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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: H. S. DHILLON

DATE OF JUDGMENT21/10/1971

BENCH: SIKRI, S.M. (CJ) BENCH: SIKRI, S.M. (CJ) SHELAT, J.M. RAY, A.N. DUA, I.D. MITTER, G.K. ROY, SUBIMAL CHANDRA PALEKAR, D.G.

CITATION:  1972 AIR 1061            1972 SCR  (2)  33  1971 SCC  (2) 779  CITATOR INFO :  RF         1972 SC1880  (43)  RF         1973 SC1461  (88,704,1100,1378,1609,2005,  F          1976 SC1031  (10)  E          1978 SC  68  (95,100,103,257)  O          1979 SC1550  (8,9,10)  RF         1980 SC1955  (12)  RF         1981 SC 774  (5)  R          1982 SC 149  (708)  RF         1983 SC   1  (62)  F          1983 SC 937  (33)  R          1983 SC1019  (52)  F          1985 SC1211  (41)  R          1988 SC1708  (21)  RF         1989 SC 516  (24)  R          1990 SC  85  (27)  R          1990 SC1637  (36)  RF         1990 SC2072  (49)

ACT: Constitution of India, 1950, Arts. 246, 248, List I, Seventh Schedule,  entries 86 and 97, and List II,  entry  49--Scope of--Enquiry into scope of residuary Powers--Nature  of--’Any other matter’ in entry 97, meaning of. Wealth  Tax  Act, 1957, as amended by s.  24,  Finance  Act, 1969--Competency  of  Parliament to  enact--If  falls  under entry 49, List II.

HEADNOTE: Section 3 of the Wealth Tax Act, 1957, imposes a tax on  the capital value of the net wealth of an assessee.  Net wealth, under the Act, is 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 agricultural land, growing crops, grass or standing trees on

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such land.  Section 24 of the Finance Act, 1969, amended  s. 2(e)  of the Wealth Tax Act and included  agricultural  land etc., in the 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 Parliament. 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.)  : (1)  (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 making any law imposing  a tax  not mentioned in those Lists.  Under entry 97, List  I, Parliament has exclusive power to make laws with respect  to any other matter not enumerated in Lists II or III including any tax not mentioned in either of those Lists.  The  scheme of  distribution of legislative powers in  the  Constitution namely,  Arts. 246 and 248 and entry 97, List I, shows  that any  matter  including a tax, which has  not  been  allotted exclusively  to  the  State Legislatures under  List  II  or concurrently  with Parliament under List III, falls.  within List I, including entry 97 of that List read with Art.  248. If this is the true scope of residuary powers of Parliament, then  when  dealing with a Central Act the only  enquiry  is 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 34 enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of  List I or List III a Central Act would rightly fit to.[46F; 47F-G 61D, E] Gift Tax Officer v. Nazareth, [1971] 1 S.C.R. 195, 200. (b)  This is the test that had been applied in  interpreting the   Canadian   Constitution  and  since  the   scheme   of distribution of legislative powers between the Dominion  and the  Provinces  under  the  British  North  America  Act  is essentially the same as under the Indian Constitution  those principles  of  interpretation may be accepted as  a  guide. [61F-G] Subrahmanyam  Chettiar v. Muthuswami Goundan, [1940]  F.C.R. 188, applied. Lefroy Canada’s Federal System; Halsbury’s Laws of  England, 3rd Ed.  Vol. 5 p. 498, Russel v. The Queen [1881-82] 7 A.C. 836, A. G. for Canada v. A.G. for Br.  Columbia [1930]  A.C. ill,  in re : The Regulation and Control of  Aeronautics  in Canada,  [1932]  A.C. 54, In 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  Jethabhai Patel v. Union, [1962] Supp. 2  S.C.R. 1,  Province of Madras v. Boddu Paidanna, [1942] F.C.R.  90; Bombay  v. Chamarbaugwala, [1957] S.C.R. 874,  Atiabari  Tea Co.  v. Assam, [1961] 1 S.C.R. 809 and Automobile  Transport v. Rajasthan, [1963] 1 S.C.R. 491, explained. (c) The adoption of this mode of enquiry will not affect the federal   structure   of  the   Constitution.    The   State

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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. [67E-F]. (d)  it is not right to say that on this basis, List I  need not have been formulated at all.  Apart from the reason that the  enumeration  was 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  residuary powers  but  were  particular to know  what  those  Centres’ powers were, there is some merit and legal effect in  having included  specified  items in List I, for,  when  there  are three Lists it is easier to construe List II in the light of Lists I and III.  If there had been no List I, many items in List  II  would  perhaps  have  been  given  a  much   wider interpretation  than can be 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  tax  on property deemed to be imposed on  an  object  the property itself. [68B; 70E-H; 71A-B; E-G] S.  C.  Nawan  v.  W. I T.O. [1969]  1  S.C.R.  108,  Asstt. Commissioner Urban Land Tax v. B. & C. Mills [1970] 1 S.C.R. 268 and Gift Tax Officer v. D. H. Nazareth, [1971] 1  S.C.R. 195, discussed and followed 35 The  impugned  legislation is therefore valid  either  under entry 86, List I, read   with  entry  97, List  I  or  under entry 97 List I standing by itself. [72G-H] (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  Democratic Republic,  withheld  certain  matters or  taxes  beyond  the legislative competence of Parliament and the Legislatures of the States, legislating either singly or jointly.  The words exclusive   of   agricultural  land’  are   not   words   of prohibition. [46G; 49C-F] (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 of agricultural  land were  not  expressly  mentioned and  could  only  have  been included in their residuary powers.  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.  [49G; 50E-H]

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(c)  The words ’any other matter’ in entry 97, List I,  have reference  to  matters on which Parliament  has  been  given power to legislate by the enumerated entries 1 to 96 and not to matters on which it has not been given power to legislate such  as a topic mentioned by way of exclusion. it  is  true that the field of legislation is demarcated by entries 1  to 96,  List I, but demarcation does not mean 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 III.  If the answer is in the negative, then it follows 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 confer powers; they merely  demarcate  the legislative field.  The entries in the three Lists are  only legislative  heads or fields of legislation,’ and the  power to  legislate  is given to the  appropriate  Legislature  by Arts. 246 and 248 of the Constitution. [51H; 52A-B, E] Harakchand Ratanchand Banthia v. Union, [1970] 1 S.C.R. 471, 489, followed. G.   G. in Council v. Raleigh Investment Co., [1944]  F.C.R. 229, 261 applied. (e)  It cannot be said that because of the statement in  the report  of the Union Powers Committee (Constituent  Assembly Debates)  namely  that the ’residuary  subjects  could  only relate to matters which, while they may claim recognition in the  future,’ are not at present identifiable’,  wealth  tax would  not fall under residuary power, since the concept  of tax on net wealth was then well known.  On the contrary, the debates  show that notwithstanding 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  of  interpretation to adopt, to  first  ascertain whether a tax was known to 36 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 11  and III,  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 Ontario 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  because  it  is a tax on the  ’capital  value  of assets  of  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

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the  earlier cases that the Wealth Tax Act fell under  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  entry  86  List I,  there  is  nothing  in  the Constitution preventing Parliament from combining its powers under entry 86, List I with its powers under entry 97,  List I. There is no principle which debars Parliament from  rely- ing 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. [74B-C] State of Bombay v. Narothamdas Jathabhai, [1951] S.C.R.  51, followed. Subramaniam  Chettiar v. Muthuswami Goundan,  [1940]  F.C.R. 188 and In re : The Regulation and Control of Aeronautics in Canada, [1932] A.C. 54, 77, referred to,. (Per  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 III, while matters in List III would be the subject matter  of  legislation  both by Parliament  and  the  State Legislatures.   Under  entry  97,  List  I,  Parliament  has exclusive  powers  to. make laws with respect to  any  other matter  not enumerated in List II or List III including  any tax  not mentioned in, either of those lists.   Article  248 provides  that Parliament has exclusive power to  make  laws with respect to any matter not enumerated in the  Concurrent List  or  State List.  The Article makes it clear  that  the Constitution-makers 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  of Lists II and III, were to be within the  exclusive jurisdiction  of Parliament to legislate.   Such  law-making power was to extend to the imposition of a tax mentioned  in either of the lists.[113H; 114-A-F] 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 valuation date subject to certain  exceptions. The  taxation  was  to  be based on  the  net  worth  of  an individual, that is to say, his total assets less his debts. It  is therefore possible for in assessee, though  seemingly in possession of assets of great value hot to be subject  to proportionately  high taxation if 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 individual.   Whereas under the Wealth-tax Act as originally enacted a portion  of the  assets, namely agricultural land, was not to  be  taken into  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

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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 to 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 of 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-D] 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  seller for  the  property  in  its condition at the time of the transaction. So interpreted the expression  will  take in only the assets less  the  charges secured  on  it, hut not a* other  liability.   The  various decisions and authorities on the law relating to Rating  and which  bear on the true meaning of the expression also  make it  amply  clear  that the expression can  only  mean  there market  value  of the assets less any  encumbrances  charged thereon.   The  expression does not take in  either  general liabilities  of the individual owning them or in  particular the debts owed in respect of them.  The capital value of the assets of an individual is as different from his net  wealth as the market value of the saleable assets of a business  is from  its value as a going concern ignoring the  good  will. When a business is valued as a going concern its assets  and liabilities whether charged on the fixed assets or not  have to  be taken into account but in computing the value of  the tangible  assets of the business the general liabilities  of the  business apart from the encumbrances on its  assets  do not figure. [122C-E; 139E-H] Halsbury’s Laws of England, 3rd Ed.  Vol. 32, p. 79, Rvde on Rating,  11th 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 in any of the cases to properly indentify 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. [139B-E] Mahavir  Prasad  Badridas  v. Yagnik, II  W.T.O.  [1959]  37 I.T.R.  191, N. V. Subrahmanian v. W.T.O. 40 I.T.R. 569,  P. Ramabhadra Raja v. Union, 45 I.T.R. 118, C. K. Mohammad Keyi v.  W.T.O. 44 I.T.R. 277, Jugal Kishore v. W.T.O. 44  I.T.R. 94,  S.  A. Shitole v. W.T.O.52 I.T.R. 372,  M.  A.  Muthial Chettiar  v.  W.T.O. 53 I.T.R. 104, Banarsi  Das  v.  Taxing

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Officer,  [1965]  2  S.C.R. 355 and S. C.  Main  v.  W.T.O., [1969]  1  S.C.R. 108 and Asstt.  Commissioner v.  B.  &  C. Mills, [1970] 1 S.C.R. 286, referred to. (e)  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  considering  his  holding  of agricultural land. [14OA-B] (f)  Scanning the lists there can be little doubt  that  the Constitution  makers took care to insert subject-matters  of legislation  regarding  land and  particularly  agricultural land  and matters 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  are concerned,  they have been set forth in List II 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 capital value, there  is  no  corresponding entry with  regard  to  tax  on capital value of agricultural lands, the nearest approach to it  being Entry 4.9 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  assessee  to pay  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 the assets of an individual, but his net worth which was to be  determined by  deducting  his liabilities from the total value  of  the assets  held by him.  Even assuming that entry 49,  List  II envisages  imposition  to  taxes  on  lands  and   buildings adopting  a  mode of a certain percentage on  their  capital value, lands and buildings must still be subject to taxation as  units  and  no aggregation is possible.   The  taxes  on lands,  and  buildings in the entry should It  construed  as taxes  on lands and taxes on buildings.  Further,  no  State Legislature  is confident to levy a tax which would  embrace an  individual’s assets in the shape of lands and  buildings outside the State. [136G-H; 140B-C] The Asstt Commissioner v. B. & C. Mills, [1970] 1 S.C.R. 268 and S. C. Nawn v. W.T.O. [1969] 1 S.C.R. 108, followed. Sri  Prithivi  Cotton Mills Ltd.  V’.  Borough  Municipality [1970]  1 S.C.R.388, Rella Ram v. Province of  East  Punjab, [1948]  F.C.R. 207; C. K. Mohammad Kali v. W.T.O. 44  I.T.R. 277,  Sir Byramjee Jeejeebhoy v. Province of Madras,  A.I.R. 1940 Bom. 65, Municipal Corporation v. Godhandas A.I.R. 1954 Bom.  188  and  Patel Gordhandas  Hargobindas  v.  Municipal Commissioner  Ahmedabad, [1964] 2 S.C.R. 608, 622,  referred to. 39 Therefore  the subject matter 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 under its residuary power. (Per J. C., Shelat, A. N. Ray and 1. 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 assessee’s taxable capacity, by  deducting his  debts  and  liabilities from the  gross  value  of  his

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assets. [81E-F; 82C-D] The Wealth Tax Act, 1957, as originally enacted was  passed, by  Parliament in exercise of its power under  Art.,  246(1) read  with  entry  86,  List  I,  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  debts 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. [80F,-G; 81D] (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 wealth tax, it was never the contention  of  the Union that-the Act did  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 obiter 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 letter fell under entry 86, List I. [82E-F; 85F-H] S.  C.  Nawn v. W.T.O. [1969] 1 S.C.R. 108, Banarsi  Das  v. W.T.O. 56 I.T.R. 224; Asste.  Commr. of Urban Land Tax v. B. JUDGMENT: Broach  Borough Municipality, [1970] 1 S.C.R. 388  and  Gift Tax Officer v. Nazareth, [1971] 1 S.C.R. 195, referred to. (2)  But  a  tax on the capital value  of  assets  including agricultural land cannot be  imposed under Mt.  246(1)  read with entry 86, List I. [86C-D] (a) The entry restricts in express terms the power to impose a  tax  on  the  capital  value  of  assets,  exclusive   of agricultural land [86D] (b) The entries are enumeration 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 terms, 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 (c)  The reason for excluding agricultural land  from  entry 86,  List  I is that. under the scheme  of  distribution  of powers  underlying,,the  Lists  agriculture,  with  all  its subsidiary  and incidental aspects, including  taxation  has been,  as in the case of the Government of India Act,  1935, left to be dealt with by the States. [86G; 87D--E] (d) It cannot be said that the Wealth Tax Act when passed in 1957  fell under entry 86, List I, but that it ceased to  be so when it was amended in 1969 by including within its sweep agricultural  land.   In  deciding the question  as  to  the provision  under which the Act was enacted, the  distinction between  the subject-matter of the Art and the scope of  the power  in  respect- of it has to be observed.   The  subject

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matter of the Act is the capital value of the total  assets; its scope or field of operation 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  difference which the amendment made was the  inclusion of  agricultural land while computing the capital  value  of the  assets  of  an  assessee.   The  Act,  even  after  its amendment, retained its original character. [88H; 93A-C] (3)  The  power to levy wealth tax on agricultural  land  is therefore not under entry 86, List I. Nor does it fall under Art. 248 read with entry 97, List I, dealing with  residuary powers. [88B] (a) Article, 248 declares that Parliament has the  exclusive power  to legislate on matters not enumerated in List II  or III,  and to impose a tax not mentioned in either  of  those Lists,  and  entry 97 is inserted in List I  providing  that Parliament  has exclusive power to legislate on  ’any  other matter  not enumerated in List II or List III including  any tax  not mentioned in either of those Lists.’ The object  of providing  residuary  power  was, to confer  power  only  in respect  of a matter which was not foreseen or  contemplated at the time of framing the Constitution but which by  reason of  changed circumstances might arise and which  could  not, therefore,  be  dealt with when the lists were  framed.   To hold  otherwise  would mean that though the  power  to  levy Wealth   tax  with  reference  to  agricultural   land   was deliberately  omitted  from  entry 86, the  framers  of  the Constitution,  who had in their minds a definite  scheme  of distribution of powers under which agriculture and  taxation in  relation to agriculture were handed over to the  States, nullified  such exclusion by providing power for it  in  the residuary   provision   in   entry   97;   especially   when agricultural  land  is such a large asset  in  our  country. [78F-H; 89G-H; 90A-B] subrahmanyan  Chattiar  v. Muthuswami,  [1940]  F.C.R.,  188 applied. Gift Tax Officer v. Nazareth, [1971] 1 S.C.R. 195 followed. (b) Article 248 deals with residuary power and that power is an  independent  power conferred by the Article and  not  by entry  97  because,  entries  in  the  Lists.  do  not   by. themselves confer power, but only delineate fields in  which the  respective powers are conferred on the Legislatures  by the  relevant  Articles of the constitution.  But  when  one talks about residuary power the question at once arises what is  it residuary of ? Article 246(1) having given  exclusive power  to  Parliament, the power in respect  of  those  very matters therein provided for could not have been once  again granted by Art. 248.  The only matters left for  legislation would  be those in List II and III and such of  the  matters not  found  in those Lists and only the last  could  be  the residuary matters of which exclusive power could be given to Parliament.   Therefore,  the residuary Power  conferred  by Art. 248 means power in respect of matters not dealt with in Art. 246 and not found in any of the three Lists. [91E-H] 41 (c) The words ’bay other matter not enumerated in List II or List  III  must mean any matter, not  being in the  entries: preceding  it,  that  is, entries 1. to 96 List  I  and  any matter  not, enumerated  in Lists It and III.   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.The residuary power declared by Art. 248 and of which the field is defined in entry 97  must, therefore,  be the  power in respect of a field or category;of  Legislation not  to  be  found in any of the lists such  as,  Gift  tax,

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Expenditure    tax and Annuity deposit scheme [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 levied by the States under entry 49, List II it must be said to be not enumerated in List II also, and therefore,  wealth tax,  on agricultural land falls under 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 I, 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 or  restricted manner.  There is no warrant for saying  that there  must  be  found vested in  one  single  authority  an absolute,  power,  to  legislate wholly with  respect  to  a given.  subject.  The fact that a, powers is conferred,  not in  its  entirely, but with. a restriction upon  it,  cannot mean  th  the subject matter in respect of it has  not  been dealt with or at 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-C] (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 purpose of 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 III.  Therefore, the residuary power lodged  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. [101B-C-, G-H; 102A-B, DE, G-H] (f)  It is true that one member expressed an opinion  as  to the  possible  exercise in future of  the  residuary  power- under  Art.  248-  and Entry 97, List-  II  for  imposing  a capital   levy  on  agricultural  land;  but  it  was   his, individual  opinion and there was nothing to show  that  any other member. took up or agreed with his suggestion.  It  is therefore not possible to spellout any consensus of  opinion in  the Assembly or an awareness on the part of its  members of the residuary power being capable of being used in future for a tax such as, the impugned one., [102H 103A-B, D-E] (4) It does not however mean that a tax on the capital value of agricultural land cannot at all be imposed.  The power is contained  in entry 49, list II. , Just as in the,  case  of income tax, succession and estate duties, the power off both the  Legislatures  to make a law or impose a tax on  any  of these matters is restrict, but within the field allocated to each of them, each has a plenary power. [93E-H] (5)  It  is not a proper. enquiry to consider  whether  them impugned tax encroached upon entry 49, List II and if it did not to hold that that power 4-L256 Sup CI/72 42 must  reside in Parliament on the basis that Art. 248 is  in pari materia 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.

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America  Act and our Constitution.  There is no  declaration 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 in s. 91.  The powers  of Parliament  and State Legislatures under Art.  Z46  and  the field of legislation delineated in the three Lists are  well defined  in elaborate and precise terms and are  disjunctive and  independent.   The  State  Legislatures  ate  not   the delegates  of-,  nor  do  they  derive  their  powers   from Parliament.   They enjoy within their fields of  legislation plenary  powers  including  the power to  legislate  on  all matters incidental and subsidiary to the matters assigned to them.    The  question  of  pre-eminence  of   Parliamentary regulation by reason of the non-obstante 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 III.  The power of the States is as exclusive in  their field  as  it is of Parliament within  its  allotted  field. [194D-H; 98D-G] Observation  of Gwyer C.J. in Subrahamanyam  v.  Muthuswami, [1940] F.C.R. 188, 200 explained. Province  of Madras v. M/s.  Boddu Paidanna,  [1942]  F.C.R. 90, 105 and Main Kkasundara Bhattia v. Nayudu, [1946] F.C.R. 67, 87-88, referred to and applied. In re : C. P. & Berar Act, 14 of 1938, [1939] F.C.R. 18, 38, referred to.

& CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2172 of 1970. Appeal from the judgment and order dated September 28,  1970 of the Punjab and Haryana High Court in Civil Writ No.  2673 of 1970. M.C.  Setalvad,  M.  C. Chagla, R. H. Dhebar  and  B.  D. Sharma, for the appellant. H.L Sibbal, Advocate-:General, Punjab, N. A.  Palkhivala, Bhuvanesh  Kumari,  J.  B.  Dadachanji,  O.  C.  Mathur  and Ravinder Narain, and K. P. Bhandari, for the respondent. H.   L. Sibbal, Advocate-General, Punjab, P. C. Bhartari, J.   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-General, Kerala and M. R. Krishna Pillai, for intervener No. 4. 43 B.Sen,  S. P. Mitra, G. S. Chatterjee for Sukumar Basu,  for intervener No. 5. Lal Narayan Sinha, Advocate-General, Bihar and U. P.  Singh, for the intervener No. 6. R.  C. Mishra, Advocate-General, Orissa, Santosh  Chatterjee and G.  S. Chatterjee, for intervener No. 7. G.   B.  Pai,  P.  K.  Kurian,  Bhuvanesh  Kumari,   J.   B. Dadachanji,O.  C.  Mathur, Ravinder Narain and  A.  Menesis, for intervener No. 8. G.   B.  Pai,  P.  K.  Kurian,  Bhuvanesh  Kumari,   J.   B. Dadachanji, O.   C.  Mathur and Ravinder Narain, for interveners Nos.  9 and 10.

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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. Mathur and Ravinder Narain, for intervener No. 12. M.  K. Ramamurthi, C. R. Somasekharan, Madan  Mohan,  Vineet Kumar,  Bindra  Rana, S. Ganesh and Romesh 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. J.  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 behalf  of himself and A. R. Ray and I. D. Dua, JJ.  gave  a dissenting opinion, Sikri,  C.J.  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, 1969, 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. 44 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. 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,  includes,  assets required  to be included in his net wealth as on  that  date Act,  is in excess of the aggregate value of all  the  debts under  this  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 for that year.  We need  not set out the 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-tax") in respect of               the net wealth on the corresponding  valuation               date  of  every  individual,  Hindu  Undivided

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             Family  and  company  at  the  rate  or  rates               specified in the Schedule."               Section 4 includes certain assets as belonging               to the assessee.               Section 5 gives certain exemptions in  respect               of certain assets.  We need only reproduce  S.               5(iva)               "5(iva).   Agricultural land belonging to  the               assessee  subject to a maximum of one  hundred               and fifty thousand rupees in value:               Provided  that  where the  assessee  owns  any               house  or part of a house situate in  a  place               with  a population exceeding ten thousand  and               to  which the provisions of clause (iv)  apply               and  the  value of such house or  part  of  ’a               house   together   with  the  value   of   the               agricultural  land  exceeds one,  hundred  and               fifty thousand ’rupees, then ’the amount  that               shall  not be included in, the net  wealth  of               the assessee under this clause shall be one 45               hundred  and fifty thousand rupees as  reduced               by so much of the value of such house or  part               of  house as is not to be included in the  net               wealth of the assessee under clause (iv). Sections 5(ivb), 5(viiia) and 5(ix) read               "5(ivb) one building or one group of  building               owned by a cultivator of, or receiver of  rent               or revenue out of agricultural land               Provided  that  such  building  or  group   of               buildings  is on or in the immediate  vicinity               of the land and is required by the  cultivator               or the receiver of rent or revenue, by  reason               of his connection with the land, as  dwelling-               house, store-house or outhouse;"               "5(viiia)  growing crops (including fruits  On               trees) on agricultural land and grass on  such               land;"               "5(ix)  The  tools, implements  and  equipment               used  by  the assessee  for  the  cultivation,                             conservation,  improvement  or  mainte nance  of               agricultural  land,  or  for  the  raising  or               harvesting  of any agricultural  or  horticul-               tural produce on such land.               Explanation.-For the purposes of this  clause,               tools, implements and equipment do not include               any  plant  or machinery used in  any  tea  or               other   plantation  in  connection  with   the               processing  of any agricultural produce or  in               the  manufacture  of  any  article  from  such               produce;" Section  7(1) deals with the. evaluation of the  assets  and provides that "subject to any rules made in this behalf, the value  of  any asset, other than cash, for the  purposes  of this  Act, shall be 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." Rest of the provisions are machinery provisions dealing with the  authorities, assessment and special provisions  dealing with  special  cases like  appeals,  revisions,  references, payment   and   recovery   of  wealth   tax,   refunds   and miscellaneous provisions. The submissions of Mr. Setalvad, appearing on behalf of  the Union  in brief were these : That the impugned Act is not  a

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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 Art. 248 of the Constitution. 46 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    a 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 to take it out  of the  ambit of entry 97 List I and Art. 248; the  High  Court was wrong in holding that the impugned Act was not a law  in respect of entry 49 List II. it  was  further urged by Mr. Setalvad that the  Proper  way 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 III; 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  this Court during the last 20  years  of  its existence and there must accordingly be something wrong with this  test.  He urged that insofar as this test  is  derived from  the Canadian decisions, the Canadian  Constitution  is very different and those decisions ought not to be  followed here and applied to our Constitution. It  seems  to  us  that the best way  of  dealing  with  the question  of the validity of the impugned Act and  with  the contentions   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? We  have put these questions in this order and in this  form because  we  are definitely of the opinion, as  explained  a little  later, that the scheme of our Constitution  and  the actual  terms  of the relevant articles, namely,  Art.  246, Art.  248  and  entry  97 List  I,  show  that  any  matter, including  tax, which has not been allotted  exclusively  to the  State Legislatures under List II or  concurrently  with Parliament  under List III, falls within List  I,  including entry 97 of that list read with Art. 248. It  seems  to us unthinkable that  the  Constitution-makers, while  creating  a sovereign democratic  republic,  withheld certain matters or taxes beyond the, legislative  competency of  the  legislatures  in this  country  either  legislating singly or jointly.  The language of the relevant 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." Article 246 in this Chapter reads thus :               "246.(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 47               Seventh   Schedule   (in   this   Constitution               referred to as the "Union List").               (2)’Notwithstanding anything in clause  (3)               Parliament,  and, subject to clause  (1),  the

