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PETITIONER: SUDHIR CHANDRA NAWN

       Vs.

RESPONDENT: WEALTH-TAX OFFICER, CALCUTTA & ORS.

DATE OF JUDGMENT: 23/04/1968

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. BHARGAVA, VISHISHTHA MITTER, G.K. VAIDYIALINGAM, C.A.

CITATION:  1969 AIR   59            1969 SCR  (1) 108  CITATOR INFO :  RF         1970 SC 169  (6)  R          1970 SC 192  (5)  APL        1970 SC 999  (9)  RF         1972 SC1061  (61,89,100,139,174)  RF         1977 SC1657  (4)  F          1980 SC 271  (10,11)  R          1990 SC  85  (22)

ACT: Wealth   Tax  Act,  1957,  s.  3-Validity  and   scope   of- Constitution of India, Art. 246 Cls. (1) & (3); 7th Schedule Entry 86 List I and Entry 49 List II-scope of-If  Parliament competent   to  legislate  to  levy  wealth-tax  on   assets including land and buildings.

HEADNOTE: The  petitioner moved under Art. 32 for a writ to  quash  an order  of assessment and penalty and notices of  demand  for recovery  of tax for the years 1959-60, 1960-61 and  1961-62 under  the  Wealth Tax Act, 1957.  It was  contended,  inter alia,  on his behalf that (i) Wealth tax is chargeable  only on  the accretion of wealth during the financial year;  (ii) Parliament  could  not have intended that  the  same  assets should continue to be charged to tax year after year;  (iii) since  the  expression "net wealth" in s.  3  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 7th Schedule to the, Constitution,  Parliament was incompetent to  legislate  for the levy of wealth tax on the capital value of assets  which include non-agricultural lands and buildings; and (iv) s. 7(1) of the Act was ultra vires. HELD:That  (i) The charge imposed by s. 3 is clearly on  the "not wealth on the corresponding valuation date’ and not  on the increase in the wealth of the assessee, or accretion  to the  wealth  of the assesee since the last  valuation  date. [110 C-D] (ii) There   is   no  constitutional   prohibition   against Parliament levying tax in respect of the same subject-matter

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or taxing event in successive assessment periods. [110 D] (iii)  The  tax which is imposed by entry 86 List I  is  not directly a tax on lands and buildings.  It is a tax  imposed on  the  capital  value of the  assets  of  individuals  and companies on the valuation date.  Wealth-tax is not  imposed on  the components of the assets of the assessee but on  the total assets which he owns after taking his liabilities into account.  On the other hand, 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. [110 G-H; 111 C-D] Tax on lands and buildings is directly imposed on lands  and buildings, and bears a definite relation to it, while 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. [111 D] Ratta Ram v. The Province of East Punjab, [1948] F.C.R. 207; referred to. Even assuming that there is some overlapping between the two entries, the Parliament had power to legislate in respect of levy  of wealth-tax ,in respect of the lands  and  buildings which may form part of the assets of an assessee. [112 D-E] 109 In re : The Central Provinces and Berar Act No. XIV of 1938. [1939] F.C.R. 18, 49; referred to. Exclusive power of the State Legislature under clause (3) of Art.  246  has to be exercised subject to cl. (1)  ie.,  the exclusive  power which the Parliament has in respect of  the matters  enumerated  in  List I. Assuming that  there  is  a conflict between entry 96 List I and entry 49 List II, which is not capable of reconciliation, the power of Parliament to legislate  in  respect  of a  matter  which  is  exclusively entrusted  to  it must supersede pro tanto the  exercise  of power of the State Legislature. [113 D-E] Khan  Bahadur Chowakkaran Kaloth Mammad Kevi  v.  Wealth-tax Officer,   Calicut,   44   I.T.R.   277;   Vysyaraju   Badri Narayanamurthy  v.  Commissioner  of  Wealth-tax,  Bihar   & Orissa,  56  I.T.R. 298; and Sri Krishna  Rao  L.Balckai  v. Third Wealth-tax Officer, A.I.R. 1963 Mys. 111; referred to. Observations of Jagdish Sabai, J. in Oudh Sugar Mills  Ltd., Hargaon v. State of U.P. and another, A.I.R. 1960 All.  136; disapproved. (iv) Section 7(1) of the Wealth-tax Act is not ultra  vires. Section  7  ,only directs that the valuation  of  any  asset other  than  cash has to be made subject to the  rules.   It does  not  contemplate that there shall be rules  before  an asset can be valued.  Failure to make rules for valuation of a  type of asset cannot therefore affect the vires of s.  7. [114 F--G]

