Union of India v. H.S. Dhillon 1971(2) SCC 779
[S.M.Sikri, C.J., J.M. Shelat, G.K. Mitter, A.N.Ray, I.D. Dua, S.C.Roy and D.G. Palekar, JJ.] [Residuary Power of Legislation]
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LB-301-Constitutional Law-I |2022
S. M. SIKRI, C.J. – This appeal is from the judgment of the High Court of Punjab and Haryana in Civil Writ No. 2291 of 1970, which was heard by a Bench of five Judges. Four Judges held that Section 24 of the Finance Act, 1969, in so far 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, in so far as it includes the capital value ofthe agricultural land for the purposes of computing net wealth, was ultra vires the Constitutionof India.
2. We may mention that the majority also held that the impugned Act was not a law with respect to Entry 49, List II of the Seventh Schedule to the Constitution; in other words, it held that this tax was not covered by Entry 49, List II of the Seventh Schedule.
3. 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 Section 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 Section 2(m) to mean “the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, includes 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 owned by the assessee onthe 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 Section 2(q) to mean the last day of the previous year as defined in Section 3 of the IncomeTax Act, if an assessment were to be made under this Act for that year. We need not set outthe proviso here. Section 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 of April, 1957, a tax hereinafter referred to as the “wealth-lax” in respect of the net wealth on the correspondent valuation date of every individual, Hindu Undivided Family and company at the rate or rates specified in the Schedule.
8. The submissions of Mr Setalvad, appearing on behalf of the Union in brief were these: That the impugned Act is not a law with respect to any entry (including Entry 49) in List II, if this is so, it must necessarily fall within the legislative competence of Parliament under Entry 86, read with Entry 97 or Entry 97 by itself read with Art 248 of the Constitution; the words “exclusive of agricultural land” in Entry 86 could not cut down the scope of either Entry 97, List I or Article 248 of the Constitution.
325 Union of India v. H.S. Dhillon
9. The submissions of Mr Palkiwala, who appeared on behalf of the respondent in the appeal, and the other counsel for the interveners, in brief, were these: It was the scheme of the Constitution 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 agricultural land from the scope of Entry 86 was also take it out of the ambit of Entry 97 List I and Article 248; the High Court was wrong in holding that the impugned Act was not a law in respect of Entry 49, List II.
10. It was further urged by Mr Setalvad that the proper way of testing the validity of a parliamentary statute under our Constitution 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 respondent contended that this manner of enquiry had not been even hinted in any of the decisions of the Court during the last 20 years of its existence and there must accordingly be something wrong with this test. He urged that in so far 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.
11. It seems to us that the best way of dealing with the question of the validity of the impugned Act with the contentions of 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.
13. It seems to us unthinkable that the Constitution-makers, while creating a sovereign democratic republic, withheld certain matters or taxes beyond the legislative competency of the Legislatures in this country either legislating singly or jointly. The language of therelevant articles on the contrary is quite clear that this was not the intention of the Constituent Assembly. Chapter I of Part XI of the Constitution deals with “Distribution of Legislative powers”.
14. Reading Article 246 with the three lists in the Seventh Schedule, it is quite clear that Parliament has exclusive power to make laws with respect to all the matters enumerated in List I and this notwithstanding anything in clauses (2) and (3) of Article 246. The State Legislatures have exclusive powers to make laws with respect to any of the matters enumerated in List’11, but this is subject to clauses (1) and (2) of Article 246. The object of this subjection is to make Parliamentary legislation on matters in Lists I and III paramount. Under clause (4) of Article 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.
15. This scheme of distribution of legislative power has been derived 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 the scheme different in so far as the present controversy is concerned. Under the Government 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 56. The reason was that there was profound cleavage of opinion existing in India with regard to
326 Union of India v. H.S. Dhillon allocation of residuary legislative powers. The result was the enactment of Section 104 of the
Government of India Act[…]
17. 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 Article 248 and Entry 97, List I. But there is a serious dispute about the extent of the residuary 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 I; the words “exclusive of agricultural land” in Entry 86 by themselves constituted a matter and therefore they could not fall within the words “any other matter” in Entry 97, List I. Our attention was drawn to a number of entries in List I where certain items have been excluded from List I. For example, in Entry 82,taxes on agricultural income have been excluded from the ambit of “taxes on income”, in Entry 84 there is exclusion of duties of excise on alcoholic 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 from the incidence of duties in respect of succession to property. It was urged that the object of these exclusions was to completely deny Parliament competence to legislate on these excluded matters.