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             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               (in  this  Constitution  referred  to  as  the               "Concurrent List").               (3)Subject  to  clauses (1)  and  (2),  the               Legislature  of any State has exclusive  power               to  make  laws  for such  State  or  any  part               thereof  with  respect to any of  the  matters               enumerated in List II in the Seventh  Schedule               (in  this  Constitution referred  to.  as  the               "State List").                (4)  Parliament has power to make  laws  with               respect  to  any matter for any  part  of  the               territory  of  India not included in  a  State               notwithstanding  that such matter is a  matter               enumerated in the "State List." Reading  Art.  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 not-, withstanding anything in clause (2) and (3) of Art. 246.  The State Legislatures have exclusive  powers  to make laws with respect to any  of  the matters  enumerated  in  List II, but  this  is  subject  to clauses  (1)  and  (2)  of Art. 246.   The  object  of  this subjection  is to make Parliamentary legislation on  matters in  Lists  I  and In paramouth Under cl.  (4)  of  Art.  246 Parliament  is  competent  also to  legislate  on  a  matter enumerated  in State List for any part of the  territory  of India  not  included  in a State.   Article  248  gives  the residuary powers of legislation to the Union Parliament.  It provides               "248.  (1) Parliament has exclusive  power  to               make  any law with respect to any  matter  not               enumerated  in  the Concurrent List  or  State               List.               (2)Such  power  shall  include  the  power  of               making any law imposing a tax not mentioned in               either of those Lists." Under Art. 250 Parliament can legislate with respect to  any matter  in the State List if a proclamation of emergency  is in  operation.  Under Art. 253 Parliament has power to  make any law for) the whole or part of the territory of India for the  purpose  of  implementing  any  international   treaty, agreement or convention. 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 48 the  scheme different insofar as the present controversy  is concerned.   Under  the Govt. of India  Act,  the  residuary powers  were not given either to the Central Legislature  or to  the  Provincial Legislatures.  The reason for  this  was given  in  the  Report  of the  Joint  Committee  on  Indian Constitutional  Reform, volume 1, para 56.  The  reason  was that  there  was profound cleavage of  opinion  existing  in India  with regard to allocation of.  residuary  legislative powers.  The result was the enactment of s. 104 of the Govt. of India Act, which provided "104.  Residual powers of legislation (1) The Governor-General may by public notification  empower either  the Federal Legislature or a Provincial  Legislature to enact a law with respect to any matter not enumerated  in any  of  the  lists in the Seventh  Schedule  to  this  Act,

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including  a  law imposing a tax not mentioned in  any  such list and the executive authority of the Federation or of the Province,   as  The  case  may  be,  shall  extend  to   the administration  of  any law so made,  unless  the  Governor- General otherwise directs. (2) In the discharge of his functions under this section the Governor-General shall act in his discretion." It  appears  from para 50 of this report  that  "the  method adopted  by the White Paper (following in this  respect  the broad  lines  of  Dominion  Federal  Constitutions)  is   to distribute  legislative  power.  between  the  Central   and Provincial  Legislatures  respectively, and  to  define  the Central and Provincial spheres of government by reference to this  distribution,"  and because,  of  apparently  irrecon- cilable difference of opinion that existed between the great Indian   communities  with  regard  to-the   allocation   of residuary   powers,  the  Joint  Commit’,.;   found   itself unwilling  to. recommend an alteration of the,  white  Paper proposal. There does not seem to be any dispute that the  Constitution makers  wanted to give residuary. powers of  legislation  to the Union Parliament.  Indeed, this is obvious from Art. 248 and  entry 97 List I. But there is a serious  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 49 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 alcholic liquors for human consumption and  on opium,  Indian hemp and other narcotic drugs and  narcotics; in  entry 8-6, 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. 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 III duties of excise  excluded  in entry  8  4 List I have been included in entry 51  List  II; agricultural land exempt in en" 87 has been incorporated  as entry  48  List  III;  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. It  seems  to us that from this scheme  of  distribution  it cannot.  be legitimately inferred that taxes on the  capital

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value  of  agricultural land were designedly  excluded  from entry 97 List I. In this.. connection it is well-to remember that  the  first draft of the 3 lists was  attached  to  the report of the Union Powers Committee dated July 5, 1947 (see vol.   V,  Constituent Assembly Debates, page 60).   List  I then  consisted  of 87 entries and there  was  no  residuary entry.  It was on August 20, 1947, that, Mr., N. Gopalaswami Ayyangar moved that this report be taken into consideration. At  that  stage it was evident that in, the case  of  Indian States  the residuary subjects were to stay with the  Indian States unless they were willing to cede them to the  Centre. He said :               "Now  Sir, when this Committee met  after  its               first  report  had  been  presented,  we  were               relieved of the shackles which we had  imposed               on ’ourselves on account, of the acceptance of               the  Cabinet  Mission Plan and  the  Committee               came to the conclusion that we should make the               Centre  in this country as strong as  possible               consistent with leaving a farily wide range of               subjects to the provinces in which they  would               have  the  utmost freedom to order  things  as               they liked.  In accordance with this. view,  a               decision  was taken that we should make  three               exclusive 50               Lists one of the Federal subjects, another  of               the  Provincial subjects and the third of  the               Concurrent subjects and that if there was  any               residue  left  at all, if in  the  future  any               subject   cropped  up  which  could   not   be               accommodated in one of these three Lists, then               that  subject should be deemed to remain  with               the  Centre  so  far  as  the  Provinces   are               concerned.               This  decision, however, is not one which  the               Committee has applied to the States.  You will               find a reference to this in the Report.   What               is said there is that these residuary subjects               will remain with the States unless the  States               are  willing  to  cede, them  to  the  Centre.               Well, I do not know if those who represent the               States in this House will take any decision of               the kind which perhaps the Committee hoped for               when  it  said  so; but we have  got  to  take               things as they are.               There is another matter which it is  important               that we should recognise.  Residuary  subjects               in  the case of provinces are  subjects  which               are not accommodated in any of the three  long               Lists  that  we have appended to  the  Report.               Residuary subjects in the case, of the  States               would  really mean all subjects which are  not               included in the Federal List.  I want to  draw               attention  to this, because I know my  Hon’ble               friend Dr. Ambedkar would rather see that  the               States accede also on certain items which  are               included  in the Concurrent List, if  not  the               whole  of  that list.  There is  a  school  of               opinion  in  favour of that.  But,  as  things               stand  now, the report stands today,  all  the               subjects included in the Provincial List,  all               the  subjects included in the Concurrent  List               and  whatever subjects-may not be included  in                             the federal list are with the States."

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If  the residuary subjects 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. 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 51 held that tax on the capital value of agricultural land,  is not  included  within  entry 49 List II  or  that  the,  tax imposed  by  the impugned statute does not  fall  either  in entry  49 List II or entry 86 List I, it would be  arbitrary to say that it does not fall within entry 97 List I. We find it  impossible to limit the width of art. 248 and  entry  97 List  I  by the words "exclusive of  agricultural  land"  in entry  86  List  I. We do- not read  the  words  "any  other matter"  in entry 97 to mean--that it has any  reference  to topics excluded in entries 1-96 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 has not been given power to legislate.  The  matter in  entry  86 List I is the whole entry and  not  the  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 point with  reference  to some other entries.  In entry 9  List  I "Preventive  Detention for reasons connected with’  defence, foreign affairs or the security of India" the matter is  not Preventive  Detention  but the whole 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 incomes.  It would  serve no useful purpose to multiply illustrations. It seems to us that the function of Art. 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 matters’ 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  may  be  on  the interpretation  of  entry 97 List I is removed by  the  wide terms  of  Art. 248.  It is framed in  the  widest  possible terms.   On its terms the only question to be asked is :  Is

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the matter sought to be legislated on included in List II or in  List III or is the tax sought to be levied mentioned  in List III or in List III ? No question has to be 52 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 matter or tax. It, must be remembered that the function of the lists is not to  ,,confer powers; they merely demarcate  the  legislative field.  The Federal Court, while interpreting the Government of  India  Act  in The Governor-General in  Council  v.  the Releigh Investment Co. observed               "It would not be right to derive the power  to               legislate  on  this  topic  merely  from   the               reference  to  it  in the  List,  because  the               purpose  of  the Lists was not  to  create  or               confer   powers,   but  only   to   distribute               between,the   Federal   and   the   Provincial               Legislatures   the  powers  which   had   been               conferred by ss. 99 and 100 of the Act." In  Harakchand  Ratanchand  Banthia  v.  Union  of  India(2) Ramaswami,  J.,  speaking  on behalf  of  the  Court,  while dealing with the Gold (Control) Act (45 of 1968) observed :               "Before construing these entries it is  useful               to  notice some of the well-settled  rules  of               interpretation laid down by the Federal  Court               and by this Court in the matter of  construing               the entries.  The power to legislate is  given               to the appropriate legislature by Art. 246  of               the  Constitution.  The entries in  the  three               Lists are only legislative heads or fields  of               legislation;  they  demarcate  the  area  over               which   the   appropriate   legislatures   can               operate." We are compelled to give full effect to Art. 248 because  we know  of  no principle of construction by which we  can  cut down the wide words of, a substantive article like Art.  248 by the wording of an entry in Schedule VII.  If the argument of the respondent is accepted, Art. 248 would have to be re- drafted as follows               "Parliament  has exclusive power to  make  any               law  with respect to any matter not  mentioned               in the Concurrent List or State List, provided               it has not been mentioned by way of  exclusion               in any entry in List I." We  simply have not the power to add a proviso like this  to Art. 248.               We must also mention that no material has been               placed  before us to show that it was ever  in               the mind of anybody, who had to deal with  the               making  of the Constitution, that it  was  the               intention to prohibit all the legislatures  in               this country from legislating on a  particular               topic. (1) [1944] F. C. R. 229,261. (2) [1970] I.S.C.R. 479,489. 53 Mr. Palkiwala referred to the following extract from para  2 of  the report of the Union Powers Committee, dated July  5, 1947 (Constituent Assembly Debates, Vol. 5, page 58):               "We think that residuary powers should  remain               with  the  Centre.   In view  however  of  the               exhaustive nature of the three lists drawn  up               by  us,  the  residuary  subjects  could  only               relate to matters which, while they may  claim

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             recognition in the future, are not at  present               identifiable and cannot there be included  now               in the lists." Basing himself on this extract he said that the tax on  "net wealth"  was  well-known and if it had been  the  desire  to include it, it would have been mentioned. We do not think it is a legitimate manner of interpretation. The  debates  show that notwithstanding that  certain  taxes were  known to the members of the Constituent Assembly  they were not mentioned in the final list.  Yet it can hardly  be argued  that  they’  would not  fall  within  the  residuary powers. In  the report- of the Expert Committee on Financial  Provi- sions,   dated  December  5,  1947,  (Constituent   Assembly Debates,  Volume 7, page 53), it is stated that one  of  the terms of reference was               "IX.  On the ’basis that the residuary  powers               are   vested   in  the  Centre  in   the   new               Constitution  so  far  as  the  Provinces  are               concerned,  and  in the States so far  as  the               States are concerned, is it necessary that any               additional specific taxes should be entered in               the Provincial List, and if so, what ?               The Committee reported in para 72 as follows:               It  appears that under the  new  Constitution,               residuary powers will be vested in the  Centre               so  far as the Provinces are concerned,  while               the corresponding residuary powers in  respect               of  the  States will be vested in  the  States               themselves.   The question has therefore  been               raised  whether,  as a  consequence,  as  many               specific  taxes  as  possible  should  not  be               entered  in the Provincial List  of  subjects.                             We cannot, think of any important new tax  that               can be levied by the Provinces, which will not               fall  under one or the other of  the  existing               categories  including in the Provincial  List.               We  think  that the chance  of  any  practical               difficulty   arising  out  of   the   proposed               constitutional position is remote, and, in any               case,  it seems to us that if a tax is  levied               by the Centre under 54               its residuary powers, there will be nothing to               prevent the proceeds of the whole or a part of               this tax being distributed for the benefit  of               the  Provinces only.  As a matter of  abundant               caution,  however, it may be laid down in  the               Constitution that if any tax is levied by  the               Centre  in future under its residuary  powers,               and to the extent that the States do not agree               to  accede  to the Centre in  respect  of  the               corresponding subject, the whole or a part  of               the  proceeds of the tax shall be  distributed               between the Provinces and the acceding  States               only.               This  disposes of item IX of our Terms of  Re-               ference."               The Committee recommended certain articles:               "198.   Salt duties and excise duties.-(I)  No               duties   on  salt  shalt-be  levied   by   the               Federation.                . . . . . . . . . . . . . ."               "198-A..  Taxes not enumerated in any  of  the

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             lists  in the Ninth Schedule.  If any tax  not               mentioned  in  any of the lists in  the  Ninth               Schedule  to this Constitution is  imposed  by               Act  of  the Federal Parliament by  virtue  of               entry 90 of the Federal Legislative List, such               tax  shall  be  levied and  collected  by  the               Federation  but, a prescribed:  percentage  of               the net proceeds in any financial year of  any               such  tax, except in so far as those  proceeds               represent   proceeds  attributable  to   Chief               Commissioners’ Provinces, shall not form  part               of the revenue of the Federation, but shall be               assigned to the units within which that tax is               leviable   in   that  year,   and   shall   be               distributed among the units in accordance with               such  principles  of distribution  as  may  be               prescribed." The  Committee  further recommended that in  the  Provincial Legislative  List in the Ninth Schedule, for entry  50,  the following may be substituted, namely               "50.  Taxes on the sale, turnover or  purchase               of  goods including taxes in lieu  thereof  on               the use or consumption within the Province  of                             goods  liable to taxes within the  Pro vince  on               sale,   turnover   or   purchase;   taxes   on               advertisement." Two points emerge from this.  The Constituent Assembly  knew how to prohibit Parliament from levying a tax (see  proposed Art. 198-A set out above).  Secondly, they-knew of  certain- taxes 55 as  taxes on the use or consumption of goods.  The  proposal to,  include them in the Provincial List was  not  accepted. Indeed  Shri  T.  T. Krishnamachari  said  this  about  this proposal:*               "Sir,  one other recommendation of 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  ex-               perience 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." 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  test  to 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 throught the world ? In our view the only safe guide for the interpretation of an articles of an organic, instrument like our  Constitution is the language employed, interpreted  not narrawly  but  fairly  in the light of the  broad  and  high purposes of the Constitution, but without doing violence  to the language.  To interpret Art. 248 in the way suggested by the respondent would in our opinion be to do violence to the

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language. We  are, however, glad to find from the  following  extracts from  the debates that our interpretation accords with  what was intended. Entry  91  in  the draft  Constitution  corresponds  to  the present  Entry  97,  List  I.  Article  217  of  the   draft Constitution  corresponds to Art. 246 of  the  Constitution. Art.  223 of the draft Constitution corresponds to Art.  248 of the Constitution. While   dealing   with  entry  91  List  I  of   the   draft Constitution,   Sardar  Hukam  Singh  moved  the   following amendment: "  That  in  entry  91 of List  I,  the  word    ’other’  be deleted." Extracts  from  the debates on the  proposed  amendment  are reproduced below : Sardar  Hukam Singh (Constituent, Assembly Debates,  Vol.  9 page 854) :........................ *Constituent  Assembly Debates Vol. 7, p. 232. 56               "The  object of this entry 91 is, whatever  is               not  included  in  Lists II and  III  must  be               deemed to have been included in this List.   I               feel  that it could be said in  very  ’simple,               words,  if the word ’other’ were omitted,  and               then  there  would be no need  for  this  list               absolutely.  Ultimately, it comes to this that               whatever is not covered by Lists II and III is               all embraced in the Union List.  This could be               said in very simple words and we need not have               taken all this trouble which we have taken."               Mr.   Naziruddin Ahmad  (Constituent  Assembly               Debates, Vol. 9 page 8 5 5) : "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 No. 91, article  217               and  a  few  other  articles  would  that  the               residuary  power  should be with  the  Centre.               This  was an innovation, as there was  nothing               like  it in the Government of India  Act.   As               soon  as we accept entry No. 91,  article  217               and   a  few  other  articles  would   require               redrafting and entries 1 to 90 would be redun-               dant.  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 11 and III  is               to  go  to  the Centre what is  the  point  in               enumerating  entries 1 to 90 of List I ?  That               would    amount   to   absolutely    needless,               cumbersome detail.  All complications would be               avoided  and matters simplified by  redrafting               article 217 to say that all matters enumerated               in List II must belong to the States, and  all               matters  enumerated in List III ’are  assigned               to the Centre and the States concurrently  and

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             that every other conceivable subject must come               within  the purview Of the Centre.  There  was               nothing  more  simple or  logical  then  that.               Instead,  a  long  elaborate  List  has   been               needlessly  incorporated.   This  was  because               List  I was prepared in advance and entry  No.                             91  was inserted by way of after  thou ght.   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 57               entries   be  scrapped  and  article  217   be               rewritten  and things made simple ? I  had  an               amendment-to that effect but I did not move it               because  I  know that any reasons  behind  ail               amendment  would  not be deemed fit  for  con-               sideration by the house."               Prof.    Shibban  Lal   Saksena   (Constituent               Assembly debates, Vol. 9 page 855-856) : "Sir,               today is a great day that we are passing  this               entry almost without discussion.  This  matter               has  been  the subject of discussion  in  this               country  for  several  years  for  about   two               decades.   Today  if 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,  it will be included  in  this               item  91.I therefore think that it is  a  very               important entry.     There  should not be  any               deletion of items 1 to 90. 1   know this entry               will  include  every  thing  that  is  already               contained  in the first 90 entries as well  as               whatever is left.  This entry will  strengthen               the Centre and weld our nation into one single               nation behind a strong Centre.  Throughout the               last  decade  the fight  was  that  provincial               autonomy should be so complete that the Centre               should  not  be  able to  interfere  with  the               provinces, but now the times are changed.   We               are  now  for a strong Centre.  In  fact  some               friends would like to do away with  provincial               autonomy  and would like a unitary  Goverment.               This entry gives powers to the Centre to  have               legislation  on any subject which has  escaped               the  scrutiny  of the House.  I  support  this               entry."               The    Honourable’Dr.     B.    R.    Ambedkar               (Constituent  Assembly Debates, Vol.  9,  page               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 state very clearly what  the               purpose  of 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 List II and III               by  adding  an entry such as  67  which  would               read:               "Anything  not  ’included in List  II  or  III

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             shalt 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  5-L256  SupC               1/72 58               the  one 91 included in List I or to  have  an               entry such as the one which I have  suggested-               that  anything not included in List II or  III               shall fall in List 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 axe the legislative powers  of  the               Centre.  They wanted to know categorically and               particularly;  they  were  not  going  to   be               satisfied by saying that the Centre will  have               only  residuary  powers.  Just  to  allay  the               fears  of the 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               undergo this 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  an               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 In dia  Act;               the same scheme has been laid 59

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             down  there and section 104 of the  Government               of Indian Act, 1935 is similar to article  223               here.  It also lays down the proposition  that               the  Central  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." 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 111, and that  entries were  enumerated  in List I following the precedent  of  the Canadian  Constitution and also to inform the provinces  and particularly the Indian States as to the legislative  powers the Union was going to have. The same conclusion is also arrived at if we look at some of the speeches made when the third reading of the Constitution was  taken up.  Extracts from those speeches are  reproduced below :               Shri  Alladi Krishnaswami  Ayyar  (Constituent               Assembly Debates, Vol. 11, 838) :               "In regard to the distribution and  allocation               of legislative power, this Assembly has  taken               into   account  the  political  and   economic               conditions obtaining in the country at present               and has not proceeded on any a priori theories               as  to the principles of distribution  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."               Shri   T.   T.   Krishnamachari   (Constituent               Assembly Debates, Vol. 11, 952-954)               "I would in this connection deal with a  point               raised regarding the vesting of the  residuary               powers.   I  think more  than  one  honourable               Member  mentioned  that  the  fact  that   the               residuary power is vested in the Centre in our               Constitution makes it a unitary  Constitution.               It  was,  I think, further  emphasised  by  my               honourable 60               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  Mr. Gupta 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

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             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    exe rcised               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     in 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               following  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 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. The above speech of Mr. T. T. Krishnamachari shows that  the members  were aware, that certain known taxes bad  not  been included specifically in the three lists. *(Emphasis supplied) 61 It  is, therefore, difficult to escape from  the  conclusion that in India there is no field of legislation which has not been   allotted  either  to  Parliament  or  to  the   State legislatures.  In Attorney-General for Ontario v.  Attorney- General  for  Canada(1),  Lord Jowitt,  L.C.,  recalled  the following  words of Lord Loreburn L.C., in  Attorney-General for   Ontario  v.  Attorney-General  for  Canada   (2)   and reiterated them :               "Now,  there can be no doubt that  under  this               organic  instrument  the  powers   distributed               between  the Dominion on the one hand and  the               provinces  on the other hand, cover the  whole               area of self-government within the whole  area               of  Canada.   It would be  subversive  of  the               entire scheme and policy of the Act to  assume               that any point of internal self-Government was               withheld from Canada." The last sentence applies much more to the Constitution of a sovereign  democratic republic.  It is true that  there  are some  limitations  in Part III of the  Constitution  on  the legislatures in India but they are of a different character. They  have  nothing to do with legislative  competence.   If this  is the true scope, of residuary powers of  Parliament, then  we are unable to see why we should not,  when  dealing

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with  a  Central Act, enquire whether it is  legislation  in respect of any matter in List II for this is the only  field regarding  which there is a prohibition against  Parilament. If  a Central Act does not enter or invade these  prohibited fields  there  is no point in trying to decide as  to  under which  entry or entries of List I or List III a Central  Act would rightly fit in. It  was accepted that this test had been applied in  Canada, but  it  was  argued  that  the  Canadian  Constitution   is completely  different from the Indian Constitution.   It  is true  that  the  wording of ss. 91 and 92  of  the  Canadian Constitution  is  different and the Judicial  Committee  has interpreted these 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  ss. 91 and 92 ourselves. In  Canada’s Federal System by Lefroy it is stated  at  page 120 as follows :               "In  determining  the validity of  a  Dominion               Act,  the first question to be determined  is,               whether  the  Act  falls  within  any  of  the               classes of subjects enumerated in (1) [1947] A..C. 127, 150. (2) [1912] A.C. 571,581. 62               section  92, and assigned exclusively  to  the               legislatures  of the provinces.  If  it  does,               then the further question will arise,  whether                             the  subject  of  the Act does  not  a lso  fall               within  one  of  the  enumerated  classes   of               subjects in section 91, and so does not  still               belong to the Dominion Parliament.  But if the               Act does not fall within any of the classes of               subjects  in section 92, no  further  question               will remain." The learned author cited four Privy Council cases in support of the above statement.  In one case Russel v. The  Queen(1) the  Privy  Council was concerned with the validity  of  the Canada  Temperance  Act,  1878.   In  this  connection   Sir Montague C. Smith, observed :               "The  general  scheme  of  the  British  North               America Act with regard to the distribution of               legislative powers, and the general scope  and               effect of secs. 91 and 92, and their  relation               to  each  other,  were  fully  considered  and               commented  on  by this Board in  the  case  of               Citizens  Insurance  Company  v.   Parsons(2).               According  to  the principle  of  construction               there  pointed out, the first question  to  be               determined is, whether the Act now in question               falls  within any of the classes  of  subjects               enumerated   in   Sec.,   92,   and   assigned               exclusively   to  the  Legislatures   of   the               Provinces.   If  it  does,  then  the  further               question  would arise, viz., whether the  sub-               ject of the Act does not also fall within  one               of the enumerated classes of subjects in  Sec.               91,  and  so  does not  still  belong  to  the               Dominion Parliament.  But if the Act does  not               fall within any of the classes of Subjects  in

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             sec. 91, no further question will remain,  for               it  cannot  be contended, and indeed  was  not               contended at their Lordships bar, that, if the               Act  does ’not come within one of the  classes               of   subjects  assigned  to   the   Provincial               Legislatures,  the  Parliament of  Canada  had               not,  by its general power "to make  laws  for               the  peace,  order,  and  good  government  of               Canada",  full legislative authority  to  pass               it." In Halsbury’s Laws of England (Third Edition, Volume 5, page 498) the rule is put thus :               "In  determining the validity  of  legislation               the general method of inquiry is to ask first,               whether  the matter comes within  the  classes               expressed by statute to be exclusively  within               the  powers of the provinces; if it does  not,               the  power belongs exclusively to  Parliament,               but (1) [1881-82] 7 AC 836 (2) 7. A.C. 96. 63               even  if it does appear to come within  those’               classes, the exclusive power still belongs  to                             Parliament   if  it  also  falls   wit hin   the               enumerated   class  within   the   legislative               authority of Parliament." In  Attorney-General  for  Canada  v.  Attorney-General  for British Columbia(1), Lord Tomlin, after referring to ss.  91 and 92 of the Canadian Constitution, observed as follows "Questions  of  conflict  between the  jurisdiction  of  the Parliament of the Dominion and provincial jurisdiction  have frequently  come before their Lordships’ Board, and  as  the result   of  the  decisions  of  the  Board  the   following propositions may be stated :- (1)  The legislation of the Parliament of the  Dominion,  so long  as  it  strictly relates to  subjects  of  legislation expressly  enumerated in s. 91, is of  paramount  authority, even  though  it  trenches  upon  matters  assigned  to  the provincial  legislatures by s. 92; see tenant v. Union  Bank of India (2) . (2)  The  general power of legislation  conferred  upon  the Parliament of the Dominion by s. 91 of the Act in supplement of  the  power  to legislate  upon  the  subjects  expressly enumerated must be strictly confined to such matters as  are unquestionably of national interest and importance, and must not  trench  on any of the subjects enumerated in s.  92  as within  the  scope of provincial legislation,  unless  these matters have attained such dimensions as to affect the  body politic  of the Dominion : see Attorney-General for  Ontario v. Attorney-General for the Dominion(3). (3)  It is within the competence of the Dominion  Parliament to  provide for matters which, though otherwise  within  the legislative  competence of the provincial  legislature,  are necessarily  incidental  to  effective  legislation  by  the Parliament  of  the Dominion upon a subject  of  legislation expressly  enumerated  in s. 91 :  see  Attorney-General  of Ontario v. Attorney-General for the (1)   [1930] A.C.III, 118.     (2) [1894] A.C. 31 (3)  [1896] A.C. 348. 64               Dominion,(1) and Attorney-General for  Ontario               v.Attorney-General for the Dominion(2).               (4) There can be a domain in which  provincial