JUDGMENT: ORIGINAL  JURISDICTION : Writ Petitions Nos. 153 to  155  of 1967. Petition under Art. 32 of the Constitution of India for  the enforcement of fundamental rights. Nirmal Mukherjee and P. K. Mukherjee, for the petitioner. C. K. Daphtary, Attorney-General, T. A. Ramachandran and  R. N. Sachthey, for respondents Nos. 1 to 3. Naunit Lal, for intervener No. 1. M. R. K. Pillai, for intervener No. 2. C. B. Agarwala and O. P. Rana, for intervener No. 3. The Judgment of the Court was delivered by

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Shah,  J.  For the years 1959-60, 1960-61  and  1961-62  the petitioner  was  assessed to tax under the  Wealth-tax  Act, 1957,  by the Wealth-tax Officer, C-Ward, District  11  (1), Calcutta.   The  petitioner  failed  to  pay  the  tax   and proceedings  for  recovery  of tax and  penalty  were  taken against  him.   The petitioner then moved this Court  for  a writ  quashing  the  order of  assessment  and  penalty  and notices  of  demand for recovery of tax.  The  petition  was sought  to be supported on numerous grounds, none  of  which has, in our judgment, any substance.  The plea that  wealth- tax is chargeable only on the accretion of wealth during the financial  year  is  contrary  to the  plain  words  of  the charging  section.  Section 3 of the Wealth-tax Act,  as  it stood  in the relevant years, declared that there  shall  be charged for every financial year a 110 tax  in  respect  of the net wealth.  on  the  corresponding valuation  date of every individual, Hindu undivided  family and company ,it the rate or rates specified in the Schedule. The expression net wealth" is defined in s. 2(m) as  meaning "the  amount  by  which  the  aggregate  value  computed  in accordance with the provisions of the Act of all the assets, wherever located, belonging to the assessee on the valuation date,  including assets required to be included in this  net wealth  as  on the date under the Act, is in excess  of  the aggregate value of all the debts owed by the assessee on the valuation  date,  other  than.............  The   expression "assets"  is defined in s. 2(e) as inclusive of property  of every  description, movable or immovable, but not  including agricultural land and growing crops, grass or standing trees on such land.  By s. 3 charge is imposed upon the net wealth of  an  assessee on the corresponding valuation  date.   The charge  thereby  imposed  is  on  the  "net  wealth  on  the corresponding valuation date" and not on the increase in the wealth  of the assessee, or accretion to the wealth  of  the assessee since the last valuation date. It  was  urged that the Parliament could not  have  intended that  the same assets should continue to be charged  to  tax year after year.  But there is no constitutional prohibition against  the Parliament levying tax in respect of  the  same subject-matter  or  taxing event  in  successive  assessment periods. The Parliament enacted the Wealth-tax Act in exercise of the power  under List I of the Seventh Schedule entry 86  "Taxes on  the capital value of assets, exclusive  of  agricultural lands,  or individuals and companies : taxes on the  capital of companies".  That was so assumed in the decision of  this Court  in  Banarsi  Dass,  v.  Wealth-tax  Officer,  Special Circle,  Meerut(1), and counsel for the  petitioner  accepts that the subject of Wealth-tax Act falls within the terms of entry 86 List I of the Seventh Schedule.  He says,  however, 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 Legislature by entry 49 List II of the Seventh Schedule, the Parliament  is  incompetent  to legislate for  the  levy  of wealth-tax on the capital value of assets which include non- agricultural lands and buildings.  The argument advanced  by counsel for the petitioner is wholly misconceived.  The  tax which is imposed by entry 86 List I of the Seventh  Schedule is  not directly a tax on lands and buildings.  It is a  tax imposed  on the capital value of the assets  of  individuals and  companies,  on  the valuation date.   The  tax  is  not imposed on the components of the assets of the assessee : it is imposed on the total assets which the assessee owns,  and