18. 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 entries 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, havebeen included in Entry 51, List II; agricultural land exempt in Entry 87 has been incorporated as Entry 48, List II; and similarly, agricultural land exempted from the incidence of duties in respect of succession to property has been made the subject-matter of duties in respect of succession in Entry 47, List II.
19. It seems to us that from this scheme of distribution it cannot be legitimately inferred that taxes on the capital value of agricultural land were designedly excluded from Entry 97, List I.
[…] If the residuary subject had ultimately been assigned to the States could it have been 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 ultimately conferred on Parliament. The content of the residuary power, does not change with its conferment on Parliament.
20. It may be that it was thought that a tax on capital value of agricultural land was included in Entry 49, List II. This contention will be examined a little later. But if on a proper interpretation of Entry 49, List II, read in the light of Entry 86, List I, it is held that tax on the capital value of agricultural land is not included within Entry 49, List II or that the taximposed by the impugned statute does not fall either in Entry 49, List II or Entry 86, List I, it
327 Union of India v. H.S. Dhillon
would be arbitrary to say that it does not fall within Entry 97, List I. We find it impossible to limit the width of Article 248, and Entry 97, List I by the words “exclusive of 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; List I. It is quite clear that the words “any other matter” have reference to matters on which the Parliament has been given power to legislate by the enumerated Entries 1-96, List I and not to matters on which it hasnot been given power to legislate. The matter in Entry 86, List I, is the whole entry and notthe Entry without the words “exclusive of agricultural land”. The matter in Entry 86, List I, again is not tax on capital value of assets but the whole entry. We may illustrate this pointwith 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 entry. Similarly, in Entry 3, List III “Preventive Detention for reasons 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 Detention 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.
21. It seems to us that the function of Article 246(1), 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 legislating 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 Entries 1-96, List I. It is true that the field of legislation is demarcated by Entries 1-96, List I, but demarcation does not mean that if Entry 97, List I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there maybe on the interpretation of Entry 97, List I is removed by the wide terms of Article 248. It is framed in the widest possible terms On its terms the only question to be asked is: Is the mattersought to be legislated or included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III: No question has to be asked about List I. If the answer is in the negative then it follows that Parliament has power to make laws with respect to that matteror tax.
22. It must be remembered that the function of the lists is not to confer powers; they merely demarcate the legislative field.
24. We are compelled to give full effect to Article 248 because we know of no principle of construction by which we can cut down the wide words of a substantive article like Article 248 by the wording of entry in Schedule VII. If the argument of the respondent is accepted Article 248 would have to be re-drafted as follows:
Parliament has exclusive power to make any law with respect to any matter not mentioned in the Concurrent List or State List, provided it has not been mentioned by way of exclusion in any entry in List I.
328 Union of India v. H.S. Dhillon We simply have not the power to add a proviso like this to Article 248.
25. 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 legislating on a particular topic.
31. Two points emerge from this. The Constituent Assembly knew how to prohibit Parliament from levying a tax (see proposed Article 198-A set out above). Secondly, they knew of certain taxes 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 aboutthis proposals:
“Sir, one other recommendation of the Expert Committee is, I am afraid, rather mischievous. That is, they have suggested in regard to Sales Tax—which is Item 58 in List 2—that the definition should be enlarged so as to include Use Tax as well, going undoubtedly on the experience of the American State Use Tax which, I think, is a pernicious recommendation. I think, it finds a reflection in the mention of Sales Tax in Item 58 which ought not to be there.”
32. If Parliament were to levy a Use Tax, it could hardly be thrown out on the ground that it cannot be included in the residuary powers because the tax was known at the time of the framing of the Constitution. Indeed it does not seem to be a sound principle of interpretation to adopt to first ascertain whether a tax was known to the framers of the Constitution and include it in the residuary powers only if it was not known. This would be an impossible testto apply. Is the Court to ask members of the Constituent Assembly to give evidence or is the Court to presume that they knew of all the possible taxes which were being levied throughoutthe world? In our view the only safe guide for the interpretation of an article or articles of an organic instrument like our Constitution is the language employed, interpreted not narrowly but fairly in the light of the broad and high purposes of the Constitution, but without doing violence to the language. To interpret Article 248 in the way suggested by the respondent would in our opinion be to do violence to the language.
