# ·~ UNION OF INDIA v. H. S. DHILLON

- **Citation:** [1972] 2 S.C.R. 33
- **Court:** Supreme Court of India
- **Decided:** 1971-10-21
- **Bench:** S. M. S1Kri, J.M. Shelat, A. N. Ray, I. D. DuA, S. C. RoY, D. G. Palekar, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-h-s-dhillon-5657
- **Pages:** 108

## Headnote

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, 1969Comvetencv 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, amended 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 ..

## Text

_Characters 0–39,611 of 293,187. This is a partial read: ask again with offset=39611 for what follows._

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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, 1969Comvetencv 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, amended 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 Ie2islation 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 concerned 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 conferment 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 Constituent 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 enumeration of entries in List I only followed the precedent of the Canadian Constitution 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 relying on the powers under the specified entries 1 to 96, List I and supplement 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 mentioned in either of those lists.
Article 248 provides that Pirrliament has exclusive 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 jurisdiction 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 business would fetch by deducting its liabilities from its tangible assets and
impose a tax on the balance which is the net wealth of an 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 interpreted 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 expression 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 owning 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 legislation 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. Taxin}? 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 Constitutionmakers took care to insert •ubject-matters of legislation regarding land and
particularly agricultural land and matrers incidental to the holding of agricultural 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 corresponding 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.
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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
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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 Parliament 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 individual 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 amendment-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 distinction between a tax directly upon lands and buildings as units by reason of
ownership in such lands and buildings (which would fall under entry 49,
List II) and a tax on the capital value of the total assets barring agricultural 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 subsidiary 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 Constitution. \\·ho had in their min<ls a definite scheme of distribution of pO\\'Crs
under \\'hich agriculture and taxation in relation to agriculture \\'ere handed 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.
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(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, entries 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
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(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, pxpend1ture 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 enumeration 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, DE, (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 spellout. 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 agricultu~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 subsidiary 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 question 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, referred 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 intervener 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.
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UNION v. H. S. DHILLON (Sikri, C.J.)
43
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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.
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R. C. Mishra, Advocate-Genera/, Orissa, Santosh Chatterjee
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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.
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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 agricultural 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 earlier assessment years. "Net Wealth" is defined in s. 2(m) to mean
"the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever
located, belonging to the assessee on the valuation date, 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.