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in  determining  the net wealth not  only  the  encumbrances specifically charged against (1)  56 I.T.R. 224. 111 any item of asset, but the general liability of the assessee to  pay  his debts and to discharge his  lawful  obligations have  to  be  taken into account.   In  certain  exceptional cases,  where  a  person  owes no  debts  and  is  under  no enforceable obligation to discharge any liability out of his assets,  it  may be possible to break up the  tax  which  is leviable on the total assets into components and attribute a component  to lands and buildings owned by an assessee.   In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity  to  a tax on lands and buildings levied  on  the capital  or  annual value under entry 49 List II.   But  the legislative  authority  of Parliament is not  determined  by visualizing  the possibility of exceptional cases  of  taxes under two different heads operating similarly on tax-payers. 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 power under entry 86 List I  tax is  contemplated  to be levied on the value of  the  assets. For  the purpose of levying tax under entry 49 List  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 entries overlapping. In  Ralla Ram v. The Province of East Punjab(1) the  Federal Court  held that the tax levied by s. 3 of the Punjab  Urban Immoveable  Property Tax Act, 17 of 1940, on  buildings  and lands  situated  in  a  specified  area  at  such  rate  not exceeding  twenty  per centum of the annual  value  of  such buildings  and  lands, as the Provincial Government  may  by notification  in the Official Gazette direct in  respect  of each such rating area was not a tax on income, but was a tax on lands and buildings within the meaning of item No. 42  of List  II of the Seventh Schedule of the Government of  India Act,  1935.   In that case it was contended that  under  the provisions  of the Punjab Act the basis of the tax  was  the annual  value of the buildings and since the same basis  was used  in the Income-tax Act for determining the income  from property  and  generally speaking the annual  value  is  the fairest  standards for measuring income and, in many  cases, is indistinguishable from it, the tax levied by the impugned Act was in substance a tax on income.  The Court pointed out that the annual value is not neces- (1) [1948] F.C.R. 207. 112 sarily  actual  income,  but is only, a  standard  by  which income  may be measured, and merely because  the  Income-tax Act  had  adopted  the  annual value  as  the  standard  for determining the income, it did not follow that, if the  same standard  is employed as a measure for any other  tax,  that latter tax becomes also a tax on income. In  the  case of a tax on lands and  buildings,  the  value,

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capital or annual, would be determined by taking the land or building  or  both as a unit and subjecting the value  to  a percentage of tax.  In the case of wealth-tax the charge  is on the valuation of the total assets (inclusive of lands and buildings)  less  the value of debts and  other  obligations which  the  assessee has to discharge.   Merely  because  in determining  the taxable quantum under taxing statutes  made in exercise of power under entries 86 List I and 49 List II, the  basis  of valuation of assets is adopted,  trespass  on the, field of one legislative power over another may not  be assumed. Assuming  that  there is some overlapping  between  the  two entries,  it  cannot,  on  that account  be  said  that  the Parliament  had no power to legislate in respect of levy  of wealth-tax  in respect of the lands and buildings which  may form  part  of the assets of the assessee.  As  observed  by Gwyer,  C.J., in In re: The Central Provinces and Berar  Act No. XIV of 1938(1) :               ". . . . that a general power ought not to  be               so  construed  as  to  make  a  nullity  of  a               particular power conferred by the same Act and               operating  in the same field, when by  reading               the  former in a more restricted sense  effect               can be given to the latter in its ordinary and               natural meaning." Apparently an entry "taxes on lands and buildings" is a more general  entry  than the entry in respect of a  tax  on  the annual value of assets of an individual or a company, and by conferring upon Parliament the power to legislate on capital value of the assets including lands and buildings, the power of the State Legislature was pro tanto excluded. The scheme of Art. 246 of the Constitution which distributes legislative powers upon the Parliament and State Legislature must be remembered.  Article 246 provides:               "(1)  Notwithstanding anything in clauses  (2)               and  3 Parliament has exclusive power to  make               laws  with  respect  to  any  of  the  matters               enumerated in List I in the Seventh Schedule. (1)  [1939] F.C.R. 18,49. 113               (2)   Notwithstanding anything in clause  (3),               Parliament,  and, subject to clause  (1),  the               Legislature  of any State also, have power  to               make  laws with respect to any of the  matters               enumerated   in  List  III  in   the   Seventh               Schedule.               (3)   Subject  to  clauses (1)  and  (2),  the               Legislature  of any State has exclusive  power               to  make  laws  for such  State  or  any  part               thereof  with  respect to any of  the  matters               enumerated   in  List  II   in   the   Seventh               Schedule.  " Exclusive  power to legislate conferred upon  Parliament  is exercisable, notwithstanding anything contained in cls.  (2) &  (3), that is made more emphatic by providing in  cl.  (3) that  the  Legislature of any State has exclusive  power  to make laws for such State or any part thereof with respect to any  of  the matters enumerated in List II  in  the  Seventh Schedule, but subject to cls. (1) and (2).  Exclusive  power of  the  State  Legislature has therefore  to  be  exercised subject  to  cl.  (1) i.e. the  exclusive  power  which  the Parliament has in respect of the matters enumerated in  List I. Assuming that there is a conflict between entry 86 List I and   entry   49   List  II,  which  is   not   capable   of reconciliation,  the  power of Parliament  to  legislate  in