33. We are, however, glad to find from the following extracts from the debates that our interpretation accords with what was intended.
34. Entry 91 in the draft Constitution corresponds to the present Entry 97, List I. Article 217 of the draft Constitution corresponds to Article 246 of the Constitution. Article 223 of the draft Constitution corresponds to Article 248 of the Constitution.
35. While dealing with Entry 91, List I of the draft Constitution, Sardar Hukam Singh moved the following amendments:
“That in Entry 91 of List I, the word ‘other’ be deleted.”
36. Extracts from the debates on the proposed amendment are reproduced below: Sardar Hukam Singh (Constituent Assembly Debates, Volume 9, page 854):
“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 would 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
329 Union of India v. H.S. Dhillon List. This could be said in very simple words and we need not have taken all this trouble
which we have taken.”
37. Mr Naziruddin Ahmad (Constituent Assembly Debates, Volume 9, page 855):
“Mr President, Sir, 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 from the Government of India Act. When an entry like 91 was considered at an earlier stage we agreed 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 1 to 90 would be redundant. In fact all the previous entries—from 1 to 90 would be rendered absolutely unnecessary. I fail to see the point now retaining Entries 1 to
90. If every subject which is not mentioned in Lists 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 makers enumerated in List III are assigned to the Centre and the States concurrently and that every other conceivable subject must come within the purview of the Centre. There was nothing more simple or logical than that. Instead, a long elaborate List has been needlessly incorporated. This was because List I was prepared in advance and Entry No. 91 was inserted by way of afterthought. As soon as Entry 91 was accepted, the drafting should have been altered accordingly. Article 217 should have been re-written on the above lines and matters would have been simplified. May I suggest even at this late stage that these needless entries be scrapped and Article 217 be re written and things made simple? I had an amendment tothat effect but I did not move it because I know that any reasons behind an amendment would not be deemed fit for consideration by the House.”
38. Prof. Shibban Lal Saksena (Constituent Assembly Debates, Vol. 9 pages 855-56):
“Sir, today is a great day that we are passing this entry almost without discussion. This matter has been the subject of discussion in this country for several years for about two decades. Today it is being allowed to be passed without any discussion. The point of view of Mr Naziruddin Ahmad is not correct. In fact Dr Ambedkar has said that if there is anything left, itwill 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 everything 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 interfere with the provinces, but now the times are changed. We are nowfor 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 onany subject which has escaped the scrutiny of the House. I support this entry.”
39–40. The Honourable Dr B.R. Ambedkar (Constituent Assembly Debates, Vol. 9, pages 856-857):
“My President, 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
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Union of India v. H.S. Dhillon
state very clearly what the purpose of Entry 91 in List I is. It is really to define a limit or scope of List I and I think we could have dealt with this matter, viz., of the definition of and scope of Lists II and III by adding an entry such as 67 which would read:
‘Anything not included in List II or III shall be deemed to fall in List I.’
That is really the purpose of it. It could have been served in two different ways, either having an entry such as the one 91 included in List I or to have any entry such as the one which I have suggested ’that anything not included in List II or III shall fall in List I’. 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 law with respect to any matter not enumerated in the Concurrent List or State List’. Theoretically I quite accept the proposition that when anything which is not included in List II or List III is by a specific article of the Constitution handed over to the Centre, it is unnecessary to enumerate these categories which we have specified in List I. The reason why this is done is this. Many States people, and particularly the Indian States at the beginning of the labours of the Constituent Assembly, were very particular to know what are the legislativepowers of the Centre. They wanted to know categorically and particularly; they were not going to be satisfied by saying that the Centre will have only residuary powers. Just to allay the fears of the Provinces and the fears of the Indian States, we had to particularise what is included in the symbolic phrase ‘residuary powers’. That is the reason why we had to undergothis labour notwithstanding the fact that we had Article 223.
