the identification oi 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

A

B

c

D

E

F

G

H

A

B

c

D

E

F

UNION

v. H. s. DHILLON (Mitter, J.) 137

which was to be determined by deductinJ!: his liabilities from the

total value of the assets held

by him.

Ln Assistunt Commissioner v. Buckingham & Camatic Co.

Ltd. (supra) Madras Act

12 of 1966 was inter alia challenged

before the Madras High Court

as violative of Arts. 14 and 19(

I )(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 a.n<l 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 o.f the respondent was that the "impugned Act was, both

in fonn and substance taxation on capital and was hence beyond

the competence of lhe State Legislature." It was urged that "to

tax on the basis of capital or principal value of assets was pe1 mis-

sible

to

Parliament under List I, entries 86 and 87 and to the State

under entry 48 of List II "Taxation under Entries 86 and 88

formed a group of entries the scheme of which was to carry out

the directive principle of Art.

39(c) of the Constitution

anci the

method

of taxation of capital or principal value was prohibited

even

to

Parliament in respect of other taxes and to the State:;

except in respect of estate duty on agricultural land". "i11is was

turned down by the Court observing (see p. 277) :

" .... there is no warr<;nt for the assumption lhat

entries 86, 88 of List I and Entry 48 of List

II form a

special group embodying any particular scheme

.... The

legislative entries must be given a large and liberal

interpretation, the reason being that the allocation

of the

subjec~s to the lists is not by way of scientific or logical

definition but by way of a mere simplex enumeratio of

broad categories. We see no reason, therefore, for

holding th:n the 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 Court went on to add :

"In our opinion there is no conflict between Entry 86

of List I and Entry 49 of List II. The basis of taxation

G under th_e 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 compo­

nents of the assets of the assessee. The tax under Entry

H 86 proceeds on the principle of aggregation and

i:;

imposed on the totality of the valu,e of the assets. It is

imposed on the total assets which the assessee owns and

in determining the net wealth not only the encumbrances

10-L256S•ip.C!/72

138 SUPREME COURT REPORTS (1972] 2 S.C.R.

specifically charged against any item of asset, but the

general liability of lhe assessee to pay his debts and to

,discharge his lawful obligations have to be taken into

account .... But entry 49 of List II contemplates a levy

of tax on lands and buildings or both as units. 1 t 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

3!IJd buildings and hears a definite relation to it. Tax on

the capital value of assets bears no relation to lands and

buildings which may form a component of the total

assets of the asscsscc

..... For the purpose of levying

tax

under Entry 49. List II the State Legislature may adopt

for determining the incidence of iax the annual or t!i~

capital value of the lands and buildings. But the adop-

tion of the annual or capital value of lands and building'

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 :ind

fall on different subject matters."

Sri Prithvi Collon Mills Ltd. v. Broach Municipality (>upc.i)

A

B

c

D

was the aftem1ath of the judgment of this Court in Patd Gordhan­

das's case (supra). 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 I:

imposition of the tax as well as to avoid any future interpretatiC!ll

of the Act on the lines on which Rule 350-A was construed.

Sec. 3 of the Act was passed to validate past assessments and col­

lection 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 s. 99 was

enacted in the Gujarat Municipalities Act to provide for the !evy 1

of a tax on lands aind buildings "to be based on the annual letting

value or the capital value or the percentage of the capital valne

of the buildings or land> or both/" The main question before the

Court was whether the legislature possessed competence to pass a

law imposing a tax on lands and buildings on the basis of a per­

centage of their capital value. The Court noted that it was con-G

ceded by counsel for the appellants that

sec. 99

of the Municipali-

ties Ac:t was permissible legislation under Entry 49 of List Tl.

The Court observed that :

"the doubt which was created by entry 86 of List I

no longer exists after the decision in Sudhir Chandra H

Nawn's case (supra). As it had been held in that case

that tax under

entry 86 was not a direct tax on lands and

buildings

but on net assets it was open to a State Legis-

..

A

UNION v. H. s. DHILLON• (Mitter, I.)

lature to levy a tax on lands and buildings as units

indicating the mode of levy which could ~lude one

based on a percentage of the capital value."