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             and  Dominion  legislation  may  overlap,   in               which, case neither legislation will be  ultra               vires if the field is clear, but if the  field               is  not  clear and the two  legislations  must               meet  the Dominion legislation  must  prevail;               see  Grand  Trunk Ry. of Canada  v.  Attorney-               General of Canada(3)." This  statement was approved of in In re The Regulation  and Control  of  Aeronautics  in Canada (4) ; in  In  re  Silver Brothers,  Ltd.("); and in Canadian Pacific Railway  Company v. Attorney-General for British Columbia(6). It would be noticed that the second proposition was based on Attorney-General  for  Ontario v. Attorney General  for  the Dominion (7)  and the words "In supplement" are said to have been used for the first time by the Privy Council. It is quite true, as Mr. Palkiwala points out, that one  way of  reading  ss. 91 and 92 of the Canadian  Constitution  is that  s.  91  gives general powers and  then  gives  certain specific powers by way of illustration, and that  apparently was  the  interpretation  placed on the  Act  by  the  Privy Council  before  Attorney-General for Ontario  v.  Attorney- General   for   the   Dominion   (2).   But   whatever   the interpretation,  the  same  test was applied  by  the  Privy Council  before  1896 in Russel v. Tile Queen(8)  and  after this case. The learned counsel referred to five cases of this Court and the Federal Court to show that the Canadian cases should not be relied on as the Canadian Constitution was different.  It is true that the Canadian Constitution is different in  many respects  and  for some purposes it would be  misleading  to rely  on the Canadian cases.  In Chhotabhai Jethabhai  Patel v. The Union of India(9) the question was the interpretation of  entry 84 List I (Duties of excise on  tobacco........  ) and entry 60 List II (Taxes on professions, trades, callings and  employments).  This Court held that the Canadian  cases which  were  cited before it did not afford  any  assistance because  in Canada analogous problems are  always  concerned with questions of direct and indirect taxation.  We (1) [1894] A.C. 189.         (9) [1816] A.C. 348. (3) [1907] A.C. 65.          (4) [1932] A.C. 54. (5) [1932] A.C. 514.         (6) [1950] A.C. 122. (7) [1896] A.C. 348.         (8),[1882] 7A.C. 829. (9) [1962] Supp. 2 S. C. R. 1. 65 agree  that  in the interpretation of entry  84  (duties  of excise . . . it would be misleading to rely on cases dealing with direct and indirect taxation. Similarly, in 1942 in Province of Madras v. Messrs..  Boddu. Paidanna(1) the Federal Court was concerned with the  inter- pretation of entry 45 List I of the Government of India  Act (duties  of  excise on tobacco.... ) and entry  48  List  II (taxes  on  the sale of goods and  on  advertisements).   On these  matters the Canadian cases could not possibly  be  of any assistance or relevance. In  State of Bombay v. Chamarbugwala(2) this  Court  rightly held  that the decisions of the American Supreme  Court  and the decisions of the Australian High Court and of the  Privy Council  on s. 92 of the Australian Constitution  should  be used   with   caution  and   circumspection,   because   our Constitution  was  different and it  had  provided  adequate safeguards in cl. (6) of art, 19 and in arts. 302-325. In Atiabari Tea Co. v. The State of Assam(2), this Court was again   dealing  with  art.  301  and  art.  304   of   the, Constitution.   Sinha, C.J., speaking for himself,  observed that he had deliberately refrained from making references to

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or  relying  upon decisions from other  countries  like  the U.S.A. or Australia. Again  in the Automobile Transport (Rajasthan) v. The  State of  Rajasthan(4),  Das,  J.,  referring  to  the  Australian decisions under s. 92, observed               "  Valuable  as those decisions  might  be  in               showing  how the problem of freedom of  trade,               commerce  and  intercourse was dealt  with  in               other federal constitutions, the provisions of               our  Constitution must be interpreted  against               the historical background in which our Consti-               tution  was made; the background  of  problems               which  the Constitution makers tried to  solve               according  to the genius of the Indian  people               whom  the Constitution-makers  represented  in               the Constituent Assembly." On  the  contrary, in Subrabmanyan  Chettiar  v.  Muttuswami Goundan(5)  while interpreting s. 100 of the  Government  of India Act, which corresponds to s. 246 of the  Constitution, Gwyer C.J., observed at p. 200 :               "The British North America Act, 1867, contains               analogous  provisions and it can  scarcely  be               doubted (1)  [1942] F.C.R. 90. (2)  [1957] S.C.R. 874,918. (3)  [1961] I. S.C.R. 809, 838. (4)  [1963] 1 S.C.R. 491, 510, (5)  [1940] F.C.R. 188. 66               that  Parliament had those provisions in  mind               when it enacted the later Act." Then  he  referred  to ss. 91 and 92 of  the  British  North America Act and observed at page 201 :               "As interpreted by the Judicial Committee, the               British   North   America  act   presents   an               exact.analogy  to the India Act, even  to  the               overriding provisions in S.    100 (1) of  the               latter:               "The  rule  of construction  is  that  general               language in      the heads of s. 92 yields  to               particular  expressions  in  s.  91,where  the               latter  are unambiguous." per Lord Haldane  in               Great  West  Saddlery Co. v. The  King(1)  The               principles laid down by the Judicial Committee               in   a  long  series  of  decisions  for   the               interpretation  of  the two  sections  of  the               British  North  America Act may  therefore  be               accepted as a guide for the interpretation  of                             similar  provisions in the Government of  India               Act." It  is true that Gwyer, C.J., was dealing with the  question of pith and substance’ and the "true nature and character of the  legislation" for the purpose of determining whether  it is  a  legislation with respect to matters in this  list  or that  list  but at least his judgment shows that  where  the provisions  are  similar, the principles laid  down  by  the Judicial Committee, should be accepted as a guide. Similarly, Varadachariar J., observed at p. 235               "It  seems to me necessary to point  out  that               the  assumption  in the Patna  case  that  the               scheme  of S. 100 of the, Constitution Act  is               radically different from that of ss. 91 and 92               of  the  British  North  America  Act  is  not               warranted.  A long line of decisions beginning

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             at least as early as Citizen Insurance Company               of Canada v. Parsons(2) have interpreted these               provisions  of the Canadian Constitution in  a               manner that almost assimilates their scheme to               that  adopted in s. 100 of the  Government  of               India   Act........   The  position   Of   the               Provincial   Legislatures  under  the   Indian               Constitution  Act in respect of  the  subjects               enumerated in List II, and in relation to  the               subjects specified in List I is in essence the               same  as  that above stated in regard  to  the               powers of the Provincial Legislature under  s.               92 of the British North America Act.  It  will               be clear from the decisions that the rules  of               interpretation adopted in the (1) [1921] 2 A.C. 91, 116 (2) [1881] 7 A. C. 96. 67               Canadian  cases were evolved only as a  matter               of reasonableness and common sense and out  of               the   necessity  of   satisfactorily   solving               conflicts   arising   from   the    inevitable               overlapping  of  subjects  in  any  system  of               distribution of legislative powers.  That they               need  not be limited to any special system  of               federal constitution is made clear by the fact               that  in  Gallagher  v.  Lynn(1),  Lord  Atkin               applied  the  "pith and substance"  rule  when               dealing  with  a question  arising  under  the               Government of Ireland Act-which did not embody               a  federal system of at all-and in Shannon  v.               Lower Mainland Dairy Products Board (2) , when               dealing  with a Canadian case, he embodied  in               the judgment the principles enumerated in  the               Irish case." It  was  said  that  we  would  be  destroying  the  federal structure  ,of our Constitution if we adopted this  line  of enquiry.  It seems to us that this test was perhaps  applied by  this  Court  in Gift Tax Officer  v.  Nazareth(3)  where Hidayatullah, C.J., observed in dealing with the question of the gift tax :               "Therefore, either the pitch and substance  of               the  Gift  Tax Act falls within  entry  49  of               State  List or it does not.  If it does,  then               Parliament will have no power to levy the  tax               even  under the residuary powers.  It is  does               not, then Parliament must undoubtedly  possess               that power under Art. 248 and entry 97 of  the               Union List." Be that as it may, we are unable to see how the adoption  of this  mode of enquiry will destroy the federal structure  of our   Constitution.   The  State  Legislatures   have   full legislative authority to pass laws in respect of entries  in List II, and subject to legislation by Parliament on matters in List III. It  was  also  said that if this 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 others in the debates referred to above  and  was answered  by  Dr. Ambedkar.  But apart from  what  has  been stated by Dr. Ambedkar in his speech extracted above  there, is  some merit and legal effect in having included  specific items in List I for when there are three lists it is  easier to  construe  List II in the. light of Lists I and  11.   If there  bad  been  no List I, many items  in  List  II  would

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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 (1) [1937] A.C. 863, 869.    (2) [1938] A.C. 708, 719-720. (3) [1971] 1 S.C.R. 195,200. 68 to us that in this context if a Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters  or taxes  enumerated  in  List II.  If it is  not,  no  further question arises. In  view  of this conclusion, we now come to  the  question, i.e. whether the impugned Act is a law with respect to Entry 49, List II, or whether it imposes a tax mentioned in  Entry 49  in List II ? On this matter we have three  decisions  of this  Court and although these decisions were challenged  we are  of the opinion that they interpreted entry 49  List  II correctly. Sudhir  Chand Newn v. Wealth Tax Officer(1) 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  the Court that " since the expression net wealth" includes  non- agricultural  lands and buildings-of an assessee, and  power to levy tax on lands and ’buildings is reserved to the State Legislatures  by Entry 49 List II of the  Seventh  Schedule, Parliament  is  incompetent  to legislate for  the  levy  of wealth-tax on the capital value of assets which include non- agricultural lands and buildings.               In rejecting this argument the Court observed               "The  tax which is imposed by entry 86 List  I               of the Seventh Schedule is not directly a  tax               on  lands and buildings.  It is a tax  imposed               on   the  capital  value  of  the  assets   of               individuals  and companies, on  the  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 asset,  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 normaly not               concerned  with  the division of  interest  or               ownership  in the units of lands or  buildings               which  ;ire 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 (1) [1969] 1 S.C.R. 108, 110 69               to be levied on the value of the assets.   For               the purpose of levying tax under entry 49 List               11   the  State  Legislature  may  adopt   for

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             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." It  was urged on behalf of the respondent that in  Assistant Commissioner of Urban Land Tax v. The Buckingham &  Carnatic Co. Ltd.(1), this Court held that a tax on the capital value of land and buildings could be imposed under entry 49,  List II,  but /it seems to us that this is not a correct  reading of  that  decision.   Reliance is placed  on  the  following sentence at page 277 :               "We see no reason, therefore, for holding that               the  entries 86 and 87 of List I preclude  the               State Legislature from taxing capital value of               lands  and  buildings under Entry 49  of  List               II." 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               building,,., 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 (1)  [1970] 1 S.C.R. 268. 70               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  make  the               fields  of legislation under the  two  entries               overlapping.   The  two  taxes  are   entirely               different  in their basic concept and fall  on

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             different    subject    matters."    (emphasis               supplied). In Fift Tax Officer v. D. H. Nazareth(1) this Court,  while, considering  the  validity  of  the  Gift  Tax  Act,   1958, considered the scope of legislation under entry 49, List II. Hidayatullah, C.J., observed :               "Nor  is  it  possible to  read  a  clear  cut               division of agricultural land in favour of the               States  although the intention is to put  land               in most of its aspects in the State List.  But               however  wide  that  entry,  it  cannot  still               authorise a tax not expressly mentioned."               The Court further observed :               "Since entry 49 of the State List contemplates               a tax directly levied by reason of the general               ownership  of lands and buildings,  it  cannot               include the gift tax as levied by Parliament."               The  requisites of a tax under entry 49,  List               II may be 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. In short, the tax under entry 49, List II is not a  personal tax but a tax on property. It seems to us that this Court definitely held-and we  agree with  the  conclusion-that  the nature  of  the  Wealth  Tax imposed (1) [1971] 1 S.C.R. 195,200. 71 under the Wealth Tax Act, as originally stood, was different from  that of a tax under entry 49, List II, and it did  not fall under this entry. The distinction between a ’net wealth tax’ and ’tax  on pro- perty’  is  clearly brought out in the  following  extracts, and supports the conclusion arrived at by this Court. Readings  on  Taxation in Developing Countries by  Fird  and Oldman  elucidates the concept of Wealth Tax as follows,  at page 281               " The term net wealth tax’ is usually  defined               as a tax annually imposed on the net value  of               all assets less liabilities of particular tax-               payers-especially,     individuals.       This               definition  distinguishes the net  wealth  tax               from  other types of taxation of  net  wealth,               such  as death duties and a capital levy;  the               former   are   imposed  only   at   infrequent               intervals-once a generation--while the  latter               is a one-time charge, usually with the primary               purpose of redeeming  a wartime national debt.               The  net wealth tax is really intended to  tax               the  annual yield of capital rather  than  the               principal  itself  as  do death  duties  or  a               capital levy, even though it is levied on  the               value  of the principal.  Since it  taxes  net               wealth,  it also differs from  property  taxes               imposed  on  the  gross  value  of   property-               primarily   real  property  in  a  number   of                             countries.    The   net   wealth   tax

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   gives               consideration   to  the   taxpayer’s   taxable               capacity   through   the  deduction   of   all               outstanding    liabilities    and     personal               exemptions  as well as through other  devices,               while the property tax generally does not take               these  factors into account.  The  net  wealth               tax  is therefore deemed to be imposed on  the               person of the taxpayer, while the property tax               is often deemed to be imposed on an object-the               property itself." In Harvard Law School World Tax Series-Taxation in Columbia- Net Wealth Tax is defined at page 45 thus :               "As  a  general  rule, all  debts  owed  by  a               taxpayer,  whether  to residents  or  to  non-               residents,  are deductible if their  existence               is  established in conformity with  the  legal               requirements.      The    usual    test     of               deductibility,  as applied by the Division  of               National Taxes, is whether or not there is  an               actual,  enforceable  legal  obligation,   the               amount of which is fixed or computable, as  on               31 December of the tax year." 72               According  to  Harvard Law  School  World  Tax               Series’Taxation  in Sweden-this tax  has  been               levied in Sweden since a long time.  Now it is               regulated  by law enacted in  t947.   "Taxable               Wealth"  has  been  defined  at  page  625  as               follows :               "Taxable wealth consists of the capital  value               of the taxpayer’s assets, as those are defined               in  the  law, to the extent  that  this  value               exceeds the capital value of his debts."               In  Harvard  Law  School  World  Tax   Series-               Taxation in the Federal Republic of Germany-it               is  stated  at  page 152 that  "the  taxes  on               capital  which are summarised in this  chapter               are the net worth tax, the real property  tax,               and the capital levy under the Equalization of               Burdens Law." It is further stated thus :               "Some of the taxes on capital are deemed to be               imposed  on the person of the  taxpayer  while               others are deemed to be imposed on an  object.               Examples  of the former are the net worth  tax               and the capital levy under the Equalization of               Burdens  Law, while the real property tax  and               the   trade  tax  on  business   capital   are               ;classified in the latter category.  The  main               importance  of this distinction is that  taxes               in the first group presuppose a taxpayer  with               independent  legal  existence,  that  is,   an               individual   or  a  legal  entity   (juridical               person), while  in  the case of taxes  in  the               second group, the taxable object   itself   is               deemed liable for the tax, in  addition to  its                             owner,   so   that  the  taxpayer  can    be   a               partnership, association of the civil law,  or               other combination of persons without  separate               legal existence.  Taxes of the first type give               consideration  to  the taxpayer’s  ability  to               pay, while those of the second type  ,consider               merely  the value of the taxable object,  such               as  the capital of a business, in the case  of

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             the  trade  tax on business  capital,  or  the               assessed  value of real property, in the  case               of the real property tax." in  our  view the High Court was right in holding  that  the impugned  Act was not a law with respect to entry  49,  List II, or did not impose a tax mentioned in entry 49, List  II. if  that is so, then the legislation is valid  either  under entry  86, List I, read with entry 97, List I, or  entry  97 List I, standing by itself. 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, whether  called a Wealth Tax Act or not, is to impose a  tax mentioned  in  entry  49  List II the  tax  may  be  bad  as encroaching upon the domain of State legislatures. 73 In this connection the following words of the Judicial  Com- mittee may be borne in mind.  In Attorney-General for Canada v.  Attorney-General for Ontario(1) the  Judicial  Committee observed.               In  other  words, Dominion  legislation,  even               though  it deals with Dominion  property,  may               yet  be  so framed as to invade  civil  rights               within  the  Province, or  encroach  upon  the               classes of subjects which are reserved to Pro-               vincial competence.  It is not necessary  that               it  should  be  a  colourable  device,  or   a               pretence.    If  on  the  true  view  of   the               legislation  it  is found that in  reality  in               pith  and  substance the  legislation  invades               civil  rights  within  the  Province,  or   in               respect of other classes of subjects otherwise               encroaches  upon  the  provincial  field,  the               legislation   will   be  invalid.    To   hold               otherwise  would afford the Dominion  an  easy               passage into the Provincial Domain." In   Attorney-General   for  Alberta   v.   Attorney-General Canada(2) the Judicial Committee observed               "It  is not competent either for the  Dominion               or   a  Province  under  the  guise,  or   the               pretence, or in the form of an exercise of its               own  powers, to carry out an object ,which  is               beyond its powers and a trespass on the exclu-               sive  powers of the other  :  Attorney-General               for Ontario v. Reciprocal Insurance(3); In  re               The Insurance Act of Canada (4 ). Here  again,               matters of which the Court would take judicial               notice  must  be  borne  in  mind,  and  other                             evidence in a case which calls for it.   It must               be  remembered that the object or  purpose  of               the  Act,  in so far as it  does  not  plainly               appear from its terms and its probable effect,               is that of an incorporeal entity, namely,  the               Legislature,  and,  generally  speaking,   the               speeches  of  individuals  would  have  little               evidential weight." Although it is not necessary to decide the question  whether the  impugned  Act falls within entry 86 List I,  read  with entry  97 List I, or entry 97 List I alone, as some  of  our brethren  are of the view that the original Wealth  Tax  Act fell under entry 86 List I, we might express our opinion  on that  point.   It seems to us that there  is  a  distinction between a true net wealth tax and a tax which can be  levied under entry 86 List I. While legislating in respect of entry

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86  List I it is not incumbent on Parliament to provide  for deduction  of  debts in ascertaining the  capital  value  of assets. Similarly, it is not incumbent on State Legislatures to provide for for (1)  [1937] A. C. 355, 367. (3)  [1924] A.C. 328, 342. 256 SupCI/72 (2)  [1939] A.C. 117,130. (4)  [1932] A.C. 41. 74 deduction of debts while legislating in respect of entry  49 List  II For example, the State Legislature need not,  while levying tax under entry 49 List.  II, provide for  deduction of debts owed by the owner of the property.  It seems to  us that  the other part of entry, i.e. "tax on the  capital  of companies"  in entry 86 List I also seems to  indicate  that this  entry is not strictly concerned with taxation  of  net wealth  because  capital  of a company is  in  one  sense  a liability  of the company and not its asset.  Even if it  is regarded  as  an  asset, there is nothing in  the  entry  to compel  Parliament  to provide for deduction of  debts.   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 an individual but it does not follow from this that Parliament is obliged to provide for deduction  of debts  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 under entry 86 List I.  It was  only  assumed  that the original Wealth  Tax  Act  fell within  entry 8 6 List I and on that assumption  this  entry was analysed and contrasted with entry 49 List II.  Be  that as it may, we are clearly of the opinion that no part of the impugned legislation falls within entry 86 List I. However,  assuming  that the Wealth Tax Act,  as  originally enacted,  is held to be legislation under entry 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 I. There is no principle that we  know of which debars Parliament from relying on the powers  under specified entries 1 to 96, List I, and supplement them  with the powers under entry 97 List I and art. 248, and for  that matter powers under entries in the Concurrent List. In  Subramanyan  Chettiar v.  Muttuswami  Goundan(1)  Gwyer, C.J.,  while  dealing  with  the  validity  of  the   Madras Agriculturists Relief Act, 1938, observed :               "That  the  provisions  of the  Act  in  their               application  to  the decree  obtained  by  the               appellant  were within the competence  of  the               Madras Legislature to enact does .not seems to               me  open to doubt.  They may be  justified  by               reference  to entry no. 4 and no. 15  of  List               III, perhaps also to entry no. 2 in List II; I               do  not say that there may not be others,  but               these will suffice." (1) [1940] F.C.R. 188,208. 75 In  State of Bombay v. Narothamdas Jethabhai(1)  Sastri  and Das,  JJ.,  as they then were, relied on both items 1  2  of List II of the Government of India Act, 1935, to uphold  the

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Bombay City Civil Court Act, 1948. 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 a power as the  power conferred under art. 246 of the Constitution in respect of a specified item. In  In  re  The Regulation and  Control  of  Aeronautics  in Canada(2)  the  Privy  Council  upheld  the  validity  of  a Parliamentary  statute after supplementing the powers  under the specified items in s. 91 with the residuary powers.   It observed :               "To sum up, having regard (a) to the terms  of               s.  132;  (b) to the terms of  the  Convention               which  covers almost every conceivable  matter               relating to aerial navigation; and (c) to  the               fact   that  further  legislative  powers   in               relation  to aerial navigation reside  in  the               Parliament of Canada by virtue of s. 91, items               2, 5 and 7, it would appear that substantially               the  whole field of legislation in  regard  to               aerial  navigation  belongs to  the  Dominion.               There  may  be a small portion  of  the  field               which  is not by virtue of specific  words  in               the  British North America Act vested  in  the               Dominion; but neither is it vested by specific               words in the Provinces.  As to that small por-               tion  it  appears to the Board  that  it  must               necessarily  belong to the Dominion under  its                             power  to  make laws for the peace,  o rder  and               good  government of Canada.   Further,’  their               Lordships  are influenced by the  facts  that.               the  subject  of  aerial  navigation  and  the               fulfilment  of Canadian obligations  under  s.               132  are  matters  of  national  interest  and               importance;  and that aerial navigation  is  a               class  of  subject  which  has  attained  such               dimensions  as to affect the body  politic  of               the Dominion. (emphasis supplied). In  conclusion we hold that the impugned Act is valid.   The appeal is accordingly allowed and the judgment and order  of the High Court set aside and Civil Writ No. 2291 of 1970  in the  High  Court dismissed.  There will be no  order  as  to costs, either here or in the High Court. Shelat, J. We have had the opportunity to going through  the judgment  of the learned Chief Justice just  delivered:  but regret our inability to agree with it.  The reasons for  our disagreement are as stated hereinafter. (1) [1951] S.C.R. 51. (2) [1932] A.C. 54, 77. 76 The  Wealth-Tax  Act, 27 of 1957, as  originally  passed  in September  1957, imposed, by its sec. 3, tax on the  capital value of net wealth on the relevant valuation date of  every individual, Hindu undivided family and company.  Net wealth, as  defined  under  sec.  means  the  amount  by  which  the aggregate value computed in  accordance with the  provisions of  the  Act on all assets belonging to an assessee  on  the valuation  date  is in excess over the  aggregate  value  of debts  owed  by  him on such  valuation  date.   Assets,  as defined  in see. 2(e), means property of every  description, moveable  or immoveable, but does not  include  agricultural land, growing crops, grass or standing trees on such land. By  sec. 24 of the Finance Act, 1969, sec. 2(e) was  amended omitting  the  non-inclusion of agricultural  land  for  the

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assessment  year commencing from April 1, 1970 and  for  all subsequent  assessment  years, thus  including  agricultural land in the definition of assets. The  respondent filed a writ petition in the High  Court  of Punjab,  from  out  of  which  the  present  appeal  arises, challenging the validity of the amendment by which the  non- inclusion  of  agricultural  land  from  the  assets  of  an assessee  was  done  away with.   The  challenge  was  based principally on two grounds               (1) that such a tax on agricultural land could               be  imposed under entry 49 in List II  in  the               Seventh  Schedule to the Constitution  by  the               States and not by the Union, and               (2)  that even if that was not so,  Parliament               had  no  competence to enact an  act  imposing               such  a tax on agricultural land either  under               Art. 246 read with entry 86 in List I or under               its  residuary power under Art. 248 read  with               entry 97 in that list. In  view of the importance of the issues involved, the  Writ Petition was heard by a Full Bench of the High Court, which, by  a majority of four to one, allowed it holding that  sec. 24  of the Finance Act, 1969 to the extent that it  included agricultural  land within the definition of assets  for  the purposes  of  the  Wealth-Tax  Act,  1957  was  beyond   the competence of Parliament, and was therefore, ultra vires the Constitution. So  far as the first question raised by the, respondent  was concerned, the High Court held, in view of the decisions  of this  Court  in Sudhir Chandra Nawn v.  Wealth-Tax  Officer, Calcutta(1) Assistant Commissioner of Urban Land Tax &  Ors. v.  The Buckingham & Carnatic Co. Ltd. (2) and Shri  Prithvi Cotton Mills (1) [1969] 1 S.C.R. 108.    (2) [1970] 1.S.C.R. 268. 77 Ltd.   V. Broach Borough Municipality(1) to which  we  shall presently  come, that a tax levied on the capital  value  of all assets taken in their totality under entry 86 in List  I read  with Art. 246 or one which included agricultural  land and  levied under the power conferred by Art. 248 read  with entry 97 in List I was not a tax under entry 49 in List  II, that  is, to say, it was not a tax on lands  and  buildings, the two taxes being of a different nature, and therefore,_ a tax  on  capital value of all assets, even  if  it  included agricultural land within the meaning of such assets, did not fall within, nor entrenched upon State power under entry  49 of List II.  In the light of these decisions, the High Court felt that entry 86 in List I and entry 49 in List II covered different fields, one not entrenching on the other, and that therefore,  a tax levied under and by virtue of  the  former could  not be said to entrench on the sphere of taxation  of lands and buildings reserved to the States. On  the second issue, the High Court accepted,  the  conten- tions  urged  on behalf of the respondent that  (a)  in  the light of the relevant entries in the Lists the Constitution, by   and  large,  left  the  subject  of   agriculture   and agricultural  land both as regards legislation and  taxation to the States, (b) that in the light of that  constitutional policy, the Constitution excluded from the field of entry 86 in  List I the power to impose the tax on the capital  value of  agricultural land, and (c) that that being so, it  could not  be held that the residuary power contained in Art.  248 read  with entry 97 in List I included the power to  levy  a tax of the kind contemplated in entry 86 so as to take  into its  sweep agricultural lands expressly  excluded  therefrom