I may also say that there is nothing very ridiculous about this, so far as our Constitution is concerned, for the simple reason that it has been the practice of all federal constitutions to enumerate the powers of the Centre, even those federations which have got residuary powers given to the Centre. Take for instance the Canadian Constitution. Like the Indian Constitution, 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 enumerate certain categories and certain entries on which the Parliament of Canada can legislate. That again was done in order to allay the fears of the French Provinces which were going to be part and parcel of the Canadian Federation. Similarly also in the Government of India Act, the same scheme has been laid down there and Section 104 of the Government of India Act, 1935, is similar to Article 223 here. It also lays down the proposition that the Central Government 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.”
41. 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 III, 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.
331 Union of India v. H.S. Dhillon
42. 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.
43. Shri Alladi Krishnaswami Ayyar (Constituent Assembly Debates, Vol. 11, p. 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 in the Constitution of a Federal Government. In regard to distribution, the Centre is invested with residuary power, specific subjects of national and all India importance being expressly mentioned.”
44. Shri T.T. Krishnamacharl (Constituent Assembly Debates, Vol. 11, pp. 952-954):
“I would in this connection deal with a point raised regarding the vesting of the residuary powers. I think more than one honourable member mentioned that the fact that the residuary power is vested in the Centre in our Constitution, makes it a unitary Constitution. It was, I think, further emphasised by my honourable friend Mr Gupta in the course of his speech. He said: ‘The test is there. The residuary power is vested in the Centre’. I am taking my friend MrGupta quite seriously, because he appears to be a careful student 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 important matter in assessing whether a particular Constitution is based on a federal system from the point of view whether the residuary power is vested in the States or in the Central Government. Mr K.C. Wheare who has written recently a book on Federalism has dealt with this point.
Now if you ask me why we have 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 India Act is the complete and exhaustive enumeration of powers of Schedule VII. To my mind there seems to be the possibility of only one power that has not been enumerated, which might be exercised in the future by means of the use of the residuary power, namely the capital levy on agricultural land. This power has not been assigned either to the Centre or to the Units. It may be that that/allowing the scheme of Estate Duty and succession duty on urban and agricultural 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 matter of a academic significance today. To say that because residuary power is vested in the Centre and not in the provinces this is not a Federation would not be correct.”
45. The above speech of Mr T.T. Krishnamachari shows that the members were aware that certain known taxes had not been included specifically in the three lists.
46. 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.
47. The last sentence applies much more to the Constitution of a sovereign democratic republic. It is true that there are some limitations in Part III of the Constitution on the Legislatures in India but they are of a different character. They have nothing to do with legislative competence. If this is the true scope of residuary powers of Parliament, then we are
332 Union of India v. H.S. Dhillon
unable to see why we should not, when dealing with a Central Act, enquire whether it is legislation in respect of any matter in List II for this is the only field regarding which there is a prohibition against Parliament. If a Central Act does not enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of List I or List IIIa Central Act would rightly fit in.
48. It was accepted that this test had been applied in Canada, but it was argued that the Canadian Constitution is completely different from the Indian Constitution. It is true that the wording of Sections 91 and 92 of the Canadian Constitution is different and the Judicial Committee has interpreted these sections 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 essentially 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 Sections 91 and 92 ourselves.
66. 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 authority to pass laws in respect of entries in List II, and subject to legislation by Parliament on matters in List III.
67. It was also said that if this was the intention of the Constitution-makers they need not have formulated List I at all. This is the point which was taken by Sardar Hukam Singh and other 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 merits and legal affect in having included specific items in List I for when there are three lists it is easier to construe List II in the light of Lists I and II. If there had been no List I, many items in ListII would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it may, we have the three lists and a residuary power and therefore it seems to us that in this context if a Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further question arises.
68. 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.
69. In Sudhir Chand Nawa v. Wealth Tax Officer [AIR 1969 SC 59] this Court was concerned with 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 this 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 SeventhSchedule, Parliament is incompetent to legislate for the levy of wealth-tax on the capital valueof assets which include non-agricultural lands and buildings.
70. In rejecting this argument the Court observed:
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Union of India v. H.S. Dhillon
“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 capital value of the assets of individuals and companies, on the valuation date. The tax is not imposed on the components of the assets of the assessee; it is imposed on the total assets which the assessee owns, and in determining the net wealth not only the encumbrances specifically charged against any item of assets, but the general liability of the assessee to pay his debts and to discharge his lawful 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 normally not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on 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 exercise of powers 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 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 liability will not, in our Judgment, make the fields of legislation under the two entriesoverlapping.”