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respect  of  a matter which is exclusively entrusted  to  it must supersede pro tanto the exercise of power of the  State Legislature.   The  problem  reviewed  from  any  angle   is incapable of a decision in favour of the assessee. The High Courts have consistently taken the view in cases in which  the  question under discussion expressly fell  to  be determined,  that  the  power  to  levy  tax  on  lands  and buildings  under entry 49 List II does not trench  upon  the power conferred upon the Parliament by entry 86 List I,  and therefore  the  enactment  of  the  Wealth-tax  Act  by  the Parliament is not ultra vires.  In Khan Bahadur  Chowakkaran Kaloth  Mammad Kevi v. Wealth-tax Officer,  Calicut(1),  the High  Court of Kerala held that wealth-tax  is  specifically and  in substance covered by entry 86 of the Union  List  of the Seventh Schedule to the Constitution of India, and there is really no conflict and no overlapping between the  juris- diction  of the Parliament under entry 86 of the Union  List to enact a law levying a tax on the capital value of assets, and  of  the State Legislature under entry 49 of  the  State List,  to enact a law levying a tax on lands and  buildings. A  similar  view was expressed by the Orissa High  Court  in Vysyaraju  Badri Narayanamurthy v. Commissioner  of  Wealth- tax,  Bihar  & Orissa (2) ; and also in Sri Krishna  Rao  L. Balckai v. Third Wealth-tax Officer (3) . Reliance was, however, placed by counsel for the  petitioner upon certain observations made by Jagdish Sahai, J. in Oudh (1) 44 I.T.R. 277. (3) A.I.R. 1963 Mys. 111. (2) 56 I.T.R. 298. 114 Sugar  Mills Ltd.  Hargaon v. State of U.P. and  another(1). In  that case the validity of the U.P. Large  Land  Holdings Act  31 of 1957 was challenged on the ground that the  power to  tax covered by the Act was not conferred upon the  State Legislature  by  List II entry 49.  The Court in  that  case held that the tax under the Act was a tax on the holding and not on the annual value or the capitalised value of the land and  the  annual  value was only the  measure  of  the  tax. Jagdish  Sahai, J., proceeded, however, to observe that  the meaning  of the word "assets" in entry 86 of List  I  should exclude land, both agricultural as well as non-agricultural, from its ambit in order to give full scope to the expression "Taxes on land" occurring in entry 49 of List R. But it  was not  necessary  for  deciding the  question  falling  to  be determined in that case to enter upon the question whether a tax  on  the  capitalised value  of  non-agricultural  lands forming  part  of the assets of an assessee  is  covered  by entry  86 List I or entry 49 List It.  That is so  expressly stated  by the learned Judge.  The Court was concerned  only to  deal  with  the question whether  the  U.P.  Large  Land Holdings   Act  fell  within  entry  49  of  List   H.   The observations made by the learned Judge were plainly  obiter, and,  in our judgment, do not correctly interpret  entry  86 List I. The  plea that s. 7(1) of the Wealth-tax Act is ultra  vires the  Parliament  is  also wholly  without  substance.   That clause provi-               "Subject to any rules made in this behalf, the               value  of any asset, other than cash, for  the               purposes of this Act, shall be estimated to be               the price which in the opinion of the  Wealth-               tax Officer it would fetch if sold in the open               market on the valuation date." It  was  urged that no rules were framed in respect  of  the valuation  of,’ lands and buildings.  But s. 7 only  directs

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that  the valuation of any asset other than cash has  to  be made  subject  to the rules.  It does not  contemplate  that there  shall.  be  rules  before an  asset  can  be  valued. Failure  to  make  rules for valuation of a  type  of  asset cannot therefore affect the vires of s. 7. It was also  said that  s. 7(1) which requires that the asset shall be  valued at the price which it would fetch if sold in the open market on  the valuation date, was expropriatory.  This  contention was  not raised in the petition, and no ground is  made  out for  holding that the rate at which wealth-tax is levied  is expropriatory. The  petitions  fail  and are  dismissed  with  costs.   One hearing fee R.K.P.S.               Petitions dismissed. 115