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and thus nullify the restriction or exclusion of that  class of property.  Therefore, the Union could not resort to  Art. 248 and or entry 97 in List I to justify the deletion of the non-inclusion of agricultural land by sec. 24 of the Finance Act, 1969. Mr. Setalvad challenged the correctness of the High  Court’s majority judgment.  Relying on Art. 248 and entry 97 in List I,   he  argued  that  under  the  federal  scheme  of   our Constitution the policy was to vest the residuary powers  in the Centre, that the High Court had misapprehended the  true interpretation  of entry 97 in List I and was  therefore  in error  in holding that that entry did not contain the  power to levy a tax of the kind we have here on agricultural land, though  that power was withheld in entry 86 in List  I.  His contention was that the power to levy a tax on capital value of agricultural land was derived from Art. 248 and entry  97 in List I, as it was not a matter enumerated in Lists II and 111,  and therefore, fell squarely under entry 97.  That  in brief  was  the sum total of his contentions.   He  did  not argue on the (1) [1970] 1 S.C.R. 388. 78 first  question as it was decided by the High Court  in  his favour.    Counsel   for  the   respondent   contested   the correctness of the contentions urged on behalf of the  Union of  India and, after an elaborate analysis of  the  relevant entries and the Articles, supported the majority judgment of the High Court. Before  we proceed to examine these rival contentions it  is necessary  to set out broadly the scheme of distribution  of legislative  powers  between the Union and the  States  laid down  in Ch.  I of Part XI of the Constitution.  Under  Art. 245,  Parliament can make laws for the whole or any part  of the  territory of India and the State Legislatures  for  the whole  or  part of their respective States.   The  different topics  or matters of legislation are set out in  the  three Lists  in the Seventh Schedule.  List I, known as the  Union List,  enumerates topics of legislation in respect of  which Parliament has exclusive power to make laws.  List II, known as   the   State  List,  likewise,  enumerates   topics   of legislation  in  respect of which  State  Legislatures  have exclusive power to make laws.  By reason of the non-obstante clause  in  cl. (1) of Art. 246, if there is a  conflict  or overlapping of the subject-matter of legislation, it is  the law  made by Parliament which prevails over the  State  law. List III, called the Concurrent List, has topics in  respect of  which  both Parliament and the State  Legislatures  have power to make laws.  Again, as a result of the  non-obstante clause in cl. (1) of Art. 246, if there is any inconsistency between  the  laws made by Parliament and the laws  made  by State  Legislatures, both acting under cl. (3) of  Art.  246 and  List III, that is resolved by making the law passed  by Parliament  to prevail over the State law.  So long  as  the Parliamentary   law   continues,  the  State   law   remains inoperative, but becomes operative one,-- the  Parliamentary law  is removed.  Under cl. (4) of Art. 246, Parliament  has the power to make laws with respect to any matter  including those  in  List II for any part of India not included  in  a State,  e.g.,  Union  territory.   Art.  248  declares  that Parliament  has the exclusive power to legislate on  matters not enumerated in List In or List II and to impose a tax not mentioned  in either of those Lists.  To  avoid  any-doubts, entry 97 is inserted in List I, which sets out the field  of legislation thereunder as follows :               "Any other matter not enumerated in List II or

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             List  III including any tax not  mentioned  in               either of those Lists." Art.  246  thus  lays  down the  powers  of  the  respective legislatures  in  respect of the matters enumerated  in  the three Lists.  Where those Lists come into conflict, the non- obstante  clause in cls. (1 ) and (2) shows that List I  has priority  over  Lists HI and II, and List III  has  priority over List II.  Despite the dominant part 79 given to Parliament in this Article, the State legislatures, however,  have the exclusive jurisdiction over  matters  set out  in  List  II and the  principle  underlying,  the  non- obstante clause can be resorted to only in cases of conflict which are not capable of being reconciled. [see In re C.P. & Berar Act, No. XIV of 1938 Unlike  some  of  the  constitutions  with  a  federal   and distributive   system  of  powers,  our   Constitution,   in consonance with its being a centrally oriented Constitution, has conferred on Parliament under Art. 248 "exclusive  power to make any law with respect to any matter not enumerated in the  Concurrent  List or State List".  Such  power  includes also the power "of making a law imposing a tax not mentioned in either of these Lists". The expression "any matter not enumerated in the  Concurrent List or State List" in Art. 248 must mean, in the context of cl. (1) of Art. 246, which ’gives Parliament exclusive power in respect of matters in List I, any matter other than those enumerated.  in  any  of the three  Lists.   Obviously,  the residuary  power  given  to Parliament in  Art.  248  cannot include  power which is exclusively given to  Parliament  on matters  in List I already conferred under cl. (1)  of  Art. 246,  so  that  an attempt to distinguish  the  words  "any. matter"  in Art. 248 and "any other matter" in entry  97  in List I is a distinction without difference.  There had to be difference in language in the two provisions in the  context of  the  content  of entry 97 as  that  entry  speaks  about matters  other  than those enumerated before in List  I  and those  enumerated in the other Lists.   Notwithstanding  the fact that the residuary power has been vested in the Central Legislature  under Art.- 248 and its consequence  translated in entry 97 in List I, there can be, no gain-saying that the idea  was to assign such residuary power over matters  which at the time of framing the three Lists could not be  thought of or contemplated.  This is clear from the fact, as pointed out  by  counsel,  that the Lists contain  as  many  as  209 matters  which  are couched in careful and  elaborate  words with  inclusive and excluding language in the case of  some, which has made the Constitution, to use the words of  Gwyer, C.J.,  in  In  re the C.P. Berar Act  No.  XIV  of  1938,(1) "unique among federal constitutions in the length and detail of   its  legislative  Lists".   In  the  layout   of   such elaborately  worded matters in the Lists and in the  context of  Art. 246(1), the residuary power contained in  Art.  248 and  entry 97, List I must be construed as meaning power  in respect of matters not enumerated in any of the three Lists. Such  a  residuary power cannot,  therefore,  be  ordinarily claimed  in respect of a matter already dealt with under  an Article or an entry in any one of the three Lists. (1) [1939] F.C.R. 18, at 38. 80 Principles of interpretating constitutional provisions, when conflicts  between legislative bodies with  separate  powers entrusted  to  them  arise are  well-settled  and  need  not therefore  be  here repeated.  Two of  them,  however,  bear repetition, for, they have a direct bearing on what we-  are

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called  upon in this appear to decide.  The first  one  laid down in Att.-Genl. for New South Wales v. Brewery  Employees Union(1) is that although the words of a constitution are to be  interpreted  in the same way as courts  interpret  other Statutes  it has to be borne in mind, while doing  so,  that what  is  interpreted is a constitution, a  mechanism  under which laws are to be made and not an Act which declares what that  law is to be.  This is specially so in the case  of  a federal  constitution,  with  its nicely  drawn  balance  of jurisdictions.   Thus,  a broad and  liberal  spirit  should inspire  those on whom the duty to- interpret falls.   Where the  language is explicit, it has to be given effect to;  it cannot be unduly stretched so that it is distorted to supply any supposed error or omission.  The other is, to quote  the language of Att.-Genl. for Ontario v. Att.-Genl. for  Canada (  2 ) cited with approval in In re the Central Provinces  & Berar  Act XIV of 1 93 8 (3) "if the text is  explicit,  the text  is  conclusive, alike in what it directs and  what  it forbids".  if the text is ambiguous, i.e., where  the  words establishing  two mutually exclusive jurisdictions are  wide enough  to bring a particular power within either,  recourse must  be had to the context and the scheme of the Act.   The presumption,  unless there is anything to the  contrary,  is that the power is not withheld or that it does not exist  at all; is it there in some quarter. To  ascertain where it is, it becomes necessary at the  very threshold  to know the nature of the impugned tax.  The  Act is designated by its first section-the Wealth Tax Act, 1957. Though  it is the substance and not the form or  designation which  matters,  the  Act was passed,  as  conceded  by  Mr. Setalvad, in exercise of the power contained in Art.  246(1) read  with  entry  86  of List I. Under  sec.  3,  what  was originally  charged was the capital value of the net  wealth of  an assessee, such net wealth having to be arrived at  by taking  into  consideration the total assets  excluding  the agricultural  land held by him as defined by sec.  2(e)  and sec. 2(m).  The fact that it is the capital value of the net wealth,  computed after deducting from the gross wealth  the debts  and liabilities of the assessee or the fact  that  it excluded  agricultural  land from out of the  total  assets, prima  facie, did not render the tax anything else than  the wealth  tax as the Parliament legislatively declared  it  to be.   A  legislature may, either as a matter  of  policy  or because  its  power  is a restricted  one,  exclude  or  not include within the ambit of a tax, which it enacts,  certain assets and may (1)   [1908] 6 C. L. R. 469, 611.    (2) [1912] A.C. 571. (3)  [1939] F.C.R. 18, 31 81 tax  the  rest.   It may also decide that  in  fairness  and justice to  the assessee the tax shall be imposed not on the gross  amount  but  on  the  net  amount  arrived  at  after deducting  his debts and liabilities.  That fact by,  itself would not mean that it is a tax any the different from  what the Legislature itself declares it to be.  Fortunately,.  we do  not  have to consider in details the nature of  the  tax contemplated  by  entry  86 in List I  and  that  under  the impugned  Amending  Act  in the light  of  works  on  Public Finance  and other allied subjects, as the Act has  no  more than  one occasion been upheld by this Court as one  falling under  entry  86  of  List I. Even  counsel  for  the  Union conceded that the Act as originally passed in 1957 was a tax falling  under that entry.  Since, however, the question  as to  the nature of a tax on the capital value of  assets  was debated  at one stage of the hearing of the appeal,  we  may

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briefly  set out the views of some of the writers on  public finance brought to our notice. Entry  86 in List I, as aforesaid, deals with a tax  on  the capital value of the assets, exclusive of agricultural  land of an individual, Hindu Undivided Family or a company.   Tax on  the  capital  of  a company,  Which  is  the  other  tax mentioned  there, is left out from consideration as  we  are not concerned with such a tax for the present.  The question is,  whether the tax imposed under the Wealth Tax Act,  1957 is  a tax on the capital value of the assets ? .The  tax  is imposed  on  the net wealth (sec. 3), which means  value  of assets,  an assessee holds on the valuation date  (sec.  4). The  net wealth is arrived at by computing the value in  the manner provided in the Act and deducting therefrom all debts and liabilities.  The tax is one on the capital value of the total assets and though each asset is valued separately, the tax  is  assessed  on the value of all  the  assets  (except agricultural land) as a whole.  It was, however, said their, the  tax levied under the Act is different from the  tax  on the capital value of the assets as contemplated by entry  86 in List I for two reasons; (a) that it does not take in  all ,the  assets inasmuch as it excludes agricultural land,  and (b)  that it computes net wealth by deducting the debts  and liabilities  of  the  assessee.   The  fallacy  in  such  an argument lies in the confusion between the basis of the  tax and  its  incidence.  The basis of the tax  is  the  capital value of the assets except agricultural land.   Agricultural land  had  to  be excepted from the tax  by  reason  of  the restricted  legislative  power  granted in  respect  of  the subjectmatter  in  entry 86.  The power in respect  of  that subject-matter  in  its turn was restricted  by  a  definite policy  in  distributing  power under which  the,  field  of legislation  in  agriculture was left to the States  as  was also the case under the Government of India Act, 1935.   The exclusion  of agricultural land from entry 86 would’ not  by itself,  therefore,  mean  that the tax is not  one  on  the capital value of assets.  In determining the incidence,  the legislature may, 82 as  well take into account various factors such as  fairness to the assessee and tax the capital value of his net  wealth by allowing deduction of his debts and liabilities from  the gross. value.  That again would not change the character  of the  tax.   Prof.  Nicholas Kaldor, who is regarded  as  the person on whose recommendations in his Report on Indian  Tax Reform,  1956  the wealth tax was imposed,  himself  thought that   the  tax  fell  under  entry  86  in  List   I.   His recommendation  was that on the grounds of both  equity  and administrative efficiency, the tax should be  comprehensive, i.e.,  ,extending to all forms of property, but that such  a tax which would ,include agricultural land would necessitate a constitutional amendment.  He would not have stated so, if he  thought the tax, he was suggesting, did not  fall  under entry  86 in List I.(1) According to Tanabe, the  term  "Net 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, in that it is not directly  ,on the  property  and unlike taxes, such as  death  duties  and capital  levy,  it  takes  into  consideration  the  taxable capacity  of  the  assessee  by  deducting  his  debts   and liabilities  from the gross value of his assets.   The  tax, therefore, is on the person of the assessee as I against the property  tax  which  is  imposed  on  the  property  itself directly(2).  In Sweden also, where the wealth tax has  been a  ’feature of the tax structure, taxable wealth is  defined

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as the capital ’value of an assessee’s assets at the end  of his  income year to the extent that that value  exceeds  the capital value of his debts(3).  The basis of the wealth  tax thus is the capital value of the assets held by an  assessee on the relevant-valuation date.  The fact that a  particular tax  excludes one or more of the assets or allows  from  its incidence certain deductions, such as debts and liabilities, pertain to the field of computation and not the basis of the tax  which is the capital value of assets.  Indeed,  in  all cases which have so ’far come up before this Court or before the High Courts, it was never the contention of the Union of India that the Wealth Tax Act did not fall under entry 86 in List I. In S. C. Nawn v. Wealth Tax Officer (4) an order of  assess- ment and penalty, and notices of demand for the recovery  of the tax under the Act were challenged on three grounds;  (i) that the tax was chargeable only on the accretion of  wealth during the financial year, i.e., on the wealth which accrued during the accounting year (ii) that it could not have  been the  intention  of Parliament to charge the same  assets  or wealth year after year, and (1) Prof Kaldor, Report on Indian Tax Reform, (1956), p. 26. (2) Richard M. bird and Oilver Oldman, Readings on  Taxation in Developing countries, p. 281. (3) William Bames, world Tax series, Taxation in Sweden,  p. 617. (4) [1969] 1 S.C.R. 108, 83 (iii)that  since  the  "net wealth" as defined  by  the  Act included  non-agricultural lands and buildings and entry  49 in  List  II reserved the power to impose tax on  lands  and buildings  to the States, the tax suffered from  legislative incompetence.  This Court rejected all the three contentions and  held that s. 3 of the Act charged the capital value  of net wealth on the corresponding valuation date, and was  not on  accretion of wealth only during the accounting year  and since  the  last  valuation date, i.e. that it  was  not  on accrual  basis;  that the Constitution did not  contain  any inhibition  against  the same subject-matter  being  charged from  year to year, that the tax was imposed under entry  86 in  List  I.  that it was not a tax directly  on  lands  and buildings as it was on the capital value of the assets of an assessee  on  the valuation date and not  on  the  different components of those assets, that that being so, it was a tax different from the one which could be imposed under entry 49 of List II, and therefore, there was no entrenchment on  the States  , power to levy a tax on lands and  buildings  under that entry. It is true that counsel appearing for the petitioner in that case  accepted the position that the subject of  the  Wealth Tax  Act  fell  within entry 86 of List  I  because  such  a position was assumed in an earlier decision of this Court in Banarsi Das v. Wealth Tax Officer(1) and therefore, confined his challenge to the ground of encroachment on States’ power under  entry 49 of List II.  But the following passage  from the report at page 111 shows that the Court agreed with  the position  accepted  by counsel and held  that  the  subject- matter of the Act fell under entry 86 of List I :               "Tax  on  lands  and  buildings  is   directly               imposed  on  lands and buildings and  bears  a               definite  relation to it.  Tax on the  capital               value of assets bears no definite relation  to               lands and buildings which may form a component               to  the  total  assets of  the  assessee.   By               legislation  in exercise of power under  entry

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             86 of List I tax is contemplated to be  levied               on  the value of the assets.  For the  purpose               of  levying tax under entry 49 in 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  support of the view that the subject-matter of  the  Act fell  under  entry  86  of List I  and  that  there  was  no overlapping  for  conflict between such a tax  and  the  one under entry (1)  56 I.T.R. 224. 84 49 of List II, the Court cited three decisions in which  the High Courts of Kerala, Orissa and Mysore had also taken  the same view. (see Khan Bahadur C. K. Mammad Devi v. Wealth-Tax Officer(1), V. B. Narayana Murthy v. Commissioner of Wealth- Tax(2)  and Sri Krishna Rao L. Balekai v.  Third  Wealth-Tax Officer(3). In Assistant Commissioner of Urban Land Tax v. Buckingham  & Carnatic Co. Ltd. (4 ) the same question was raised,  though in   reverse  order.  The challenge was to the Madras  Urban Land  Tax  Act, 1966 by which a tax was imposed at the  rate of 0.4% on the market value of urban land.  The Madras  High Court  upheld  the  legislative competence  of  the.   State Legislature to enact the Act, but held it to be violative of Arts.  14  and (19) (1) (f).  In the appeal  to  this  Court against that judgment, the contention was that the  impugned Act fell under entry 86 of List I and not under entry 49  of List II.  Ramaswami, J., who spoke for the Bench, which  had on  it  both Shah, J. (as be then was) and Mitter,  J.,  who were  also  parties to the earlier  judgment,  rejected  the contention  holding that in pith and substance the  impugned Act,  in imposing the tax on urban land at a  percentage  of the market value, fell within entry 49 and did not  entrench upon  the field of legislation of entry 86, List I. What  is important for the present appeal is that he held that  there was  no conflict between entry 86 of List I and entry 49  of List  II  inasmuch as the basis of the tax  under  entry  86 would  be the principle of aggregation and the tax would  be imposed  on  the totality of the net capital  value  of  all assets,  while  entry 49 in List II contemplated a  levy  on lands and buildings or both as units.  He also held that  in a  tax  levied  under  entry  49  of  List  II,  the  Madras Legislature,  by the amplitude of power in that  entry,  was competent  to  levy  it on the capital value  of  lands  and buildings,  but because that could also be done under  entry 86   of  List  I  in  respect  of  non-agricultural   lands, overlapping would not for that reason alone arise.  "The two taxes", observed the learned Judge, "are entirely  different in  their  basic  concept and  fall  on  different  subject- matters".   The differentiation between the two powers  thus lay  in  the aggregation being the basis of  the  tax  under entry  86 of List I, which made the two  taxes  conceptually different  and distinguishable both in their  incidence  and the  subject-matter of their burden.  Both the  legislatures can  impose  a  tax on the capital  value  of  the  relevant property  but  they  are,  as held  by  the  learned  Judge, conceptually  different.  In Prithvi Cotton Mills v.  Broach Borough Municipality(5), it was held that after S. C. Nawn’s case(6),  where the respective ambits of entry 86 of List  I

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and entry 49 of List II (1) 44 I.T.R. 277.         (2) 56 I. T. R. 298. (3) A.I.R. 1963 Mys.111.   (4)[1970] 1 S.C.R. 268. (5) [1970] 1 S.C.R. 388.   (6) [1969] 1 S.C.R. 108. 85 were  explained, it could no longer be questioned  that  the State Legislature, in that case of Gujarat, had power  under entry  49 of List II to levy a tax on the capital  value  of lands   and   buildings   and  sec.  99   of   the   Gujarat Municipalities Act was therefore valid. Gift  Tax  Officer v.  Nazareth(1)  challenged  Parliament’s competence  to pass the Gift Tax Act, XVIII of 1958, on  the ground that entry 49 read with entry 18 of List II  reserved the   power  to  tax  lands  and  buildings  to  the   State legislatures  and Parliament could not, therefore,  use  its residuary  power conferred by Art. 248 and entry 97 of  List I.  Hidayatullah,  C.J., speaking for the  Bench  relied  on Nawn’s  case(2) and drew, as was done in that decision,  the differentiation   between  a  tax  directly  on  lands   and buildings and a tax, conceptually different from such a tax, viz.,  on  the gift of property which might  in  some  cases include  lands and buildings.  "There is no tax  upon  lands and ,buildings as units of taxation", he observed.  "Indeed, the  lands  and buildings are valued to find out  the  total amount of the gift and what is taxed is the gift.  The value of the lands and buildings is only. the measure of the value of  the  gift.  A gift tax is thus not a tax  on  lands  and buildings  as such (which is a tax resting upon the  general ownership  of  land  and  building) but is  a  levy  upon  a particular use, which is transmission of title by gift.  The two  are not the same thing and the incidence of tax is  not the  same".  The validity of the Gift Tax Act was upheld  on the  ground  that since none of the three  lists  enumerated ’such  a  tax, there was no question  of  Parliament  having entrenched upon the State’s power under entries 18 and 49 of List  II.  The Act was held to have been enacted  under  the residuary  power vested in Parliament by Art. 248 read  with entry 97 in List I. The  aforesaid  analysis  of  the  three  decisions  clearly demonstrates that the discussion therein over the ambits  of the  Centre’s  power under entry 86 of List  I  and  States’ power  under entry 49 in List II was neither obiter not  was it on any assumption, and that in deciding upon the ambit of the respective powers, the Court made a distinction  between a  tax directly upon lands and buildings as units by  reason of  ownership in such lands and buildings (which would  fall under entry 49 of List II)’, and a tax on the capital  value of  the total assets barring agricultural land which  ,would fall  under  entry  8 6 of List I, which, in  the  words  of Ramaswami,  J.,  in the case of the Madras  Urban  Land  Tax Act(3)   was  Conceptually  different  by  reason   of   its characteristic of aggregation as held in Nawn’s case (2) and different  in its subject-matter as well as  incidence.   In all the three cases, the question directly arose on  account of the nature of the challenge (1) [1971] 1 S.C.R. 195. (2) [1969] 1 S.C.R. 108. (3) [1970] 1 S.C.R. 268. 86 involved  in  each of them as to the scope  of  power  under entry 86 of List I in the first case, under entry 49 of List II  in the second case and under entry 49 read with  entries 18  of  List II and 97 of" List I in the  third  case.   The Wealth-Tax  Act,  1957 has thus been clearly  held  to  fall under  Art.  246(1)  read with entry 86 of List  I  both  in

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Nawn’s case(1) and in the case of the Madras;Urban Land  Tax Act,  1966 (2) where, as already stated, the contention  was that  that  Act did not fall under entry 49 of List  II  but under entry 86 of List I. The enunciation of the concept  of aggregation  in  Nawn’s  case(1)  and  that  of   conceptual difference  in the Madras Urban Land Tax Act’s case (2)  and both adopted in the case of Gift Tax Act(3) for the  purpose of  delineating the respective powers of the Centre and  the States have decisively brought the Wealth Tax to fall  under entry 86 of List I. Such being the position, a valid tax on the capital value of assets  including agricultural land cannot be imposed  under the power under Art. 246(1) read with entry 86 in List I  as entry 86 in List I, which is the only entry authorising such a tax, restricts in express terms the power to, impose a tax on  the capital value of assets, exclusive  of  agricultural land, of individuals and companies. It  is  true that these entries are enumeration  simplex  of broad  categories.   A catena of cases have laid  down  that they shold be construed in a liberal spirit so as to include within each of them all that is subsidiary and incidental to the  power thereunder enumerated.  But an interpretation  of the content and scope of such power, however liberal, cannot be adopted to include within it anything which the entry  in positive terms excludes or restricts.  Therefore, when entry 86  was  framed, its restrictive terms made  it  clear  that though  Parliament would have the power to impose a  tax  on the capital value of assets, that power was circumscribed so as  not  to, include in the chargeable  assets  agricultural land. The  reason for such exclusion is to be found in  the  three Lists themselves and the scheme of distribution of fields of legislation  and taxation therein.  A perusal of  the  Lists indicates that the entire subject of agriculture,  including subjects  even remotely allied to it, has been left  to  the States.   Thus, entries 82, 86, 87 and 88 in List I  dealing with taxes on income, on capital value of assets, estate and succession  duties,  all  uniformally  exclude  agricultural land.   Likewise, entries 6 and 7 in List III  dealing  with transfer of property and contracts exclude from their fields of operation agricultural land.  On the other hand, entry 41 in .that List dealing with custody, management and  disposal of (1) [1969] 1 S.C.R.108,    (2) [1970]1 S.C.R. 268. (3) [1971] 1 S.C.R. 195. 87 evacuee  property  expressly  includes  agricultural,  land. That  is. for the obvious reason that, involving as it  does Indo-Pakistan,  relations, such a subject could not be  left exclusively  to the individual States.  Entries 14, 18,  28, 30,  45,  46,  47, 48 and 49, in List II,  which  deal  with agriculture   and  agricultural  land,  directly   or   even incidentally,  have  power relating to them to  the  States. Thus,  tax on agricultural income is left to the States  and cannot, therefore, be included in any Income-Tax Act enacted by  Parliament  under  entry  82 of List  I,  by  reason  of exclusion  from. that entry of agricultural income  although such  an  Act  is on the totality of  the  assessee’s  world income, and its inclusion in entry 46 of List II.  A similar result is achieved in the matter of a. tax on capital  value of  assets  under  entry 86 of List I by  the  exclusion  of agricultural land therefrom and its inclusion in entry 49 of List II.  It is now fairly well-settled that under entry  49 of  List  II  a State legislature can levy a  tax  on  lands including  agricultural land, on the basis of their  capital