71. It was urged on behalf of the respondent that in Assistant Commissioner of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd. [(1970)1 SCR 268], this Court held that a tax on the capital value of lands and buildings could be imposed under Entry 49, List II,but it seems to us that this is not a correct readings 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 Legislature from taxing capital value of lands and buildings under Entry 49 of List II.
72. The above observations have to be understood in the context of what was stated later. Ramaswami, J., later observed in that Judgment as follows:
“The basis of taxation under the two entries is quite distinct. As regards Entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals, and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. The tax under Entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only the encumbrances specifically charged against any item of asset, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. 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 buildings, and bears a definite relation to it. Tax on 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 exercise of powers under Entry 86, List I, tax is contemplatedto 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 incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under the two
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Union of India v. H.S. Dhillon entries overlapping. The two taxes are entirely different in their basic concept and fell on
different subject-matters.”(Emphasis supplied).
74. The requisites of a tax under Entry 49, List II, may be summarised thus:
(1) 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.
(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 owns or occupies it or two or more persons own or occupy it.
75. In short, the tax under Entry 49, List II, is not a personal tax but a tax on property.
76. It seems to us that this Court definitely held and we agree with the conclusion that the nature of the wealth tax imposed under the Wealth Tax Act, as originally stood, was different from that of a tax under Entry 49, List II, and it did not fall under this entry.
82. In our view the High Court was right in holding that the impugned Act was not a law with respect to Entry 49, List II, or did not impose a tax mentioned in Entry 49, List II. If that is so, then the legislation is valid either under Entry 86, List I, read with Entry 97, List I or Entry 97, List I standing by itself.
83. Although we have held that 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, whethercalled a Wealth Tax Act or not, is to impose a tax mentioned in Entry 49, List I, the tax may be bad as encroaching upon the domain of State Legislatures.
86. 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 breathren 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 Entry 86, List I, it is not incumbent on Parliament to provide for deduction of debits in ascertaining the capital value of assets. Similarly, it is not incumbent on State Legislatures to provide for deduction of debits 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 debits 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 sensea liability of the company and not its asset. Even if it is regarded as an asset, there is nothingin the entry to compel Parliament to provide for deduction of debits. It would also be noticed that Entry 86, List I, deals only with individuals and companies but net wealth tax can be levied not only on individuals but on other entities and associations also. It is true that under Entry 86, List I, aggregation is necessary because it is a tax on the capital value of assets of anindividual but it does not follow from this that Parliament is obliged to provide for deduction of debits in order to determine 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 mention that this Court has never held that the original Wealth Tax Act fell
335 Union of India v. H.S. Dhillon
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.
87. However, assuming that the Wealth Tax Act, as originally enacted, is held to be legislation under Entry 86, List I, there is nothing in the Constitution to prevent Parliament from combining its powers under Entry 86, List I with its powers under Entry 97, List 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 Article 248, and for that matter powers under entries in the Concurrent List.
90. It was contended that the case of residuary powers was different but we are unable to see any difference in principle. Residuary power is as much power as the power conferred under Article 246 of the Constitution in respect of a specified item.
91. In In re: The Regulation and Control of Aeronautics in Canada [1932 AC 54, 77], the Privy Council upheld the validity of a Parliamentary statute after supplementing the powers under the specified items in Section 91 with the residuary powers. It observed:
“To sum up, having regard (a) to the terms of Section 132; (b) to the terms of the convention which covers almost every conceivable matter relating to aerial navigation; and (c) to the fact that further legislative powers in relation to aerial navigation reside in the Parliament of Canada by virtue of Section 91, Items 2, 5, and 7, it would appear that substantially the whole field of legislation in regard to aerial navigation belongs to the Dominion. There may be a small portion of the field which is not by virtue of specific words in the British North AmericaAct vested in the Dominion; but neither is it vested by a specific words in the Provinces. As tothat small portion it appears to the Board that it must necessarily belong to the Dominion under its power to make laws for the peace, order and good Government of Canada. Further their Lordships are influenced by the facts that the subject of aerial navigation and the fulfilment of Canadian obligations under Section 132 are matters of national interest and importance; and that aerial navigation is a class of subject which has attained such dimensionsas to affect the body politic of the Dominion.” (emphasis supplied).
92. 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.
