UNION OF INDIA V H S DHILLON (AIR 1972 SC 1061)
Note-This is a seven judge bench decision of the Supreme Court
Facts of Controversy
This case involved the definition of “net wealth” in the Wealth Tax Act 1957 a Central Law as amended by the Finance Act 1969. The amended definition of ‘net wealth’ included agricultural land in assets for the purpose of calculating tax on capital value of the net wealth.
The relevant entries are:
Entry 86 List I ‘taxes on capital value of assets, exclusive of agricultural land’
Entry 97 List I ‘any other matter not included in List II or List III’
Entry 49 List II ‘taxes on lands and buildings’
Article 248 states: (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in Concurrent List or State List.
(2) Such power shall include the power of making any law imposing tax not mentioned in either of those lists
It was argued that the object and effect of exclusion of agricultural land from entry 86 List I was to take agricultural land out of the ambit of Entry 97 List I and Article 248 and therefore Wealth Tax Act as amended by Finance Act including agricultural land for calculating tax on capital value of assets was a law under Entry 49 List II.
Argument of M C Seetalvad for Government of India
The impugned Act is not a law with respect to Entry 49 List II and if this is so, it must necessarily fall within the legislative competence of Parliament under Entry 97 List I read with Article 248 or under Entry 86 List I read with Entry 97 List I. The words ‘exclusive of agricultural land’ in Entry 86 L I could not cut down the scope of Entry 97 List I or Article 248 .
He argued that the proper way of testing the validity of a Central law was first to see whether the Central law was with respect to a matter or tax mentioned in List II, if it was not, no other question would arise and Central law will be valid.
Argument of Palkiwala for the Respondents
It was the scheme of the Constitution to give States exclusive power to legislate in respect of agricultural land, income on agricultural land and taxes thereon. The object and effect of excluding agricultural land from the scope of Entry 86 I was take it out of the ambit of Entry 97 I and Article 248 and therefore the impugned law was a law with respect to Entry 49 L II
Decision of the Supreme Court
The best way of dealing with the question of validity of the Impugned Central Law to ask two question
- Is the impugned Act is a legislation with respect Entry 49 L II
- If it is not is it beyond the legislative competence of Parliament?
It is unthinkable that the Constitution makers had withheld certain matters or taxes beyond the legislative competence of the legislatures of this country.
“If on proper examination 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 with in Entry 49 List II or in Entry 86 I it would be arbitrary to say that it does not fall under Entry 97 I read with Article 97 List I. We do not read ‘any other matter in Entry 97 List I to mean that it has any reference to topics excluded in Entries 1-96. The words ‘any other matter’ have reference to matters on which Parliament has been given power to legislate by the enumerated entries 1-96. Accordingly we do not interpret the words ‘any other matter’ to mean a topic mentioned by way of exclusion.”
On the terms of Entry 97 List I read with Article 248 the only question to be asked is: Is the matter sought to be legislated or included in List II or List Iii or is the tax sought to be levied mentioned in List II or List III. No question has to be asked about List I. If the answer is in the negative then it follows that Parliament has the 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 fields.
(The Court explained that taxing power has been distributed between the Centre and the States and there no entry in the Concurrent List dealing with taxes)
Whether the impugned Act is a law with respect to Entry 49 list II
The tax under Entry 49 II is not a personal tax but a tax on property whereas wealth tax is a personal tax. Therefore the impugned Act was not a law with respect to Entry 49 List II. Parliament had not encroached upon a legislative field assigned exclusively to State Legislatures.
Hence the impugned legislation is valid either under entry 86 List I read with Entry 97 List or under Entry 97 List I standing by itself.
The Supreme Court held that the Wealth Tax Act did not fall within either Entry 86, List I or Entry 49 List II. If the impugned Act was not a law under entry 49 List II the Central Act was valid.
However even assuming that that the Wealth Tax Act as originally enacted was a legislation under Entry 86 List I nothing in the Constitution prevented Parliament from combining its powers under Entry 86 List I with its powers under Entry 97 List I. There was no principle which prevented Parliament from relying on the powers specified under entries 1-96 and supplementing them with powers under Entry 97 List I and Article 248.
Parliament could include agricultural land in the capital value of assets under Entry 86 List I but it could include it in the exercise of its power under Entry 97 List I because agricultural land was not a matter included in any of the entries 1-96 of List I.
The Court clarified that even if there were doubts in the acceptance of this interpretation they were removed by Article 248 which gave exclusive power to Parliament to make a law on any matter not enumerated in List II or List III. As tax on capital value of assets was not included I Lists II or List III, Parliament was competent to enact a law on that subject.
“If a Central Act is challenged as being beyond the legislative competence of Parliament it is enough to enquire if is a law with respect to matters or taxes in List II. If is not, no further question arises”
Comment: The interpretation given by the Supreme Court in Dhillons case on scope of residuary power of Parliament can be appreciated so as to avoid any vacuum in the area of legislative powers as would have happened had the Court adopted a restrictive view of the residuary power of Parliament. This interpretation gives a new dimension to power of the Centre.
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