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value.   Agricultural  lands are likewise  excluded  in  the matter  of estate and succession duties from the purview  of Parliament’s power.  Under entries 47 and 48 of List II, the power to impose those duties in respect of agricultural land has been entrusted to the States.  The reason for  excluding agricultural  land  from entry 86 of List I  is,  therefore, clear, viz., that under the scheme of distribution of powers underlying  the  three  Lists,  agriculture  with  all   its subsidiary  and  incidental aspects including  taxation  has been  left  to be dealt with by the States.  That  was  also done  in  the 1935 Act, for, entries 54, 55, 56 and  56A  of List I there excluded agricultural land from the purview  of income-tax,  tax on the capital value of assets,  duties  in respect  of succession to property and estate duty  leviable thereunder  by the Federal Legislature. and entries 41,  42, 43  and  43A  in  List II had allotted  that  power  to  the Provincial  Legislatures  so far as  agricultural  land  was concerned.   It  is clear that the Constitution  has  bodily taken and adopted that very principle of distribution  while framing the Lists. If the above analysis is correct and the power to levy a tax on the capital value of agricultural land is not to be found in  Art.  246(1) read with entry 86 of List I by  reason  of exclusion  therefrom of agricultural land, the question  is, where else is that power located, if at all it is vested  in Parliament ? On  that question, counsel for the Union urged  two  conten- tions.   The first was that it is independently  located  in Art.  248 read with entry 97 of List I. The second was  that that  Article is clearly akin to s. 91 of the British  North America Act 1867, and confers residuary powers on Parliament with respect to any matter not dealt with in List II or List III.   The argument, therefore, was that if a matter is  not in either of those two Lists, it 88 must necessarily be held to be with Parliament.   Obviously, it  ,cannot  be found in List III as that List  contains  no entry dealing with taxes.  Therefore, once it is found  that there  is no such ,power in List II, it must necessarily  be with  Parliament.   Since the power to tax  on  the  capital value  of all assets including agricultural land is  neither in entry 49 of List II nor in entry 86 of List I, the  power falls within the residuary power independently granted under Art. 248(2).  Mr. Setalvad conceded that Nawn’s ,case(1) and the two cases following it had been correctly decided in  so far as they hold that the Wealth Tax Act, as passed in 1957, fell under entry 86 of List I. But he urged that since a tax on  the capital value of assets including agricultural  land cannot  fall under that entry and the States obviously  have no  power  to  impose such a tax on the total  assets  of  a person under entry 49 of List II or any other entry in  that List,  the amending Act must fall under Art.  248(2)  and/or entry  97 of List I. Counsel for the respondent refuted  the correctness of both the contentions and .argued (a) that the power to impose a tax on the capital value of" ;agricultural land  is  reserved in entry 49 in List II, (b) that  the  ;- power to impose a tax on the capital value of assets held by a  person has been enumerated, mentioned and dealt  with  in entry  86  of List I, which in doing so  expressly  excludes agricultural  land from its ambit, and that that  being  so, Art. 248(2) providing residuary power cannot be construed to confer  a  power which, though conferred  under  a  specific entry,   has   been  deliberately,  under  the   scheme   of distribution of powers, excluded, and (c) ’that entry 86  of List  I lays down a restrictions which restriction  prevents

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imposition of such a tax including that on agricultural land  under any other entry including entry 97 of List I. Art. 248 by its first clause confers on Parliament exclusive power  to  make,  a  law with  respect  to  any  matter  not enumerated  in List III or List II and by its second  clause includes  in  such  power the power of imposing  a  tax  not mentioned  in  either of those Lists.  Entry 97  in  List  I which  sets out the field of legislation and taxation  under Art. 248 reads as follows               "Any other matter not enumerated in List II or               List  III including any tax not  mentioned  in               either of those Lists." The  argument  was that the amending Act which  deleted  the exclusion  of  agricultural land and thereby  included  such property within the sweep Of the wealth-tax is competent  by reason  of  the fact that the Power to impose a tax  on  the capital value of .all assets including agricultural land  is neither to be found in (1) [1969] 1 S.C.R. 108. 89 entry 86 of List I, nor in entry 49 of List II, nor in  List III, and therefore, it falls in entry 97 of List I by reason of  the  residuary  power conferred on  Parliament  by  Art. 248(2). Such a contention in our opinion is not acceptable.  As held in  Nawn’s  case(1)  and the two  cases  following  it,  the subject-matter  relating to a tax on the, aggregate  capital value  of all the assets of an assessee is located in  entry 86  of List I and granted to Parliament.  But, while  doing, so,  the  framers of the Constitution,  presumably  on  the, ground that the entire subject of agriculture, had, on their scheme  of  distribution of power, been  allotted  to  State Legislatures,  excluded  from the ambit of the  power  under entry 86 of List I 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 or restricted manner,  There  is  no warrant  for saying that there must be found vested  in  one single  authority  an absolute power to  legislate   several entries in List I, such as entries 9, 52, 53, 54, 62, 64 and 80,  which  confer on Parliament  restricted  power,  either because  the topics they deal with are distributed  beetween the  Central  Legislature  and  the  State  Legislatures  or because   it  was  thought  proper  to  confer  power   with restrictions.  Thus entry 9 of List I, which deals with  the head of preventive detention, confers power to make a law on that subject only on the grounds of defence, foreign affairs or  the  security  of India, and entry 3  in  List  III  for reasons connected with the security of a State,  maintenance of  order or maintenance of supplies and services  essential to  the  community.   The power to make  a  law  authorising preventive  detention is thus restricted to the six  reasons set  out  in the two entries and not for any  other  reason. The power having been so dealt with, it is impossible to say that the matter of preventive detention is not enumerated or that  that  which is excluded therefrom was intended  to  or must  fall  under  ’a provision or  an  entry  dealing  with residuary power.  If counsel for the Union were to be right, the  Union can claim the power to make a law for  preventive detention  on grounds other than those specified in the  two entries  on the ground that it has residuary power to do  so under Art. 248 and entry 97, List I. If that were so,  there was  no point at all in prescribing the reasons in  the  two entries  on which such a law can be enacted  by  Parliament. The object of providing residuary power was to confer  power

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only  in  respect  of a matter which  was  not  foreseen  or contemplated   then   and  which  by   reason   of   changed circumstances  has arisen and which could not  therefore  be dealt  with  when  the Lists were  framed.   To  accept  the interpretation suggested by counsel for the Union would mean that  though  the framers of the  Constitution  deliberately omitted the power with reference to agricultural land  while granting it in respect of the (1)  [1969] 1 S.C.R. 108.      (2) Lefroy, Canadian  Federal System (1913 ed.) p. 97.  L256 Sup, C.I/72 90 rest of the properties, they at the same time nullified that exclusion  by  providing  power  for  it  in  the  residuary provision.   Such  a contention cannot be accepted  for  the reason that no such intention can legitimately be attributed to the Constitution-makers, who clearly had in their minds a scheme of distribution of powers, under which the subject of agriculture including the power of taxation on  agricultural land,  both on income and on corpus, was handed over to  the States. Such  an interpretation on Art. 248 and entry 97 in  List  I finds  support in at least two precedents.  In  Subrahmanyan Chettier v. Muthuswami(1), the attack on the validity of the Madras Agriculturists Relief Act, 1938 on the ground that it fell  under the residuary power provided in sec. 104 of  the Government of India Act, 1935 and not under List II or  List III of the Seventh Schedule to that Act, and that therefore, the  Act  suffered  from lack of  competence  of  the  State Legislature, was turned down.  Suleiman, J., at page 212  of the report observed :               "But resort to that residuary power should  be               the very last refuge.  It is only when all the               categories  in the three lists are  absolutely               exhausted that one can think of falling  back,               upon a nondescript." (emphasis supplied). It is true That the Federal Court there was dealing with  s. 104  of the 1935 Constitution Act under which the  Governor- General  was authorised to empower either the Federal  or  a Provincial  Legislature to enact a law with respect  to  any matter  not enumerated in any of the lists, including a  tax not  mentioned  in any such List, and not with  a  provision such  as  Art.  248  or entry 97 in List  I.  But  the  only difference between the two is that instead of the  residuary power  being in the Governor-General, the  Constitution  has vested it in Parliament.  The two provisions are similar and bear  the same interpretation especially as the language  of Art. 248 closely follows that of sec. 104 of the 1935 Act. In Gift Tax Officer v. Nazareth(2) Hidayatullah, C.J., deal- ing  specifically  with entry 97 in List I, because  of  his conclusion  that  the  Gift Tax Act,  1958  fell  under  the residuary  field of legislature under that  entry,  analysed first  the scheme of distribution of power under Arts.  245, 246 and 248, and then the impact of the three lists on  such distribution.  Dealing with Art. 248 and entry 97 in List I, he  construed  them  at pp. 197 and 198  of  the  report  as follows :               "Then there is the declaration in Art. 248  of               the    residuary   powers   of    legislation.               Parliament has exclu- (1) [1940] F.C.R. 188. (2) [1971] 1 S.C.R. 195. 91               sive  power to make any law in respect to  any               matter  not enumerated in the Concurrent  List               or  State  List and this  power  includes  the               power  of  making any law imposing a  tax  not

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             mentioned in either of those lists.  For  this               purpose, and to avoid any doubts, an entry has               also  been included in the Union List  to  the               following effect-"               He then set out the entry and observed :               "The  entries must of-course receive  a  large               and  liberal  interpretation because  the  few               words of the entry are intended to confer vast               and plenary powers.  If, however, no entry  in               any of the three lists covers it, then it must               be regarded as a matter not enumerated in  any               of   the   three  lists.   Then   it   belongs               exclusively  to Parliament under entry  97  of               the Union List as a topic of legislation." It will be noticed that the learned Chief Justice  mentioned all  the  three lists in this passage while  describing  the scope  of  the residuary power of Parliament  although  both Art.  248 and entry 97 in List I refer to only Lists II  and III. The Constitution by Art. 246(1) has had already granted  ex- clusive  power of legislation and taxation to Parliament  in matters set out in entries 1 to 96 in List I. Any State  law entrenching  in its pith and substance upon a  Parliamentary Act would be invalid.  Having so provided in respect of List I,  the only matters left for legislation would be those  in Lists II and III and such of the matters not to be found  in those  two  lists.  The last, therefore, could only  be  the residuary matters in respect of which exclusive power had to be  granted to Parliament.  This must mean that a  field  of legislation  not dealt with in any of the three  lists  only could  be the subject-matter of residuary power  under  Art. 248.  Such a construction of Art. 248 is in consonance  with the construction given by the Federal Court to s. 104 of the Government of India Act, 1935, following which Art. 248  was framed  and also with the words of entry 97 in List  I.  The words in that entry, viz., "any other matter not  enumerated in List II or List III must mean any matter not being in the entries preceding if, that is, entries 1 to 96 in List I and any  matter  not enumerated in List II and  List  III.   The residuary  power  declared by, Art. 248, and  of  which  the field is defined in entry 97 of List I, must, therefore,  be the  power in respect of a field or category of  legislation not  to be found in any one of the three Lists.  Taxes  such as the Gift tax, the expenditure tax and the Annuity deposit scheme  are matters which are not to be found in any of  the three  lists,  and therefore, enactments in regard  to  them would fall, without doubt, under Art. 248 read with entry 97 of List I. 92 But,  can  it  be said that a tax on the  capital  value  of assets  including  agricultural land is one, such  tax,  not mentioned  in any of the three lists, and  therefore,  falls under entry 97 of List I?  When counsel for the Union opened his  case his contention was that since entry 86 in  List  I exclude   agricultural   land  therefrom,  that   field   of legislation  and tax must be said to be one  not  enumerated and  not  mentioned  in  that  List  and  being  a  tax   on aggregation.  conceptually different from one which  can  be levied  by the States under entry 49 in List II, it  is  not also  enumerated in List II, and therefore, that part of  it must be said to fall under the residuary entry 97. The answer to that contention depends on the  interpretation which entry 86 in List I bears.  In a distributive system of power.  whenever  a question @arises whether  a  statute  is within the power of the appropriate legislature, regard must

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be  had to its substance rather than its form.  Once  it  is found  that  there is power, it can be used by  the  Federal Legislature in as plenary a manner as if it is a power in  a unitary system, subject of course to the express limitations in  the  Constituition and to the necessary freedom  of  the States to exercise without interference the powers  reserved to  them.  [cf.   King v. Barter(1)].   As  stated  earlier, constitution-makers, while distributing powers, may grant  a particular  power either absolutely or  with  qualifications or  restrictions.  In the latter case, though the power  can be  acted  upon in as plenary a way as possible, it  can  be exercised  subject to restrictions imposed in regard to  it. (cf.  Att.-Gen. for the Dominion of Canada v. Att.  Gen. for the  Province  of  Alberta(2).  The fact  that  a  power  is conferred, 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,  and  therefore,  falls  under   the provision  dealing  with  the  residuary  matters.   If  the decision  in Nawn’s case(3) and the two decisions  following it, were to be adhered to as having been correctly  decided, the  tax  on  the capital value of  assets  of  an  assessee excluding that of agricultural land falls under entry 86  in List  I.  In  that view, Parliament must  be  said  to  have enacted  the  Wealth-Tax  Act,  1957  in  exercise  of   its exclusive power under Art. 246(1) read with that entry. Is it possible then to say that by deleting the exclusion of agricultural  land  by s. 24 of the Finance  Act.  1969  and thereby including agricultural land within the purview of s. 3  of the amended Act, the Act ceased to be the  Act  Passed under  entry  86 of List I or that it acquired  a  character different than it had, so that it ceased to fall under  Art. 246(1)  read with entry 86 of List I ? The answer has to  be in the negative.  The reason is (1) 6 C.D.R. 41 at 42.    (2) [1916] A.C. 588 at 595. (3) [1969] 1 S.C.R. 108. 93 that,  as  held in Nawn’s case(1), the Act  was  enacted  in pursuance  of and under entry 86 of List I, it being an  Act levying  a  tax on the aggregate capital value  of  all  the assets  of an assessee barring agricultural land.   It  was, therefore,  passed under Art. 246(1) on a matter  enumerated in  List  I  in respect of which  Parliament  had  exclusive power.   In deciding the question as to the provision  under which  it was enacted, the distinction between  the  subject matter  of the Act and the scope of power in respect  of  it has  to be observed.  The subject-matter of the Act  is,  as aforesaid, the capital value of the total assets; its  scope or field of operation is the capital value of all the assets excluding  agricultural land.  It is impossible to say  that the  exclusion of agricultural land in the entry splits  the matter  into two matters, the permissible and the  excluded. The  matter  is one, viz., the capital value of  all  assets except that the power in relation to it is restricted by the exclusion therefrom of one kind of asset.  Consequently,  it is  impossible  to  say  that there  are  two  matters,  one permissible  under  entry  86 in List I and  the  other  not enumerated  anywhere else and therefore falling  under  Art. 248  and/or  entry  97  in that List.  If  it  were  so,  as contended,  the  restriction  in  entry  86  in  regard   to agricultural  land had no meaning.  Such a contention  would mean  that ’though the draftsman excluded agricultural  land from  entry 86 of List I, his intention was to nullify  that exclusion by including that exclusion in the same breath  in the residuary field in Art. 248 and entry 97. But,  it was said that if the interpretation of  entries  86

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and,  97  in List I, we commend, were to be true,  it  would mean that neither Parliament nor the State Legislatures  can ever levy wealth-tax on the capital value of all the  assets including agricultural land held by an assessee.  It is true that  under  entry 86 of List I  Parliament  cannot  include agricultural  land  within the purview of  the  tax  imposed under that entry.  Nor can a State Legislature impose such a tax  under entry 49 in List II.  This does not mean  that  a tax on the capital value of agricultural land cannot at  all be imposed.  Such a power is contained in entry 49, List II. But there is nothing surprising in such a consequence,  for, even in the matter of income-tax, neither of them can impose that  tax on the entire income of an  assessee.   Parliament cannot do so because of the restriction in entry 82 in  List I;  the.  States cannot impose such a tax as their power  is restricted  to  agricultural income only under entry  46  in List II.  That is also the case in the matter of  succession and  estate duties.  The power of both the  Legislatures  to make  a  law or impose a tax on any one of  the  matters  in these  entries  is  restricted,  though  within  the   field allocated  to each of them, each has a plenary  power.   The restriction  to such a power may, as already stated,  be  on account of distribution of power, in respect of a particular field of legislation between the Union and (1)  [1969] 1 S.C.R.108. 94 the  State  Legislatures or because the topic  or  field  of legislation  is itself hedged by conditions for  reasons  of policy.   But  that does not mean that the excluded  or  the restricted  field,  in  respect of  which  either  both  the Legislatures have no power or one or the other has no power, can be said to fall under the provision providing  residuary power.   Once  a  topic  or  a  field  of  legislation   if. enumerated  and dealt with in any one of the entries in  one of  the  Lists,  whether the topic is  in  its  entirety  or restricted, there is no question of the residuary  provision being  resorted  to on the ground that it  operates  on  the remainder.   Such  a construction would either  nullify  the intention  to confer power only on the partial field of  the topic  of  legislation  in question or  set  at  naught  the delicate  system of distribution of power  effected  through the three elaborately worded Lists. Counsel for the Union in his opening address had argued  the appeal on the footing that the impugned amending Act was  no encroachment on the field reserved to the States under entry 49  of  List II, as the nature of the tax is  such  that  it could not be levied by any law passed under that entry.  His argument  then  was that the tax fell  squarely  within  the Power  of Parliament by the Combined effect on entry  86  in List  I and the residuary power in Art. 248(2) and entry  97 in List I. In his reply, however, he enlarged .his  argument and  urged that once it was found that the impugned Act  did not entrench on entry 49 in List II, Parliament could impose it independently of entry 86 in List I under Art. 248.   The argument  was  that Art. 248 conferred  an  independent  and distinct  power on Parliament in all matters not  enumerated in  Lists  II  and 111.  Since List III did  not  deal  with taxes,  the only question was whether the impugned tax  fell under any entry in the State List.  The contention was  that Art. 248 was in pari materia with s. 91 of the British North America  Act,  1867, and therefore, the proper  inquiry,  as under that Act, would be whether the impugned tax fell under List  II and that if it did not, the power must  necessarily be  held  to  reside  in Parliament.   In  support  of  this contention   be  emphasised  the  words,   "Parliament   has

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exclusive  power to make any law with respect to any  matter not  enumerated  in the Concurrent List or State  List",  in Art. 248, and argued that List III not containing any  entry with  respect  to  any  tax,  only  List  II  was  relevant. Therefore, in dealing with a question such as the one before us,  the  proper inquiry would be whether the  impugned  tax entrenched  upon  entry 49 in List II, that being  the  only relevant  entry, and if it were found that it did  not,  the power must be said to reside in Parliament, in other  words, that  which  is  not  in List II must be  said  to  be  with Parliament.   On  the assumption that Art. 248 was  in  pari materia  with  the  first  part of s.  91  of  the  Canadian Constitution Act, he relied on certain 95 passages from Lefroy’s Canada’s Federal System (1913 ed.) at p. 120, on Russel v. The Queen(1) and the observations  made by the Federal Court in connection with that Constitution in Subrahmanyan v. Muttuswami(2) . He next argued that entry 49 of List II gave power to the States to impose a tax on lands and  buildings; that power was to impose a tax  directly  on lands  and buildings as units of taxation by reason  of  the ownership of an assessee in such lands and buildings.   Such a  tax  would be different in  concept,  subject-matter  and incidence from the impugned tax which was one on the capital value  of the totality of assets of an assessee as  held  in Nawn’s case (3) . Consequently, such a tax, which the States could not levy under entry 49 in List II, cannot be said  to entrench  on that power.  That being so, the power  to  levy the  impugned tax, including on agricultural land,  must  be held to be under Art. 248. The question is; does the Canadian constitution Act  furnish an   apposite   analogy  and  can  the  decisions   on   the interpretation of ss. 91 and 92 of that Act be relied on for the  purpose of interpreting the scheme of  distribution  of legislative power in our Constitution ? The  structure  of s. 91 of the Canada Act falls  into  four parts.   The  first  in the initial  part  which  says  that Parliament  shall  have power to make laws "for  the  Peace, Order,  and  good Government of Canada" in relation  to  all matters  not coming within the classes of subjects  assigned exclusively  to  the Provincial Legislatures.   Lord  Watson speaking  for the Privy Council in Att.-Gen. for Ontario  v. Att.-Gen.  for  the  Dominion (4)  thought  that  the  power contained  in  this  part was supplementary  to  the  powers contained  in  the  next part  which  sets  out  twenty-nine classes or heads of subjects.  The theory of the first  part supplementing the power on the enumerated subjects did  not, however,  commend  itself  to Lord  Birkenhead  in  Canadian Pacific  Wine  Co.  Ltd. v. Tulev(5) and to  Lord  Atkin  in Proprietary  Articles  Trade Association  v.  Att.-Gen.  for Canada(6), where both of them held in categorical words that it  was the first part of the section which conferred  power on Parliament and that the enumerated subjects in the second part merely illustrated that cetrain subjects fell under the general description, viz., "Peace, Order and good Government of Canada".  The second part contains the declaration of the exclusive  power of Parliament in respect of the classes  of subjects there enumerated.  This declaration, however, in no way  affects the generality of power initially  assigned  to Parliament,  or its exclusive power to make laws for  peace, order  and  good  government.   The  third  part  enumerates twenty-nine classes (1) [1881] 7 App. Cas. 829 at 836. (2) [1940] F.C.R. 188 (3) [1969] S.C.R.108.

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(4) [1896] A.C. 348. (5) [1921] 2 A. C. 417. (6) [1931] A.C. 310. 96 of  heads of subjects.  The fourth part is contained in  the last  paragraph which again contains a declaration that  any matter  coming  within any class of subjects  enumerated  in this section shall not be deemed to come within the class of matters  of  a  local or private  nature  comprised  in  the enumerated  classes of subjects assigned exclusively to  the Provincial  Legislature in s. 92.  The result is that  if  a matter falls within any of the twenty-nine heads  enumerated in  the third part of the section, it is deemed not to  fall within  any  class  of matter  assigned  to  the  Provincial Legislatures.   The  power assigned to the Dominion  in  the initial  part  of  S.  91, viz.,  with  respect  to  matters concerning  peace, order and good government and head 16  in sec.  92, viz., "generally all matters of a merely local  or private  nature  in  the Province"  clearly  show  that  the distributive  system  in  the Canada Act is  what  has  been termed  "interlacing"  and not disjunctive,  where  the  two would have independent powers assigned respectively to  them as in our Constitution.  Such an interlacing is further seen from  head 29 in the enumerated subjects in S. 91, by  which power  is given to the Dominion in respect of such  subjects as are expressly excepted in the, enumeration of the classes of   subjects   assigned  exclusively  to   the   Provincial Legislatures. It   was  on  the  basis  of  such  a  peculiar  scheme   of distribution of powers that in Russel v. Queen(1), the Privy Council,  following  its earlier decision  in  the  Citizens Insurance  Company  v. Parsons(2), stated  that  whenever  a question  arose with regard to the respective powers of  the legislatures  of the Dominion and the Provinces,  the  first question  to be determined would be whether the  statute  in question  fell  within  any  of  the  classes  of   subjects enumerated  in  s.  92.  If it did, then  only  the  further question would arise whether the subject of the Act did  not fall within one of the enumerated subjects in s. 91, and  so did  not still belong to, the Dominion Parliament.   But  if the  Act did not fall within any of the classes of  subjects assigned  exclusively to the Provinces by s. 92, no  further question  would  remain, and the Act would fall  within  the general  words of the first part of s. 91.  Since  then  the Privy  Council have, on several occasions, while  construing ss. 91 and 92, made shifts in emphasis.  But amidst all  the variations   there   emerges  a   code   of   interpretation crystallized  into four propositions as summarised  by  Lord Tomlin  in  Att.-Gen. for Canada v.  Att.-Gen.  for  British Columbia(3).   These were approved in In re  the  Regulation and  Control of Aeronautics in I Canada (4), lit  re  Silver Bros.  Ltd.(5), and finally, in Canadian (1) [1881] 7 A.C. 829 at 836. (2)  [1881-1882] 7 App.  Cas.96. (3)  [1930] A.C. 111. (4) [1932] A.C. 54. (5)  [1932] A.C.514. 97 Pacific  Railway Co. v. Att.-Gen. for  British  Columbia(1), and’  therefore,  can  fairly be  said  to  be  well-settled principles  of interpretation of these two sections.   These are               (1) The legislation of the Parliament, so long               as it strictly relates to. subjects  expressly               enumerated   in   s.  91,  is   of   paramount