139

It will thus be clear from the elaborate discussion of the argu­

ments

in all the cases regarding the imposition of wealth-tax in

B different High Courts that

the principal ground of

a'ttack on the

Wealth-tax Act

was that

"Hindu undivided families" were not

"individuals" and could not be brought to tax under ~ntry 86 of

List I directly or

by the aid

of Art. 248 read with Entry 97 of the

said List. In most of the

cases the learned Judges did not feel

called upon to express any opinion with regard to the applicability

of Entry 97. Barring the decision in

Mohammad Keyi's case in

C the Kerala High

Cou'rt, little was said about the scope of this Entry

read

with Art. 248. When the matter came to this Court effectively

for the

first time in BanarsiDas's

case (supra) the Judges did not

think that the legislative history in the matter of denotation

of the

word

"individuals" on which the appellants relied could really

afford any material assistance 1n construing the word "individuals"

D in entry 86. The Court held that "individuals" in Entry 86 would

include Hindu undivided families

as had been the view of many

High Courts.

E

With respect

crio serious attempt was made in any of the cases

to properly identify the subject matter of the legislation imposing

the tax and ascertain whether capital value

of assets meant the

same thing

as net wealth as defined in the Wealth Tax Act. The

various decisions and authorities cited above

which bear on the

true meaning of the expression "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 owning

F thetn or in particular the debts

owed in respect of them. In my

view, the subject matter of legislation by 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 weaith 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

G 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

encumbr~nces

on its assets do not figure. To what use entry 86 can be put 1s not

for

us to speculate upon. It appears

t~at the view of Professor

H -Kaldor

as expressed

in his report on Indian Tax Reform (Chapter

2)

was that an

annual tax on wealth should be I! tax on accrual

and not a tax on the principal itself. Hi~ suggest10n was that the

tax should be on a graduated scale with a very low rate at tbe -

140 SUPREME COURT REPORTS [1972] 2 S.C.R.

lowest slab so that an assessee could meet both the i,ncome-tax

liability and the weahh-tax liability without feeling the pinch. It

must also ]:>e noted that in his view agricultural land could only be

taxed

by way of wealth as a result

of a Constitutional amendment.

The Govenrunent of India do not appear to have proceeded on the

lines of Professor Kaldor's suggestion. Probably Entry 86 of List I

can

be utilised

for levying a capital levy in an emergency or by

way of a marginal imposition of an individual's assets without'

considering his holdi,ng of agricultural land. Even assuming Entry

49 of List II envisages imposition of taxes on lands and buildings

adopting a mode of a certain percentage on their capital value.

lands and buildings must still be subject to taxation as units and

A

8

no aggregation is possible. Further, no State Legislature is CORI--c

petent to levy a tax which would embrace an individual's assets

m the shape of lands and buildings situate outside the Stale.

The subject matter of wealth tax including or excluding agri­

s;ultural lands etc. is not covered by Entry 86 of List I read with

Art. 246 of the Constitution, but by Entry 97 of List I read with

Art. 248. Although read by itself Entry 97 may seem to suggest D

that the expression "any other matter" has reference to the other

entries

in List I, Art. 248 ( l) makes it

clear beyond doubt that

such matters are those which are not covered by ~tries in List II

or List III. Th.e Constitution has not denied to the Union power

to levy wealth tax inclusive of agricutlural la.lid as was contended

for on behalf of the respondents.

The residuary field of legislation no longer ·lies barren or un­

productive.

It has already yielded fruitful sources

ci taxation like

the Gift Tax Act, the Expenditure

Tax Act and borrowings as

under the scheme

of annuity deposits. . ·

E

Jn the above view of the matter, it is not 'necessary lo discuss

the points of similarity between the scheme of distribution of

F

legislative power under our

Constitution and sections 91 and 92

of the British North America Act of 1867. Nor it it reJev3nt to

consider whether the words "exclusive of agricultural land" in

Entry 86 of List I are words of exclusion and not of prohibition.

I would therefore allow the appeal :ind set aside the Judomci:t G

of the High Court but make l!lo order as to costs. ~

ORDER

In view of the majority judgments the appeal is aUowel.

There shall be no order as to costs .

.V.P.S..