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             authority,   even  though  it  trenches   upon               matters    assigned    to    the    Provincial               Legislatures by s. 92.               (2)    The   general  power   of   legislation               conferred  on  the  Parliament  by  s.  91  in               supplement of the power to legislate upon  the               subjects expressly enumerated must be strictly               confined to such matters as are unquestionably               of national interest and importance.               (3)  It is within Parliament’s  competence  to               provide  for matters which,  though  otherwise               within    the   competence    of    Provincial               legislatures,  are necessarily  incidental  to               effective  legislation by it upon one  of  the               enumerated subjects in s. 91; and               (4)  There can be a domain in which Provincial               and .Dominion legislation may overlap, that is               to  say,  where there is  overlapping  between               classes  of subjects or heads  of  legislative               power in which case neither legislation  would               be  ultra vires if the field is clear, but  if               the   field   is  not  clear   and   the   two               legislations  meet, the  Dominion  legislation               must prevail (2). Providing  such  a distribution of powers in  general  terms had’ a two-fold object, (a) to avoid inflexibility, which it was apprehended elaborate lists might result in, and (b) not to   have  any  power  reserved  or  withheld.   The   clear objective, while framing the Constitution Act, was to  model it   on   the  lines  of  the  British   Constitution   with Parliamentary  supremacy as one of its  principal  features, and therefore, to leave no power uncovered by ss. 91 and 92. The preamble of the Act itself declares that its object  was to  give  a Canada "a Constitution similar in  principle  to that of the United Kingdom".  That and the peculiar language in ss. 91 and 92 led the Privy Council in the Att.-Gen.  for Ontario  v.  Aft.-Gen.  for Canada(3) to  observe  that  the powers distributed between the Dominion on the one hand, and the Provinces, on the other, covered the whole area of self- government  within  the  whole area of Canada  and  that  it "would be subversive of the (1)  [1950] A.C. 122. (2)    Varcoe, F. P., The Distribution of Legislative  Power in Canada (1954 ed.),pp. 73-78. (3)   [1912] A. C. 571. 98 whole  scheme and policy of the Act to assume that any  part of  internal self-government is withheld from  Canada".   As Lefroy .,.observes (1) :               "The scheme of our Federation Act was to  have               no  reserved power; but that there should  be,               in Canada, the same kind of legislative  power               as there is in the British parliament, so  far               as that was consistent with the  confederation               of  the  provinces  and  our  position  as   a               Dominion within the Empire." Since the British Parliament was the model, pre-eminence was firstly given to the laws made by Parliament, and  secondly, provision was made that all powers not expressly assigned to provincial  legislatures  were to be treated  as  vested  in Parliament. (Valin v.Langlots(2). It  is thus clear that there is no similarity either in  the content  .or the scheme between the distributive  system  in the Canadian Act and that in our Constitution.  There is  no declaration  in  ’general  and  unspecified  terms  in   our

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Constitution as there is in the first part of S. 91, nor  is there the interlacing of powers brought about by expressions such as "for the Peace, Order and good Government of Canada" and  "in  relation  to all Matters  not  coming  within  the Classes of Subjects by this Act assigned exclusively to  the Legislatures  of the Provinces" as in s. 91.  The powers  of the Union Legislature and the State Legislatures under  Art. 246  and  the field of legislation delineated in  the  three Lists are well-defined in elaborate and ’precise terms,  and are disjunctive and independent.  The State Legislatures are not  the delegates of, nor do they derive their powers  from the  Union  Legislature, and enjoy within  their  fields  of legislation plenary powers including the power to  legislate on  all  matters incidental and subsidiary  to  the  matters assigned   to  them.   The  question  of   pre-eminence   of Parliamentary  legislation  by reason  of  the  non-obstante clause  in Art. 246 arises only where there is  over-lapping of jurisdictions or the law in question is in respect of any of the matters in List III.  For the rest, the power of  the States is as exclusive in their field as it is of Parliament within  its allotted field.  The contention that  the  first part  of s. 91 of the Canadian Act is analogous to Art.  248 and its second part to Art. 246(1), and therefore, decisions on  s.  91 and s. 92 of that Act apply for  the  purpose  of construing the distribution of powers in our Constitution is unacceptable. It  is  true that in Subrahmanyan  v.  Muthuswami(3)  Gwyer. C.J., at p. 200 of the report did speak of the Canadian  Act as  "containing  analogous  provisions and  of  the  British Parliament (1)   at p. 95.             (2) [1879] 5 App.  Cas. 155. (3)  [1940] F.C.R. 188. 99 having  those provisions in mind when it enacted s.  100  of the Government of India Act, 1935.  But it is clear from the context that those observations were made in connection with overlapping of legislative powers and the preeminence of the Central law in that contingency, and not in relation to  the distributive  schemes  in  the  two  Acts.   That  decision, therefore, is no authority for the proposition that there is any analogy between s.- 100 of the 1935 Act and s. 91 and s. 92  of the Canadian Act, 1867.  Indeed, at page 200  of  the report,  the learned Chief Justice talked of "the two  lists of  mutually  exclusive  powers"  as  contrasted  with   the Canadian "interlacing" of powers.  That was because none  of the parties concerned with the enactment of the 1935 Act had expressed any desire, as was the case with the Canadian Act, to have a "Constitution similar in principle to that of  the United  Kingdom".   The  speech of  Sir  Samual  Hoare,  who piloted  the Constitution Bill of 1935 in the Parliament  on the draft section corresponding to s. 104 clearly shows that there  was  acute controversy amongst the parties  in  India regarding  the distribution of legislative powers.   It  was because of that controversy that three Lists had to be  made "each  as exhaustive as we could make it, so exhaustive,  as to  leave  little or nothing for the residuary  field",  and therefore,  "all  that is likely to go  into  the  residuary field  are  perhaps some quite unknown spheres  of  activity that  neither my Hon.  Friend nor I can contemplate  at  the moment".(1) As  a  matter of fact, Gwyer, C.J., had, only  a  year  ago, uttered  a  warning  against  applying  decisions  on  other Constitutions  to’ the provisions of the 1935 India Act,  in the following words               ".  .  there  are few subjects  on  which  the

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             decisions  of  other  Courts  require  to   be               treated  with  greater caution  than  that  of               federal  and  provincial powers, for,  in  the               last  analysis the decision must  depend  upon               the words of the Constitution which the  Court               is    interpreting;   and   since    no    two               Constitutions  are in identical terms,  it  is               extremely unsafe to assume that a decision  on               one   of   them   can   be   applied   without               qualification to another.  This may be so even               where  the words or expressions used  are  the               same in both cases; for a word or a phrase may               take  a  colour  from  its  context  or   bear               different senses accordingly." In The Province of Madras v. M/s.  Boddu Paidanna &  Sons(2) the  Federal Court, while discussing the powers of  taxation of the Centre and the Provinces in the matter of excise  and sales Tax, (1)   Cited in N. Rajagopala Aiyanager, Goverment  of  India Act, 1935, at p. 133. (2)  1942 F.C.R. 90 at 105. 100 brought  out  the  difference between  the  distribution  of powers in the Canadian and the Indian Acts :-               "It  is natural enough, when  considering  the               ambit  of an express power in relation  to  an               unspecified  residuary power to give  a  broad               interpretation to the former at the expense.of               the  latter; and this indeed is the  principle               upon which the Judicial Committee have for the               most  part  interpreted ss. 91 and 92  of  the               British North America Act.  The case, however,               is  different  where, as in  the  Indian  Act,               there  are  two  complementary  powers,   each               expressed in precise and definite terms." In  Manikkasundara Bhattar v. Nayudu(1), the  Federal  Court once again uttered similar words of caution, observing  that in  view of s. 104 of the 1935 Act expresssly providing  for residuary  power,  it would be impossible to  apply  to  the Indian  Act  the  Canadian principle evolved  by  the  Privy Council  that one has only to look into the Provincial  List for  power, which if it is absent there must necessarily  be attributed to the general pool of power in the Dominion:               "In the Canadian Constitution Act there is  no               provision  in respect of omitted  subjects  of               legislation.  Every subject must be held to be               either  within the legislative powers  of  the               Dominion  Parliament  or  of  the   Provincial               Legislatures.  In the Indian Constitution,  s.               104 has been inserted for the very purpose  of               enabling legislation to be enacted in  respect               of  subjects omitted from the three  Lists  in               the seventh Schedule." These  pronouncements clearly point out (a)  the  difference between  the two systems of distribution of power,  and  (b) the   danger   of  applying  Canadian  precedents   to   our Constitution.    Since  the  present  Constitution  is,   as repeatedly  stated by this Court, in many ways based on  the provisions  of the 1935 Act, particularly in the  matter  of distribution of legislative powers, what has been said about that Act must equally apply to the Constitution. We  may now turn to Art. 248.  There can be no two  opinions that  that Article deals with residuary power and that  that power is an independent power conferred by that Article  and not  by entry 97 in List I. It is well settled that  entries

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in the three Lists do not by themselves confer power.  They, however, delineate the fields in which the respective powers are conferred on the Legislatures by the relevant Article of the Constitution. The  controversy  is  about the extent of  the  power  under Art.248.Counsel  for the Union availed himself of the,  fact that the (1) [1946] F.C.R. 67, 87-88. 101 Article  speaks  of the Parliament’s  exclusive  power  with respect to any matter not enumerated in List III or List  II and  to impose by law a tax not mentioned in either  of  the two  Lists.  True it is that the Article does not  speak  of List  I;  in other words, it does not say in  express  terms that that power is only in respect of matters and taxes  not enumerated or mentioned in any one of the three Lists.   But when  one talks about residuary power, the question at  once arises : what it is residuary of ? The marginal note to  the Article  states  that the power conferred is  residuary.   A marginal note can serve as guidance when there is  ambiguity or  doubt  about  the true meaning  of  the  provision.   As earlier stated, Art. 246(1) having given exclusive power  to the  Union Legislature, surely the power in respect  of  the very matters therein provided for could not have been  one-- again  granted  by  Art.  248.   Obviously  ,therefore,  the residuary power conferred by Art. 248 means power in respect of  matters not dealt with in Art. 246, and not to be  found in any of the three, Lists. In  this connection, Mr. Setalvad himself pointed out to  us the debate in the Constituent Assembly on entry 91 in List I (equivalent   to  the  present  entry  97  in  List  I)   as instructive  and  showing the background in  which  and  the purpose  for which that entry was inserted in List  I.  When the entry came before the House, Sardar Hukum Singh and  Mr. Naziruddin Ahmed thought that if Art. 231 (equivalent to the present  Art.  248) meant that all powers not  contained  in List II and III vested in the Centre, enumeration of  powers in List I as also the last entry 91 therein were  altogether redundant.   Sardar  Hukum Singh pointed out also  that  the word  "other" preceding the word "matter" in that entry  was unnecessary.   "If every subject which is not  mentioned  in Lists  11  and  III is to go to the  Centre,"  observed  Mr. Naziruddin Ahmad, "what is the point of enumerating  entries 1  to 90 in List I". This construction was akin to  the  one urged  before us by Mr. Setalvad, viz., that one  need  only turn to List II, and if the power in question is not  there, the power must be assumed to be with the Centre by reason of Art.  248.   The point urged by Mr. Naziruddin was  at  once demurred by Prof.  Shibban Lal Saksena who pointed out  that Mr.  Naziruddin’s  point  of  view  was  incorrect  as  "Dr. Ambedkar has said that if there is anything left, it will be included  in  entry  91."  That must mean  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.  Dr. Ambedkar  then explained  the  purpose for which entry 91 was  inserted  in List I, which, he said, was to define the limit and scope of List  I. That, he pointed out, could have been  achieved  in two ways; (i) by having entry 91 102 defining  the scope of List I, or (2) by defining the  scope of Lists 11 and III by adding in entry 91 the words : "anything not included in List II or List III" He added that when Art. 223 (equivalent to the present  Art. 248)  provided  that  Parliament had  exclusive  power  with

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respect to any matter not enumerated in List III or List II, it  would  theoretically  be unnecessary  to  enumerate  the categories 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 legislative powers of  the  Centre.   They wanted  to  know  categorically  and particularly; they were not going to be satisfied by  saying that  the Centre will have only residuary powers.   Just  to allay the fears of the 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 undergo this labour, notwithstanding the fact that we  had article 223." A tittle later, he  further  explained that  the Government of India Act, 1935, by s.104 in it  had the  same scheme and that section was similar to  Art.  223. This speech indicates that the purpose of inserting entry 91 was to define the scope of residuary powers conferred on the Centre  and that was that the Centre was to  have  exclusive power  not  only  on matters  enumerated  in  the  preceding entries but also on matters not I enumerated in List II. and III(1).   More instructive is the second report, dated  July 5, 1947 of the Union Powers Committee, of which Pandit Nehru was  the  Chairman,  wherein it was stated  that  while  the residuary powers should be with the Centre, in view "of  the exhaustive  nature  of the three lists drawn up by  us,  the residuary  subjects could only be related to matters  which, while  they may claim recognition in the future, are not  at present identifiable and cannot therefore be included now in the  lists".  Sir Gopalaswami Ayyangar in his speech  moving this report on August 20, 1947, also said that after  making "three  exhaustive lists", if there was any residue left  at all, if in the future any subject cropped up which could not be  accommodated  in  one of these three  lists,  then  that subject  should be deemed to remain with the  Centre....  15 (2) Therefore, what emerges from this discussion is that the residuary power lodged in Art. 248 was in respect of matters which  could not be foreseen or contemplated when the  three Lists were framed, and therefore, could not then be included in  any  one  of them. Mr. Setalvad, however,  relied  on  a speech  by  Shri  Krishnamachari during the  debate  on  the Centres residuary power.  On a (1) Constituent Assembly Debates, Vol.  IX, pp. 855-857. (2)  B. Shivrao, The Framing, of India’s Constitution,  Vol. IT, p. 867 and onwards. 103 careful reading of it in the context of what others said  on that  occasion,  it is clear that it was made to  allay  the apprehensions, expressed by some of the members against Art. 248  and entry 97 of List I. The propositions, he sought  to make,  were  (a)  that one of the best points  of  the  1935 Constitution  Act,  according  to  Prof.   Wheare,  was  the enumeration of powers in the Seventh Schedule; (b) that that having  been  done, a provision for residuary  power  became necessary, and (c) that the Lists being almost "complete and exhaustive"  there was not much left in the content  of  the residuary power.  He, however, added that- one possible  use to  which  the provision for residuary power can be  put  in future  would  be to impose a capital levy  on  agricultural land, but that if that were done, he thought that the Centre would  assign  its  proceeds to the States  as  all  matters supposed to be associated with agriculture were allotted  to the  States.   "I think", he observed, "the vesting  of  the residuary  power is only a matter of  academic  significance to-day".   It  is  undoubtedly true that  he  expressed  his

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individual opinion as to the possible exercise in future  of the  residuary power under Art. 248 and entry 97 in  List  I for  imposing a capital levy on agricultural land.   But  he did  not  refer to the other entries in the  Lists  such  as entry 86 in List I or entry 49 in List II, and their  impact or  significance on the extent of the residuary power.   Nor does the debate show that any other member took up or agreed with  his  suggestion.  It is, therefore,  not  possible  to spell  out,  as Mr. Setalvad tried to do, any  consensus  of opinion  in the Assembly or an awareness on the part of  its members of the residuary power being can able of being  used in future for a tax such as the one impugned here(1). The  question then is whether the impugned Act is in  pursu- ance of the power under Art 248.  If it falls under entry 86 of List I, it cannot fall under Art. 248 or entry 97 in List I.  The  argument was that since entry 86 of List  I  is  in respect  of  a  tax on capital  value  of  assets  excluding agricultural   land,   the  impugned  tax   which   includes agricultural land, is not a legislation falling under  entry 86 but falls under Art. 248(2) and/or entry 97 in List I. In answer  to  a  specific question put to  him,  Mr.  Setalvad stated  that the power to impose a tax on capital  value  of assets,   barring  agricultural  land,  was  one  field   of legislation  and which fell under entry 86 in List I,  while the   power   to  impose  a  similar  tax   which   included agricultural land was another distinct field of  legislation and  fell under entry 97 in List I, and Art. 248 (2).   That being  so,  he said, the Wealth Tax Act, as amended  by  the Finance  Act, 1969, fell under the residuary power  in  Art. 248 and entry 97 of List I. We frankly concede our inability to appreciate this  conten- tion.  Can it be said that the Wealth Tax Act when passed in (1) Constituent Assembly Debates, Vol. 2, 838-839; 952-954 104 1957 fell under entry 86 of List I, but that it ceased to be so when it was amended in 1969 by including within its sweep agricultural  land ? The subject matter, the nature and  the incidence of the tax remained the same, the only  difference which  the amendment made was the inclusion of  agricultural land  while computing the capital value of the assets of  an assessee.    In  our  opinion,  the  Act,  even  after   its amendment, retained its original character and continued  to be one falling under Art. 246(1) read with entry 86 in  List I.  The field of legislation under entry 86 in List I is  no doubt  a restricted one in the sense that the  law  imposing the  tax  envisaged there cannot include  within  its  sweep agricultural land.  But that does not mean that the power in respect  of such a tax is not covered by that entry or  that that  which  was withheld as a matter of policy and  by  the scheme  of  distribution of power is a distinct  power,  and therefore, falls under Art. 248 and/or entry 97 of List I. It  is  not  uncommon for constitution-makers  to  confer  a restricted  legislative  power on a  particular  subject  or subjects.  Counsel for the respondents pointed out to us  as a sample of such restricted power entries 9 in List I and  3 in List III.  The first is with respect to the power to make law  providing  for preventive detention on  three  grounds, viz.,  defence,  foreign affairs and security of  India  The second  provides  for  the same power, but  on  three  other rounds,  viz., security of the State, maintenance of  public order  and  of  supplies  and  services  essential  to   the community.  The two entries read together clearly show  that in the matter of preventive detention, the Constitution,  as a matter of policy, provided a restricted field within which the  power could be exercised, that is to say, for  the  six

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reasons  set out in the two entries.  As stated  before,  if counsel for the Union were right, the Union can claim  power to make a law in respect of preventive detention on ,grounds other than those specified in the two entries on the footing that  it has residuary power under Art. 248 and/or entry  97 in  List I. Surely, such a field of legislation is  not  one which   was  not  foreseen,  or  thought  of,  or  was   not "identifiable"  in the words of Pandit Nehru and  for  which only Art. 248 and entry 97 in List I were enacted.  Entry 86 in  List  I  is  yet  another  example  where  a  restricted legislative power has been provided for, presumably  because under  the distribution of powers in the  Constitution,  the field of agriculture and agricultural land was almost wholly entrusted to the States.  Such a restriction must be held to be the result of a calculated policy, for, in a country such as ours. agricultural land would be by far the largest asset and  capable of bringing a very substantial amount  of  tax. Those  who  excluded such, an asset from entry 86  and  gave power over it to the States could not possibly have  thought of including such an excluded 105 item  of taxation in the residuary power of the Union  under Art.  248(2).   These reasons must compel us to  reject  the argument  that  a tax on the capital value  of  agricultural land  falls under the residuary power or that it is a  field of  legislation  distinct from that in entry 86.  not  dealt with  therein, or that therefore, the amending Act does  not fall under entry 86, List I. In this view, we are unable to accept the contentions  urged on  behalf of the Union.  The amending Act, in our  opinion, fell under entry 86 of List I, and not under Art. 248 and/or entry  97  of List I. It follows that the impugned  Act,  by reason of the restricted field in entry 86, List I, suffered from  legislative competence.  The majority judgment of  the High  Court  must, consequently, be upheld  and  the  appeal dismissed.   We order accordingly but in view of  the  great importance of the issues involved in the appeal, we think it just that there should be no order as to costs. Mitter,J.-- This is an appeal from a judgment of a Bench  of five Judges of the High Court of Punjab and Haryana  holding by  a majority of four to one that s. 24 of the Finance  Act of  1969  amending  the definition of "net  wealth"  in  the Wealth-tax  Act  (No.  27  of  1957)  by  the  inclusion  of agricultural   land  in  the  assets  for  the  purpose   of computation  of  net  wealth was beyond  the  competence  of Parliament and as such ultra vires the Constitution. The  reasoning of the majority Judges was that Entry  86  of List I of the Seventh Schedule to the Constitution  withdrew the power to impose wealth-tax on agricultural land from the competency  of  Parliament.  It was therefore  not  open  to Parliament to enact such a measure in exercise of its  power under  Entry 97 of the said List.  Although  arguments  were advanced  before the High Court on behalf of the  respondent that  Entry 49 of List II empowered the State to,  impose  a wealth  tax  on  agricultural  land.  this  contention   was ultimately  given up before the High Court.  In the view  of the majority Judges:               "The effect of the impugned legislation in its               pith  and substance is to impose a tax on  the               capital   value  of  the   assets,   including               agricultural  land.  Thus in effect the  words               of prohibition in Entry 86, namely, "excluding               agricultural land", have been treated as  non-               extent.    In   doing   so,   Parliament   has               altogether gone beyond the limitations  within

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             which it has competence to legislate."               According to the fifth learned Judge:               "The State Legislature had no power to  impose               a  tax on the capital value of the  assets  in               the form of L256sup.CI/72 106               agricultural land of an individual under Entry               49, and as there was no prohibition in the way               of Parliament making a law imposing such a tax               the legislation was beyond challenge." In view of the great importance of the question and the far- reaching  consequences of the amendment of 1969, the  appeal has been placed before a Bench of seven Judges and arguments on  both sides, and specially on behalf of the  respondents, ranged  far and wide including the topic as to  whether  the legislative competence of Parliament and the States and  the heads  of legislation in the first two Lists of the  Seventh Schedule  to the Constitution should be interpreted  in  the same way as the corresponding provisions in ss. 91 and 92 of the British North America Act of 1867. The propositions put forward by Mr. Setalvad for the  appel- lant were as follows:-- (1)  The  real question to be determined in the  appeal  was whether   the impugned tax fell within the ambit of Entry 49 in List II     of  the  Seventh Schedule in  which  case  no further  question  would arise and the respondent  would  be entitled  to  succeed.  But in case the tax was  not  to  be found  within  the  ambit of Entry 49  Parliament  would  be competent to impose such a tax. (2) In order to determine the true nature of the imposition, we  must  consider the pith and substance or  the  essential character  of the tax with special reference to the unit  of taxation. (3)  Entry  49 of List II envisaged taxation  of  lands  and buildings as separate units.  The entry did not  contemplate the aggregation of all lands, agricultural or otherwise, and buildings held by a person as one unit and consequently  the State Legislature was not competent to impose a tax on  such aggregation.   Further the entry did not contemplate  a  tax which would permit the legislature to deduct the liabilities to  which the owner of ’he property might be  subject.   The unit for the purpose of taxation as described in the Wealth- tax  Act  as net wealth is not contemplated by Entry  49  of List II. (4)  The legislative power was distributed among  the  Union Parliament  and  the  State Legislatures  by  the  different provisions  in Part XI of the Constitution.  The objects  of the exercise of power, that is to say, the subject matter of all legislation was comprised within the three Lists in  the Seventh  Schedule.   The entries enumerated in  List  I  set forth the matters within the exclusive powers of  Parliament to  legislate upon and this was notwithstanding anything  in clauses (2) and (3) of Art. 246.  The 107 exclusive power ’of the legislature of a State with  respect to, matters enumerated in List II was however subject (2)  of Art.’ 246. (5)  The legislative power conferred upon’  Parliaments  "as above  was supplemented by Art. 248.  Under cl. (1) of  this article Parliament had exclusive power to make any law  with respect to any matter not enumerated in the Concurrent  List or  State List, and by virtue of cl.(2) such power  included the power. of making any law imposing a tax not mentioned in either of those Lists.  The net result was that if there was

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a  matter or a tax which though not expressly  mentioned  in any of the items in List I, was also not included in List II or  List  III,  the  same, was to be  a  matter  upon  which Parliament alone was competent to legislate. (6)  Proceeding on the basis of the decisions of this  Court that tax on net wealth was covered by Entry 86 in List I  it did not matter that the head of legislation under that entry read  as  "tax on the capital value of assets  exclusive  of agricultural  lands" inasmuch as net wealth on  agricultural land could not be he subject matter of any entry in List II; legislation   on  the  topic  of  taxation  of  net   wealth inclusive.  of agricultural land would fall within Entry  97 of List I read with Art. 248. (7)the  basic principle of the Constitution was  that  there should    be  any matter which would be beyond the scope  of legislation    either  at the hands of the Union  Parliament or at those of the State Legislatures.  The Constitution did not envisage any power vacuum. (8)  The words of Entry 86 of List I "exclusive of  agricul- tural  land"  were  not  to be  read  as  a  prohibition  on Parliament  from  taxing the capital value  of  such  assets which were ascribable to agricultural land.  The words  were to  be read as words of exclusion.  In other words,  without using the words "exclusive of agricultural lands" Parliament might have specified in the entry all kinds of known assets, omitting   any   reference  to   agricultural   lands.    So interpreted,  there would be no question of any  prohibition on Parliament imposing a tax on the capital value of  assets including   agricultural  land  therein  by   the   combined operation Of Art. 248 and Entry 97 in List I. Entry  97 in List I was meant to comprise all matters  which were  not to be found in List II or List III  including  any tax not mentioned in those two Lists.  Entry 97 was really a supplement to Art. 248(1). The scheme of the distribution of legislative power with re- gard  to various matters adopted in the Indian  Constitution had a 108 close parallel to ss. 91 and 92 of the British North America Act and the decisions of the Judicial Committee of the Privy Council  on those two sections throw considerable  light  on the, question before us in this Court. The  propositions  put  forward by Mr.  Palkhivala  were  as follows (1)  Power to levy wealth tax on agricultural land  was  not covered  by Art. 248 read With Entry 97 in the  Union  List. The  Constitution has denied to the Union the power to  levy any  tax  direct  or  indirect  on  the  capital  value   of agricultural lands. (2) The judgments of this Court in S. C. Nawn v.  Wealth-tax Officer(1),  Asst.   Commissioner v. B. and C.  Ltd.(2)  and Prithvi Mills v. Broach Municipality(3) show that (a) a direct tax on lands and buildings was covered by Entry 49  in  List II while a tax on the total  assets  which  may include  buildings and nonagricultural land was  covered  by Entry 86 in the Union List; (b)  a  tax under Entry 49 could be levied  on  the  capital value  of lands and buildings just as under Entry 86  a  tax could be levied. on the capital value of other assets; (c)  despite the State’s power under Entry 49 to levy a  tax which  was  directly  on  the capital  value  of  lands  and buildings, the Union Parliament has power under Entry 86  to impose  a  tax  on the capital  value  of  assets  including buildings and non-agricultural lands; (d) The result is that so far as non-agricultural lands  are

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concerned they can be subject to two separate taxes, a  land tax  by  the State and a Wealth-tax or capital levy  by  the Union. (3)  The Constitution expressly excluded agricultural  lands from  this two-fold burden.  The express words in  Entry  86 restrict  the  scope of the Union’s power  to  legislate  in respect of capital levy or wealth-tax. (4)  The said scheme is apparent from other Entries  in  the said two  Lists. (5)   Neither  the  Union nor the State has  power  to  levy wealth-tax  in  respect  of the total value  of  the  entire wealth of (1) [1969]-1 S.C.R. 108.            (2) [1970]-1 S.C.R. 263. (3) [1970]-1 S.I..R. 388. 109 an  assessee which would include agricultural lands just  as neither the Union nor the State has power to levy income-tax in respect of total income inclusive of agricultural  income or  to  levy estate duty or succession duty  in  respect  of properties passing on death including agricultural land. (6) The scheme of the Constitution being exclusion of  agri- cultural  land from the purview of legislative power of  the Union, it did not matter that there was no entry in List  II which  ’was in terms corresponding to those in Entry  86  to List I. (7) Wealth-tax in respect of agricultural land would not  be covered by Entry 97 in the Union List.  The opening words of the  entry  i.e.  "any other matter" go  to  show  that  the matters  which  are specified in Entries 1 to 96  are  alike excluded  from Entry 97 as matters enumerated in List II  or List III. (8)  The scope of Art. 248 was not wider than that of  Entry 97  in  the  Union  List.   If  a  matter  was  specifically enumerated  in  the  Union  List  Art.  248  could  have  no application  to such a matter and as Entry 86 envisaged  the levy of wealth-tax on assets exclusive of agricultural  land wealth tax on assets which included agricultural land  could not come under Entry 97. (9) The extension of wealth-tax to agricultural lands  would be  an encroachment on the State’s power under Entry  49  of List  II.  Taxes direct or indirect so far  as  agricultural lands are conceded are comprised in Entry 49 of List II.  If Entry  49  is so read it would be beyond the  competence  of Parliament to enact legislation which would have the  effect of  levying a tax on the value of the assets which  included agricultural lands. The Wealth-tax Act, 1957 as it stood before the amendment of 1969  contained  the following provisions relevant  for  the purpose  of  this appeal.  Under s. 2(a)  "assets"  includes property  of  every description, movable or  immovable,  but does not include-               (i) agricultural land and growing crops, grass               or standing trees on such land;               (ii)  any  building  owned or  occupied  by  a               cultivator or receiver of rent or revenue  out               of agricultural land; Provided  that  the  building  is on  or  in  the  immediate vicinity of the land and is a building which the  cultivator or  the  receiver  of  rent or  revenue  by  reason  of  his connection  with the land requires as a dwelling-house or  a store house or an out-house; (iii) (iv) not relevant (v) 110

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             S.2 (in)  ran as follows :               "net  wealth"  means 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, including 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   on   the   valuation   date   other               than.. . . .               (i)   debts  which under section 6 are not  to               be taken into account;    not relevant.               Section   3  was  the  charging  section   and               provided that               "Subject to the other conditions contained  in               this’  Act, there shall- be charged for  every               assessment  year  commencing on and  from  the               first  day of April, 1957, a tax  (hereinafter               referred  to as wealth-tax) in respect of  the               net wealth on the corresponding valuation date               of  every individual, Hindu  undivided  family               and company at the rate or rates specified  in               the Schedule." Under  s.  4  net  wealth  was  to  include  certain  assets specified  therein  Section  5  provided  for  exemption  of certain assets held by an assessee.  The notable  exemptions were  the  interest  of  the  assessee  in  the  coparcenary property  of  any Hindu undivided family of which he  was  a member and any one house or part of a house belonging to the assessee  exclusively used by him for  residential  purposes provided  that the value thereof did not exceed  the  amount specified.   Under s. 6 debts and assets outside India  were to be excluded.  Under s. 7 the value of any asset was to be estimated  to  be  the price which in  the  opinion  of  the Wealth-tax Officer it would fetch if sold in the open market on the valuation date. By  the Finance Act 14 of 1969 s. 2(e) was amended  and  the relevant portion thereof reads               "   "  assets"  include  property   of   every               description,  movable or immovable,  but  does               not include,-               (1)   in  relation  to  the  assessment   year               commencing  on the 1st day of April,  1969  or               any earlier assessment year-               (i) agricultural land and growing crops, grass               or standing trees on such land; 111               (ii)  any  building  owned or  occupied  by  a               cultivator of, or receiver of rent or  revenue               out of, agricultural land :               Provided  that  the building is on or  in  the               immediate  vicinity  of  the  land  and  is  a               building which the cultivator or the  receiver               of rent or revenue by reason of his connection               with the land requires as a dwelling-house  or               a store-house or an outhouse;       (iii) animals       (iv)  certain right to annuities        (V)   certain     interests in property (2) in relation     to the assessment year commencing on the 1st day of April 1970 or any subsequent assessment year-        (i)  animals;        (ii)    certain rights to annuities        (iii) certain interests in property."

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The exemptions provided in s. 5 were considerably  augmented by inclusion of the following relevant clauses in  sub-s.(1) of s. 5. These are as follows               "(iv-a)  agricultural  land belonging  to  the               assessee  subject to a maximum of one  hundred               and fifty thousand rupees in value:               Provided  that  where the  assessee  owns  any               house  or part of a house or part of  a  house               situate in a pace wish a population  exceeding               ten  thousand and to which the  provisions  of               clause (iv) any and the value of such house or               part of a house together with the value of the               agricultural  land  exceeds  one  hundred  and               fifty  thousand rupees, then the  amount  that               shall not be included is the net wealth of the               assessee  under  this  clause  shall  be   one               hundred  and fifty thousand rupees as  reduced               by so much of the value of such house or  part               of  house as is not to be included in the  net               wealth of the assessee under clause (iv);               *   *    *    *    *    *               (viii-a)  growing crops (including  fruits  on               trees) on agricultural land and grass on  such               lands;               (ix) the tools, implements and equipment  used               by   the   assessee   for   the   cultivation,               conservation,  improvement or  maintenance  of               agricultural  land,  or  for  the  raising  or               harvesting    of    any    agricultural     or               horticultural produce on such land. 112 .lm15 Explanation.-For   the  purpose  of  this   clause,   tools, implements  and  equipment  do  not  include  any  plant  or machinery used in any tea or other plantation in  connection with  the processing of any agricultural produce or  in  the manufacture of any article from such produce; (x) to (xxi)..................... In effect the rigour of the inclusion of agricultural  land, growing crops, grass etc. was mitigated by exempting land of the  above character to a maximum of Rs. 1,50,000 in  value, besides  growing crops including fruit trees on  such  land, tools, implements and equipment used by the assessee for the cultivation  etc. of agricultural land.  The scheme  of  the Wealth-tax  Act both before and after the amendment of  1969 thus  appears to be to impose an annual tax on the value  of all  the  assets of an assessee which are in excess  of  the aggregate value of all his debts on the valuation date other than  debts  which are expressly excluded.  This  is  to  be subject  to inclusion of certain assets mentioned in’ S.  4, exemption  of other assets in s. 5 and exclusion  of  assets and debts, outside India in terms of s. 6. Thus before 1969, if an assessee had owed a debt secured on a non-agricultural property or a debt which he had incurred in relation to such property, the same would be deductible from the value of the assets  owned  by  him.  If such a debt was  in  respect  of agricultural   property  the  same  would  not   have   been excludible.   As a result of the Amendment of 1969 any  debt secured  on  any  property,  be  it  agricultural  land   or otherwise and any debt incurred in relation to any property, unless  the property was one in respect of which  wealth-tax was not chargeable, would have to be deducted from the total value Of the assets for computation of the net wealth of the assessee.  The taxation was to be based on the net worth  of an  individual,  that is to say, his total assets  less  his

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debts.  It is therefore possible for an assessee who  though seemingly  in possession of assets of great value not to  be subject  to proportionately high taxation if he  owes  large debts to others within the meaning of the definition  clause of s. 2(m) on the valuation date. The overall change by the Amendment Act of 1969 lay in  that in respect of assets in relation to the assessment year com- mencing from 1st April 1970 and any subsequent year agricul- tural  lands,  growing  crops or a building  occupied  by  a cultivator   or   receiver  of  rent  or  revenue   out   of agricultural  land  ceased  to  be  exemptible.   The   main question  in  this appeal is, whether the amendment  of  the definition  of  ’assets’  by withdrawing  the  exemption  in respect of agricultural land etc. was within the  competence of Parliament. The  vires of the Wealth Tax of 1957 was  challenged  before different  High Courts prior to the decision  appealed  from and the matter also came up to this Court as is to be  found in at least 113 three.  decisions which have come to my notice.  But  as  no question  ever  arose  with  regard  to  the  competency  of Parliament to include agricultural assets in the  definition of  "net wealth for the purpose of levying  wealth-tax,  the point  now  before  us never arose in  any  of  those  prior decisions.  In none of the decisions which will be presently noted was there any pin-pointed direction at the  particular head  of  legislation which would cover  the  imposition  of wealth-tax on the aggregation of assets.  It will  therefore not be out of place to consider the competence of Parliament to legislate on this field not on any pre-conceived  notions nor on the basis of any decisions already rendered. The Constitution of India forged by the Constituent Assembly after  deliberation for a very long time was meant to be  as complete a Code as possible by which all prior laws and  all law-making  powers were to be tested and guided.   As  India was  to  be a sovereign democratic Republic  composed  of  a Union  of  States’ it was necessary  for  the  Constitution- makers  to  define with as much precision  as  possible  the respective   functions   of  the  Union  and   the   States’ Legislatures as also the relations between the Union and the States.  As  both  the Union and the  States  were  to  have legislative  powers,  it  became  necessary  to   distribute legislative powers among them and to provide for as clear  a demarcation  of  these  powers as was  feasible.   This  was sought  to  be  done  in  Chapter  I  of  Part  XI  of   the Constitution  containing Arts. 245 to 255.  The  territorial extent  of the laws to be made by Parliament and  the  State Legislatures  is dealt with in Art. 245 which provides  that subject to the provisions of the Constitution Parliament has the  power  to make laws for the whole or any  part  of  the territory of India while the legislature of a State can make laws for the whole or any part of the State concerned and  a law  made by ’Parliament is not to be treated as invalid  on the  ground that it would have extra-territorial  operation. Art.  246  of the Constitution seeks to divide  the  subject matters  of  legislation in three Lists  enumerated  in  the Seventh  Schedule  to the Constitution  and  indicating  the legislative  body  competent to deal with any  such  subject matter.  Cl. (1) of Art. 246 gives Parliament the  exclusive power  to  make  laws with respect to  any  of  the  matters enumerated  in  List I in the Seventh Schedule and  this  is notwithstanding  anything in cls. (2) and (3).  By  cl.  (2) Parliament  as  also the Legislature of any State  are  both given  power  to  make  laws With  respect  to  the  matters

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enumerated   in   List   III  in   the   Seventh   Schedule, notwithstanding  anything  in  el.  (3).   By  cl.  (3)  the Legislature of a State is given exclusive power to make laws for  such part or any part thereof with respect  to  matters enumerated in List II but this is to be subject to cls.  (1) and (2).  Broadly speaking, the scheme under this article is that Parliament is to have exclusive power to make laws with respect 114 to  matters in List I, the, State is to have such  exclusive power  with  regard  to matters in List II  subject  to  the powers  of  Parliament in respect of matters in List  I  and List  III  while matters in List III could  be  the  subject matter  of  legislation  both by Parliament  and  the  State Legislatures,.  By cl. (4) however Parliament is given power to  make laws with respect to any matter for any part  of  a territory of India not included in a State,  notwithstanding that such matter is a matter, enumerated in the State  List. Obviously the Constitution gave Parliament the power to make laws with respect to Union territories mentioned in  sub-cl. (b)  of cl. (3) of article 1 of the Constitution and  other, territories  mentioned in sub-cl.(c) of the said  clause  as might   be   acquired   after  the   commencement   of   the Constitution.     The   Constitution-makers   envisaged    a possibility  of  the  existence  or  occurrence  of  subject matters of legislation not enumerated either in List II (the State  List)  or List III, the Concurrent  List.   This  was sought  to be provided for in Art. 248 of  the  Constitution which reads               "(1)  Parliament has exclusive power  to  make               any  law  with  respect  to  any  matter   not               enumerated  in  the Concurrent List  or  State               list.               (2)  Such  power shall include  the  power  of               making any law imposing a tax not mentioned in               either of those Lists," The  above three articles thereafter make it clear that  the Constitution-makers were careful to see that the law  making power with respect to any matter which until the date of the Constitution  had not been though of as fit for  legislation or had by some chance been omitted from the fold of Lists II and  III  were to be within the  exclusive  jurisdiction  of Parliament to legislate.  Such lawmaking power was to extend to  the imposition of tax not mentioned in either  of  those Lists. The  Constitution-makers were also alive to the  possibility of laws made by a State Legislature impinging upon laws made by  Parliament  in its competence and sought to  remove  the difficulty  by  providing  in Art. 254  that  laws  made  by Parliament, whether passed before, or after the laws made by a State legislature, were to prevail in such a  contingency. This  is however to be subject to clause (2).  Art. 250  was aimed  at giving/Parliament the power to make laws  for  the whole or any part of the territory of India with respect  to any  of  the matters enumerated in the State  List  while  a proclamation  of  emergency was in  operation.   In-  normal circumstances   the   extent(  of  legislative,   power   of Parliament  and,-the State Legislatures. have to  be  worked out in terms of Arts. 246 and 248 of the Constitution. 115 The  ’Seventh Schedule ’which is divided.  ’in  three  Lists gets forth 209 heads or subject matters of legislation :  86 entries in List I, 66 entries in List II and 47 in List  III besides  Entry  97 in List I reading "Any other  matter  not enumerated  in  List II or List III including  any  tax  not

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mentioned in either of those Lists".  Few Constitutions have attempted  such precise, enumeration of subject  matters  of legislation.  Schedule VII of the Government of  India  Act, 1935  containing the Legislative Lists had no more  than  59 entries in List I known as the Federal Legislative List,  54 in  List II known as the Provincial Legislative List and  36 in List III known as the Concurrent Legislative List.   Even a cursory comparison between List I of the Constitution  and List  I  of  the  Government of India  Act  will  show  some additions  of subject matters which either did not exist  or could  not be thought of at the time when the Government  of lndia  Act was enacted.  For instance.  Entry 6  in  present List  I  reads  :  "Atomic  energy  and  mineral   resources necessary  for its production and Entry 12  "United  Nations Organisation":  atomic energy in 1935 was only in the  minds of the scientists.  United Nations Organisation had not come into’ existence.  Although the League of Nations was  there, probably  it was not thought necessary to include  any  such entry in List I under the Government of India Act because it would  be the Imperial Parliament which would  be  primarily concerned  with this subject.  Entry 14 in the present  list reading "Entering into treaties and agreements with  foreign countries  and  implementing  of  treaties,  agreements  and conventions  with foreign countries" and Entry 15  "War  and peace"  could  not form the subject matters  of  legislation when Federal Legislature was not a sovereign body for  such. purposes.  It is significant to note that entries like       "Entry 20.  Economic and social planning       Entry  21.   Commercial  and  industrial   monopolies, combines and trusts, and        Entry 23.  Social security and social insurance; em- ployment and unemployment" in present List III had no counter-part in any of the  Lists in the Seventh Schedule to the Government of India Act.  But what  is necessary for our present purpose is to  note  that there  was  nothing like present Entry 97 in List I  in  the Government of India Act.  Section 104 of the said Act  which is analogous to Art. 248 of our Constitution read:               "(1)   The  Governor-General  may  by   public               notification   empower  either   the   Federal               Legislature  or  a Provincial  Legislature  to               enact,  a law with respect to any  matter  not               enumerated in any of the Lists in the  Seventh               Schedule to this Act, including a law imposing               a tax not 116 .lm15 mentioned  in any such List, and the executive authority  of the Federation or of the Province, as the case may be, shall extend to the administration of any law so made, unless  the Governor-General otherwise directs. (2) In the discharge of his functions under the section  the Governor-General shall act in his discretion. It  will be noted that the Imperial Parliament was alive  to the fact that there might be subject matters of  legislation not  covered  by  any  of the three  Lists  of  the  Seventh Schedule but the same were not committed to the care of  the Federal Legislature, or even attempted to be divided between the Federal Legislature and the State Legislatures.  It  was the  function of the Governor-General to empower either  the Federal  Legislature or a Provincial Legislature  by  public notification  to  enact a law with respect to  any  law  not enumerated  in  the  Seventh Schedule including  a  tax  not mentioned  in  any such list and in the  discharge  of  this function, the Governor-General was to act in his discretion.

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The Explanation for this is to be found in the speech of Sir Samuel  Hoare recorded in the Parliamentary debates  to  the effect that               "Indian  opinion was very  definitely  divided               between  the  Hindus who wanted  to  keep  the               predominant  powers  in  the  Centre  and  the               Moslems  who  wished to keep  the  predominant               power  in the provinces.  The extent  of  that               feeling  made each of these  communities  look               with  greatest,  suspicion  at  the  residuary               field the Hindus demanding it with the  Centre               and the Moslems demanding with the Provinces." it  would appear from the same speech that all  attempts  to bridge  the difference only resulted in making  the  Federal List,  the Provincial List and the Concurrent List  each  as exhaustive  as possible to leave, little or nothing for  the residuary field.  The said speaker hoped that "all that  was likely  to  go into the residuary field  were  perhaps  some quite  unknown  spheres  of activity"  which  could  not  be contemplated at the moment. The  matter  had engaged the attention  of  the  Constituent Assembly.  The Second Report of the Union Powers  Committee, dated  5th  July, 1947 to the President of  the  Constituent Assembly contains the following statement               "We think that residuary powers should  remain               with  the  Centre.  In view  however,  of  the               exhaustive nature of the three Lists drawn  up               by us the residuary subjects could only relate               to matters which, while they 117               may  claim recognition in the future, are  not               at  present identifiable and cannot  therefore               be included now in the Lists." Moving the aforesaid report Shri Gopalaswami Aiyangar in his speech on the 20th August, 1947 said inter alia as follows:-               "We should make the Centre in this country  as               strong  as possible consistent with leaving  a               fairly wide range of subjects to the Provinces               in which they would have the utmost freedom to               order  things  as they liked.   In  accordance               with  this view, a decision was taken that  we               should make three exhaustive Lists, one of the               Federal  subjects, another of  the  Provincial               subjects  and  the  third  of  the  concurrent               subjects  and that, if there was  any  residue               left  at  all,, if in the future  any  subject               cropped up which could not be accommodated  in               one  of  these three Lists then  that  subject               should be deemed to remain with the Centre  so               far as the Provinces are concerned." (see  the               Constituent Assembly Debates Vol.  V. p. 38 It  will  be noted that Gopalaswami  Aiyarigar’s  speech  is almost on the same lines as that made by Sir Samuel Hoare in explaining the principle adopted in framing the  legislative lists and in particular the decision to leave the  residuary field  to  the care of the Governor-General under  the  said section without making the matter the subject of an entry in List  I  of the Seventh Schedule.  A glance at  these  Lists shows that in some cases broad classes of subject matters of legislation were divided under more than one head and placed in  different lists.  Thus while generally "industries"  are to be within the legislative power of List II under Entry 24 of that List, a portion of industries is carved out of  that Entry   and  placed  within  the  exclusive  competence   of Parliament  under  List I. These portions are  mentioned  in

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Entry  7  of  the Union List i.e.  "Industries  declared  by Parliament by law to be necessary for the purpose of defence or  for the prosecution of war" and in Entry 62  "industries the control of which by the Union- is declared by Parliament by  law  to be expedient in the public interest".   To  take another instance "preventive detention occurs both in List I and List Ill.  Entry’9 of List I reads "Preventive detention for reasons connected with Defence, Foreign Affairs, or  the security  of  India; persons subjected  to  such  detention" while  "Preventive detention for reasons connected with  the security of a State, the maintenance of public order, or the maintenance  of  supplies  and  services  essential  to  the community;  persons  subjected to such  detention"  finds  a place in the Concurrent List as item 3. So far as preventive detention in its aspects men- 118 tioned, in Entry 9 of List I is concerned Parliament has the exclusive power.  The competence of the State Legislature to legislate  with regard to preventive detention can  only  be under  Entry 3 of List III but even then it cannot  encroach on  the  field  set  apart  for  exclusive  legislation   by Parliament  though  the two fields of  legislation  may,  in certain  circumstances,  have a common border  difficult  of definition. So far as "Lands", whether agricultural or otherwise,  agri- culture, agricultural income and taxes with regard to any of these matters the specification appears to be as follows:-                          List I Entry  82.  Taxes on income other than agricultural income. Entry  86.   Taxes  on  the capital  value  of  the  assets, exclusive   of   agricultural  land,  of   individuals   and companies; taxes on the capital of companies. Entry  87.   Estate duty in respect of property  other  than agricultural land. Entry 88.  Duties in respect of succession to property other than agricultural land.                           List II Entry  18.   Land, that is to say, rights in or  over  land, land tenures including the relation of landlord and  tenant, and  the  collection of rents; transfer  and  alienation  of agricultural land; land improvement and agricultural  loans; colonization. lntry 46. Taxes on agricultural income. Entry  47. Duties in respect of succession  to  agricultural land. Entry  48. Estate duty in respect of agricultural land. Entry  49. Taxes on lands and buildings.                           List III Entry 6. Transfer of property other than agricultural  land; registration of deeds and documents. Entry 7. Contracts, including partnership, agency. contracts of  carriage, and other special forms of contracts, but  not including contracts relating to agricultural land. Entry  41.   Custody, management and  disposal  of  property (including agricultural land) declared by law to be  evacuee property. 119      Entry 42.  Acquisition and requisitioning of property. Scanning  the  lists and. specially  the  entries  mentioned above,  there  can be little doubt  that  the  Constitution- makers  took care to insert subject matters  of  legislation regarding  land  and  particularly  agricultural  land   and matters  incidental to the holding of agricultural  land  in the exclusive jurisdiction of State Legislatures.   Although Parliament  is  competent  to  legislate  on  transfers   of

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property  and contracts generally, the legislative power  in th regard is not to be exercised over agricultural land  but when evacuee property includes agricultural land, Parliament is   competent  to  legislate  with  respect   to   custody, management and disposal of the same under Entry 4.1 of  List III.    Similarly,  when  a  question  of   acquisition   or requisitioning.  of property including agricultural land  is concerned,  both Parliament and the State  Legislatures  are competent to exercise legislative powers. It may also be noted that so far as some specific matters of legislation with regard to agricultural land are  concerned, they  have  been  set  forth in  List  II  while  there  are corresponding  entries  in List I  which  expressly  exclude agricultural land.  Thus Entry 46 in List II reads "taxes on agricultural  in come".  Entry 82 in List I mentions  "taxes on  income other than agricultural income".  Again Entry  47 in List II "Duties in respect of succession to  agricultural land" has its counter-part in Entry 88 of List I "Duties  in respect  of succession to property other  than  agricultural land".   Entry  48  in List II ’Estate duty  in  respect  of agricultural land’ has its counter-part in Entry 87 of  List I   ’Estate   duty  in  respect  of  property   other   than agricultural  land’.   But while Entry 86 in  List  I  reads "Taxes  on  the capital value of the  assets,  exclusive  of agricultural  land, of individuals and companies;  taxes  on the  capital of companies" there is no  corresponding  entry with  regard to fax on capital value of agricultural  lands, the  nearest approach to it being Entry 49 in List  If  ’IT- axes on lands and buildings." In  order to find out the true nature of the Wealth-Tax  Act one must look at the charging section to ascertain the exact scope  of  the legislation.  In the words  of  the  Judicial Committee  of the Privy Council in Provincial  Treasurer  of Alberta   &   Anr.  v.  C.  E.  Kerr   &   another(1)   "the identification of the subject matter of the tax is naturally to  be found in the charging section of the statute, and  it will  only be in the case of some ambiguity in the terms  of the  charging  section that recourse to  other  sections  is necessary."  The scheme of the Act in substance is to  treat the individual as if he was 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 individual. (1) [1933] A. C. 710. 120 whereas  under  the Wealth-Tax Act as originally  enacted  a portion of the assets, namely, agricultural land was not  to be  taken into consideration, the amendment of 1969  brought that  in for the computation of the value of  the  business. The nature of the Act has not changed; only it has been made more comprehensive than before. We have next to find out the legislative entry to which  the said  Act conforms.  If one were to ignore Entry 97 in  List 1, the only entry which might suggest itself would be  Entry 86  and there would be no entry either in, List II  or  List III  carrying such a suggestion unless one was to  take  the view that Entry 49 in List II would comprehend that  portion of  the wealth of an individual which had its base in  lands and buildings. We may therefore examine the true scope of the two  entries, viz.,  Entry 49 in List II and Entry 8 6 in, List I. If  the Act  does not fall in any of these two entries, it  must  be covered by Entry 97 in List I and be within the  legislative competence of Parliament under Art. 248 of the Constitution. Under  the express words of clause, (1) of Art. 248 one  has

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only  to 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  of the  inclusion  of  a  kindred subject  in  List  I  or  the specified limits of such subject in this List. Before  the  passing of the Wealth-tax Act  of  1957  little attention  was  paid to Entry 55 in List I  of  the  Seventh Schedule  to  the  Government of India Act, 1935  or  its  I successor,  the  present  Entry 86. No Act  of  the  Federal Legislature was ever traced directly to Entry 55.   Attempts had  however  been  made to, impugn  taxes  imposed  by  the Provincal  Legislature or the State Legislature as  covering the  subject  matter of Entry 55 or Entry 96.   These  cases will be noted in due course. The  expression "capital value" has not been defined in  any Act  either English or Indian, but is a term well  known  to the  English  Law of Rating.  According to Ryde  on  Rating, Eleventh Edition, page 433 :               "Where  property is of a kind that  is  rarely               let  from year to year recourse  is  sometimes               had  to interest on capital value, or  on  the               actual cost, of land and buildings, as a guide               to the ascertainment of annual value."               Further, according to the learned author :               "Where better evidence is in the circumstances               of   a  particular  hereditament   impossible,               resort may had to either capital value or cost               of construction, either of 121               which  can, with appropriate  corrections,  be               converted into approximately equivalent  terms               of annual value. (See p. 436 quoting the  rule               expressed by Scott, L.J. in Robinson  Brothers               (Brewers)  Ltd.  v. Houghton  and  Chester-le-               Street Assessment Committee-[1937] 2 K.B. 445,               at 481)." According to Farady on Rating (5th Edition) p. 42:               " "Effective capital value" is a term commonly               used by valuers, but, so far, no definition of               such  term  appears in any  textbook,  and  in               order  to determine ’effective capital  value’               of any building the valuer must appreciate the               proper significance of the term." The  learned  author then goes on to  discuss  the  positive meaning of the ’expression by first explaining its  negative meaning and at page 43, after noting some instances, states:               "The   above  instances  are   sufficient   to               illustrate   the   difficulty   of    defining               ’effective  capital value’.  It  is  submitted               that   the  substantive  definition  of   this               expression  is  ’the selling price  between  a               willing seller and a willing purchaser of  the               property   in   question,   subject   to   the               restriction  that  it  can  only  be  occupied               substantially  in its present condition;  this               takes   into  consideration  all   the   above               qualifications,  but it will be observed  that               it is then no easier to assess the figure than               to arrive at the rental value direct." According  to  Halsbury’s Laws of  England,  third  edition, volume 32 at page 79               "Where  neither  the  actual  rents  nor   the               profits  of ,trade afford evidence  of  annual               rental  value,  a percentage on  the  cost  of               construction   or  structural  value  of   the

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             hereditament, or of a substitute hereditament,                             is  sometimes  taken as  evidence.   T he  value               taken  is  sometimes  called  the  ’effective’               capital  value,  that is to say,  the  capital               value  leaving out of account  expenditure  on               unnecessary  ornamentation,  or  accommodation               surplus to requirements and after allowing, if               necessary,, for age and obsolescence." It is stated further :               "This  method of valuation has  been  applied,               for instance, to the directly productive parts               of public utility undertakings (such as  water               works), to municipal -L56Sup.CI/72 122               property (such as schools, sewerage systems, a               town hall, a fire station, a swimming pool, to               colleges  and  university  buildings,   public               schools,  a light- house, an old peoples  home               etc." Except in the Law of Rating, the expression "capital  value’ does  not  seem to have been used in any branch  of  English Law.   There  is  no reference to it  in  Stroud’s  Judicial Dictionary  or Jowitt’s Law Dictionary.  Yet the  expression was  used in the Government of a Act, 1935-a statute  passed by the Parliament of England and drawn up by people expected to  be familiar with words and expressions known to  lawyers in England.  It will therefore not be improper to  interpret the  expression  "capital value of assets"  as  meaning  the aggregate  value  of the assets which  a  willing  purchaser would  offer  a  willing  seller for  the  property  in  its condition  at  the time of the  transaction.   Naturally,  a purchaser  would enquire into encumbrances on  the  property and  charges thereon created by the seller but he would  not be concerned with any other debts or liabilities incurred by the  seller  for the purpose of acquiring  the  property  or maintaining  it.   So interpreted  the  expression  "capital value  of  assets of an individual" will take  in  only  the assets less the charges secured but not any other liability. Entry 49 in List II of the Constitution had a fore-runner in Entry  42  in  List  II  to  the  Seventh  Schedule  to  the Government of India Act, 1935 which read "taxes on lands and buildings,  hearths and windows".  The inclusion of  hearths and  windows made little difference to the entry and it  was therefore dropped from the list in the Constitution.  In Sir Byramjee  Jeejeebhoy v. Province of Bombay(1) the  scope  of entry 42 in List II came to be examined in juxtaposition  to that of entry 55 in List I which is identical with Entry  86 of List I of the Constitution.  In that case, the  jurisdic- tion of the State Legislature to levy a tax called the Urban immovable Property Tax Act was challenged.  There by Part 6, Bombay  Finance  Act  of 1932 incorporated  therein  by  the Bombay Finance (Amendment) Act, 1939 was impugned.  S. 20 of the  said  Part 6 of the Bombay Finance  Act  directed  that inclusion  of  the said Part was to extend to  the  City  of Bombay  and  the  other places  therein  mentioned.   S.  21 defined  "annual  letting value" in the City  of  Bombay  as meaning  the  rateable  value  of  buildings  or  lands   as determined in accordance with the provisions of the City  of Bombay  Municipal Act, 1888.  S. 22 which was  the  charging section provided that there shall be levied and paid to  the Provincial  Government a tax on buildings and  lands  called the  Urban  Immovable  Property Tax at 10 per  cent  of  the annual letting value

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(1) A. I. R. 1940 Bombay 65. 123 of  such  buildings  or Iands.   Examining  the  legislative authority  of  the  Provincial  Government,  Beaumont   C.J. observed :               "The impugned tax may fall either: (1)  within               item 42 of the Provincial List and not  within               the  Federal  List, or (2) within item  54  or               item 55 of the Federal List and not within the               Provincial  List,  or (3) it may  fall  within               both the Lists." It  will be noted that item 54 read "taxes on  income  other than .agricultural income" and item 55 "taxes on the capital value  of  the ,assets, exclusive of agricultural  land,  of individuals  and  companies;  taxes on the  capital  of  the companies".   According  to the learned  Chief  Justice  the impugned tax was not a tax on income.  He observed :               "The  charging s. 22 imposes the tax on  lands               and  buildings,  and not on  income,  and  the               basis of the tax is annual value.  This is. an               arbitrary basis which might be applied as well               for   ascertaining  capital  value,   as   for               ascertaining  income.   The  fact  that   some               concession  is allowed to the small  owner,  a               concession  which  may  be based  as  much  on               political,  as on economic considerations  and               that  an  allowance  may  be  made  where  the               property is shown to produce no income, a fact               which may be taken to show that the  estimated               value was found to be erroneous, cannot  alter               the nature of the tax." Addressing himself to the question as to whether the tax was one  on the capital value of the assets, the  learned  Chief Justice said               "An analysis of the language employed in items               54 and 55 respectively affords scope for  this               argument  but whether the contention be  sound               or not, in my opinion, it is impossible to say               that  this tax, although it is a tax on  lands               and  buildings, is a tax on the capital  value               of,  the lands and buildings.  It  is  imposed               without  any  relation to  the  capital  value               except so far as such value can be ascertained               by reference to rateable value." Broomfield,  J.  made  an  attempt  to  ascertain  what  the expression "capital value" meant and said :               "What is meant by the capital value of  assets               in  that item (item 55) is by no means  clear,                             and  the  argument threw little  light   on  the               matter.  It may be that what is intended is  a               tax on the total value of assets in the nature               of  capital levy.  In any case the measure  of               the capital value of assets would appear to be               the  market  price.  That would  obviously  be               affected by several factors, e.g. 124               mortgages  and charges, of which the  impugned               tax  takes  no  account ....  Looking  at  the               essential character Of ’the tax from the legal               point of view, I think. it may be described as               a  tax on lands and buildings, imposed on  the               owners qua owners, and assessed by a  somewhat               arbitrary but not inequitable standard,  which               is  not dependent either on the income of  the

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             assessee  or  on  the  capital  value  of  the               properties." Kania,  J.  did  not think that the impugned tax  was  of  a nature  to encroach upon item 55 in List I; under that  item the  tax should be on the total capital assets and not on  a portion of person’s capital. In Municipal Corporation v. Gordhandas(1) Rule 350-A  framed by the Corporation of the City of Ahmedabad in respect of  a rate  on open lands was impugned as ultra vires.  This  rule laid down the manner in which the rateable area of the  open lands was to be determined and provided that the rate of the area  of open land thus determined was to be levied  at  one per  cent  of the valuation based on capital  and  all  such lands subject to ’exemptions thereinafter provided shall  be liable  to  be charged the same’.  Rule 243 dealt  with  the valuation  based on capital and it laid down that  valuation based  upon capital shall be the capital value of  buildings and  lands  as may be determined from time to  time  by  the valuers   of  the  municipality  who  were  to   take   into consideration  such  reliable  data as  the  owners  or  the occupiers  might  furnish either of their own accord  or  on being  called upon to do so.  It was common ground that  the corporation  derived its authority to impose taxes or  rates under s. 73 of Bombay Act XVIII of 1925.  Sub-s. (1) of that section empowered a Municipality to impose for the  purposes of  the  Act a rate on buildings or lands  or  both  situate within  the  municipal borough.  Sub-s. (2) provided  for  a limitation:  that nothing in this section was  to  authorise the imposition of any tax which the State Legislature has no power  to impose in the State under the Government of  India Act, 1935 under Entry 55, List I. The corporation  contended that  the rate in question did not amount to a capital  levy at  all, but that it was, a rate on open land and the  value of  the  capital was utilised merely as a  or  machinery  to enable  the municipal corporation to levy a reasonable  rate on the said open plot.  In support of this, the  corporation relied  upon  the  Explanation  to s.  75  of  the  Municial Boroughs  Act laying down the procedure preliminary  to  im- posing  a  tax.  It provided that before imposing  a  tax  a municipality  shall,  by a resolution passed  at  a  general meeting,  specify among other things (iii) in the case of  a rate on buildings or lands (1)  A.I.R. 1954 Bombay 188. 125 or both, the basis for each class of the valuation on  which such  rate is to be imposed; and the explanation added  that in  the case of lands the basis of valuation may  be  either capital or annual letting value.  According to the municipal corporation  all  that R. 350-A had purported to do  was  to adopt  the  capital  value as the  basis  of  valuation  for levying  the rate on open lands.  In upholding the  validity of the tax, Gajendragadkar, J. (as he then was) said (see P. 191) :               "........ the Provincial Legislature is  given               the Dower to levy a tax on lands.  Entry 42 of               List  II,  which  confers this  power  on  the               Provincial Legislature, introduces no terms of               limitation  and  does  not  provide  for   any               particular  manner in which the tax should  be               levied.   In  other words, the  power  of  the               Provincial  Legislature  to levy  the  tax  on               lands  is  unqualified and absolute.   In  the               present  case,  the  power  of  the  Municipal               Corporation to levy a tax on the open land  is               similar  in extent to the power of  the  local

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             legislature  ... If, by adopting  this  basis,               the  inevitable result would be that the  rate               which  is  ultimately  levied  amounts  to   a               capital levy and is, therefore ultra vires, it               would  be necessary to hold that, not only  R.               350A ultra vires, but the Explanation to s. 75               itself is ultra vires." He did not however feel driven to this conclusion as in  his view               "a distinction must be made between a rate  or               tax  which is levied on land on the  basis  of               its capital value and a tax which is levied on               the  capital value of the land treating it  as               an asset itself." He added:               "It   seems  to  me  that  it   is   perfectly               legitimate to the taxing authority to  attempt               to correlate its tax to the real value of  the               property.  It would be open to a  municipality               to levy a uniform tax on all the buildings; it               would similarly be open to the municipality to               levy  a  uniform tax on all  the  lands.   The               Municipality may, however attempt to make such               taxation reasonable by taking into account the               areas of the lands and the size and nature  of               the  buildings.   But when  the  municipality.               makes provisions for taking into account these               relevant facts, the municipality is attempting               only to make its taxation reasonable, just and               equitable.   It is with that view alone  that,               in  the  case  of lands,  the  Municipal  Cor-               poration of Ahmedabad has chosen to adopt  the               basis  of the capital value of the open  lands               to  determine the rate of tax that  should  be               levied on them." 126 The,  learned  Judge  went on to  consider  in  what  manner Central  Legislature could levy a tax on the capital  value. of the assets.  He observed :               "If  the  asset in question happens  to  be  a               land,  its real capital value in  the  context               would be determined after taking into  account               the  encumbrances  to which the  land  may  be               subject and the other liabilities which may be               enforceable  against it. . . . . The  position               of the Municipal Corporation when it levies  a               rate  on  the same property,  treating  it  as               land, is not the same or similar.  It would be               open to the Municipal Corporation to take into               account the value of the land as such, without               reference to the encumbrances to which it,  is               subject, and to levy the rate on the value  of               the  land  so determined in other  words,  the               municipal  rate or tax would not be  concerned               to  determine the real economic capital  value               of the asset in question, but to find out  the               market  value of the land apart from its  real               capital  value in the economic sense and  levy               its tax on it.  In this way, the capital value               of  the open land determined by the  Municipal               Corporation under R. 350A would not always  or               necessarily  be the same as the capital  value               of  the same land if it was determined by  the               Central Legislature for the purpose of levying               a tax under Item 55 in List I."

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The learned Judge however visualised that in some cases  the capital  value may work out to be the same in cases  falling under Entry 55 of List I and those falling under Entry 42 of List II. The learned Judge Vyas, J. said :               "In  the context of item 55 the capital  value               of  the assets means the real  capital  value,               regard being had to the encumbrances to  which               the  lands  may be subject.  If a  land  whose               market  value is Rs. 10,000/- is subject to  a               mortgage of Rs. 15,000/- the owner has only an               equity of redemption the value whereof may  be               a  minus  quantity.  Such an asset  could  not               possibly be liable to the levy of a tax  under               entry  55  of List I. All the same  the  owner               would  not  be immune from the levy of  a  tax               upon  the said land by the municipality  under               entry 42 for the municipality is not concerned               whether    the   land   is    encumbered    or               unencumbered." It  must be noted that the above decision was set  aside  in appeal to this Court but there is nothing in the judgment of this  Court  which goes against the  interpretation  of  the expression "capital value" by the High Court.  The  decision of  the majority Judges of this Court was based on the  fact that the word "rate" had not 127 been used anywhere in the Act and when it was provided  that in the case of open lands the basis of valuation may  either be  capital or annual letting value "the words must be  held to  refer to that well-known method of valuation  prevailing in England with respect to levy of rates and cannot be  read to  mean a percentage of the capital value itself"  :  Patel Gordhandas    Hargobindas   v.    Municipal    Commissioner, Ahmedabad(1). Entry 49 appears always to have been regarded as contemplat- ing  the levy of tax on lands and buildings both  as  units. As  was pointed out in Asst.  Commissioner v. B &  C.  Mills Ltd. (supra)               "Entry  49 of List II, contemplates a levy  of               tax  on lands and buildings or both as  units.               It  is  not  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......  For  the  purpose   of               levying tax under Entry 49, List II the  State               Legislature  may  adopt  for  determining  the               incidence  of  tax the annual or  the  capital               value of the lands and buildings." In this case it was held that the Madras Urban Land Tax  Act 12 of 1966 was in pith and substance one which imposed a tax on  urban land at a percentage of the market value  and  was within die ambit of Entry 49 of List II. The history of this entry  was also traced in the judgment and it was held  that "Entry 49 ’taxes on lands and buildings’ should be construed as taxes on lands and taxes on buildings." It  may  not be out of place to note that the vires  of  the Punjab Urban Immovable Property Act of 1940 which  contained somewhat  similar  provisions  was  challenged  before   the Federal  Court  of India in Ralla Ram v.  Province  of  East Punjab  (2) . There the charging section (sec.  3)  provided for  the  levy and payment of annual tax  on  buildings  and lands  situate in the rating area shown in the  Schedule  to the Act at a rate prescribed not exceeding twenty per centum

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of the annual value of such buildings and lands and  section 5  laid down that the annual value of any land  or  building was to be ascertained by estimating the gross annual rent at which such land or building might reasonably be expected  to let  from year to year less certain allowances.  One of  the grounds  urged was that the impugned tax was in substance  a tax on income and as such covered by Entry 54 in List I  and not by Entry 42 in List II.Turning down the above contention it was observed:               "The  Act is to be read as a whole and  having               regard to  the elaborate provisions made in it               for determining (1) [1964]-2 S.C.R. 608 at 632. (2) [1948] F.C.R. 207. 128               the annual value of buildings and to the  fact               that  the rate actually fixed in the  Official               Gazette  has a direct reference to the  annual               value, there can be no doubt that the basis of               the tax is annual value." The Court further said that (see p. 220) :               ".......  once it is realised that the  annual               value  is not ,necessarily actual income,  but               is  only  a standard by which  income  may  be               measured, much of the difficulty which appears               on  the surface is removed.  In  our  opinion,               the crucial question to be answered is whether               merely because the Income-tax Act has ’adopted               the   annual   value  as  the   standard   for               determining  the income, it  must  necessarily               follow that, if the same standard is  employed               as  a  measure  for any other  tax,  that  tax               becomes a tax on income ?" Considering  the pith and substance of the  legislation  the Court said that     (see p. 224) :               "There is however nothing in the impugned  Act               to  show that there was any intention  on  the               part  of the Legislature to get at or tax  the               income of the owner from the building.. ......               The annual value, as has been pointed out,  is               at  best only notional or hypothetical  income               and  not  the  actual income.  It  is  only  a               standard  used  in  the  Income-tax  Act   for               getting  at income, but that is not enough  to               bar the use of the same standard for assessing               a Provincial tax.  If a tax is to be levied on               property,   it  will  not  be  irrational   to               correlate it to the value of the property  and               to make some kind of annual value on the basis               of the tax without intending to tax income." The ultimate conclusion of the’ Court was that in  substance the impugned tax was not a tax on income. Before  the  vires  of the  Wealth-tax  Act,  as  originally enacted  came to be canvassed before this Court, the  matter had engaged the attention of several High Courts.  It  would appear that throughout this web of decisions the  principal- and  sometimes the only question raised was, whether it  was competent  to the Union Parliament to enact a measure  which would  impose a liability on Hindu undivided  families  when Entry 86 provided for imposition (if a tax on  "individuals" and "companies",.  Chronologically the main decisions are as follows.  In Mahavirprasad Badridas v. Yagnik, Second Wealth Tax  Officer(1) the petitioner before the Bombay High  Court contended that "to the extent the Union (1) [1959] 37 I. T. R. 191.

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129 Parliament  authorised  the  levy of  wealth  tax  on  Hindu undivided families as units, the legislation is ultra vires" and  in support of that contention placed reliance on  Entry 86.  The submission assumed that the levy of wealth-tax fell under  Entry  86.   The contention  of  the  petitioner  was repelled  by  Shah,  J. (as he then was)  holding  that  the expression  "individuals"  used  in defining  the  topic  of legislation  would include an association of individuals  It is  to  be noted however that the  learned  Attorney-General appearing on behalf of the Union of India had contended that even  assuming  that  by the 86th entry in  List  I  of  the Seventh Schedule the Union Parliament was not invested  with power  to legislate for levying wealth-tax on the assets  of Hindu undivided families, the Union Parliament was still  so invested with authority by Art.  A2. of the Constitution and Entry  97  in  List  I of the  Seventh  Schedule.   For  the assessee  it was submitted that "where the Constitution,  in defining   powers   to  legislate  on  a   topic,   has   by incorporating   words  of  limitation  expressly  placed   a restriction  upon  the  competence of  Parliament  to  enact legislation, relying upon the residuary powers contained  in Art.  248 and Entry 97 in List I, the restriction cannot  be ignored.  Shah, J. dealt with this argument by governing :               "On   the   view   I   have   taken   on   the               interpretation of the expression "individuals"               in  entry 86, 1 do not think it  necessary  to               express any opinion on the question whether in               the residuary powers of the Union  Parliament,               power  to  legislate  on  a  topic  which   is               partially  dealt with by a specific  entry  in               the first List may be regarded as included." The  other  learned  Judge,  Desai,  J.  expressed   himself similarly.   In N. V. Subramanian v. Wealth  Tax  Officer(1) the  vires  of the Act was challenged by a  Hindu  undivided family  before  the  Andhra Pradesh  High  Court  the  exact contention  being  "that the respondent cannot  take  action under  the  provisions  of the  Wealth-tax  Act,  1957  with respect  to a Hindu undivided family on the ground that  the Act,  in  so far as it enables the levy  and  collection  of wealth-tax  on  the  capital  value of  assets  of  a  Hindu undivided family is beyond the legislative competence of the Union Parliament".  No point appears to have been raised  as to whether wealth-tax could at all be the subject of a  levy under entry 86, as the High Court noted (p. 571) :               "The  principal  question  that  falls  to  be               determined    is   whether   the    expression               ’individuals’  in  entry 86 can  comprehend  a               Hindu undivided family." (1) 40 I.T.R. 567. 130 Reference  was made to Mahavirprasad’s case (supra) as  also decisions  turning on the interpretation of  the  expression "individuals" in section 3 of the Income-tax Act of 1922 and it was held that the principle of the said decisions applied to  the construction of ’individual’ in entry 86.   Although the Court mentioned that reliance had been placed on  behalf of the Wealth-tax Officer upon Entry 97 in List I to sustain the  imposition it did not feel it necessary to examine  the applicability of the said entry. The question cropped up again before the same High Court  in P.  Ramabhadra Raju v. Union of India(1) and  was  similarly answered.  The argument on behalf of the assessee  proceeded on  the assumption that entry 86 was the relevant entry  for levying wealth-tax but it was inapplicable to the case of  a

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Hindu undivided family. In C. K. Mammad Keyi v. Wealth-tax Officer(2 ) the  assessee raised  in the forefront of his contention that  "Parliament was not competent under entry 86 in the Union List to impose a  tax  called the wealth-tax on the capital  value  of  the assets   of   Hindu  undivided  families  and   of   Mappila Marumakkattayam tarwads and also on the capital value of the assets of any person to the extent that they are and may  be deemed to be made up of agricultural income." Examining  the different  provisions of the Act, Velu Pillai,  J.  observed (see p. 282) :               "These  leave no room for doubt in  our  minds               that the pith and substance or the true nature               and character of the tax is that it is a  levy               on  the  capital value of assets,  subject  to               specified  inclusions_-and exclusions  in  the               content  of  the term  ’assets’,  agricultural               lands  being one of the exclusions.   To  this               extent, the wealth-tax is specifically and  in               substance  covered  by entry 86 in  the  Union               List." The  learned  Judge  felt no  difficulty  in  accepting  the argument that "lands and buildings" can form part of  assets and  that "taxes on lands and buildings" within the  meaning of  Entry 49 of the State List may include a tax thereon  on the basis of their capital value. He remarked that               "the Iand tax can be related to the annual  or               capital or sale value of the land." According to him:               "the distinction, real and vital (i.e. between               entry 86 and entry 49) between a tax on  lands               and buildings on (1) 45 I.T.R. 118. (2) 44 I.T.R. 277. 131               the basis of their capital value, and a tax on               such  capital value itself treating lands  and               buildings  as  an  item of  asset,  cannot  be               ignored." He further observed               In  the case of a tax whose base or object  is               lands  and buildings, their annual or  capital               value is but a measure or standard adopted  to               ensure  the justness or reasonableness of  the               levy,  but  in the case of a  tax  on  capital               value, such value is itself the base or object               of the levy." According  to the learned Judge there was an overlapping  of imposts under Entry 86 and Entry 49 as in his view :               "To allocate the legislative power to impose a               tax   on  the  capital  value  of  lands   and               buildings,  treating them as assets,  entirely               to the field covered by entry 86 in the  Union               List is not, as contended, to rob entry 49  in               the  State  List  of  its  content,  for  even               excluding taxes under entries 45 to 48 in  the               State List, which have some relation to  lands               or buildings or both, the field is still  open               under entry 49 for legislation for other taxes               on   lands  and  buildings......   There   is,               therefore, may no conflict and no  overlapping               of jurisdiction in the case of the two entries               in question." The learned Judge was further of the view that               "...... entry 49 must be held to be a  general

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             provision for taxes on lands and buildings and               to yield to entry 86 which must be held to  be               a  special provision for a particular  tax,  a               tax on the capital value of assets." On  the other aspect of the case e.g. that a tax on the  net wealth  of  an assessee to the extent that it is or  may  be said  to be made up of his agricultural income and  as  such pertaining to the field marked by entry 46 in the State List the learned Judge pointed out that the charging, section  in the Act did not purport to tax any income whatever but  only the  net  wealth of an assessee as defined in terms  of  his assets.   He  agreed  with the view of the  Bombay  and  the Andhra Pradesh High Courts that a Hindu undivided family was not  an  entity  distinct  and  separate  from  the  members composing  it  and came within the connotation of  the  term ’individual’  in  entry  86.   In  this  view,  he  felt  it unnecessary  to consider the alternative  argument  advanced for the department that even if entry 86 was not  applicable the  Act  was saved by Art. 248 read with entry  97  in  the Union List. So far as the Allahabad High Court is concerned the  notable judgment  is that of a Bench of three Judges, Jugal  Kishore v. 132 Wealth-tax  Officer(1).   The judgment of  Gurtu,  J.  shows that .the argument on behalf of the assessee was that  Entry 86  did  not  justify  an  imposition  on  Hindu   undivided families.   He appears to have started with  the  assumption that  imposition of tax on net wealth would be,  covered  by Entry  86 but inasmuch as the said ,entry would not  justify an  imposition on a Hindu undivided family resort  could  be had  to  the  residuary  power in  Art.  248  to  justify  a ,legislation of this measure (see p. 100).  Upadhya, J.  was of the view that "the Act should be declared ultra vires the Parliament so far as it imposed a tax on the capital  assets of  the Hindu undivided families" (p. 115).  Jagdish  Sahai, J.  concluded that the Union legislature could have  enacted the impugned provison by virtue of entry 86" and it was "not necessary to go into the question whether entry 97 read with Art.  248  could sustain the impugned provision"  (pp.  123- 124). In  Sarjero Appasaheb Shitole v. Wealth-tax Officer (2)  the three main points urged there : (i) wealth-tax on lands  and buildings  is  ultra vires the powers  of  Parliament;  (ii) under  any circumstances Parliament could not  have  imposed wealth-tax  on  Hindu  undivided  families;  and  (iii)  the Wealth-tax Act was violative of Art. 14 of the Constitution. It  was. argued on behalf of the assessee that Entry  86  of List I had to be read as subject to Entry 49 in List II;  if so  read  it  would be found that the field  of  "lands  and buildings"  was reserved for the State under Entry 49.   The first  point  was  rejected  on the  basis  of  the  earlier decision in Balaka’s case(3) holding that "land" other  than agricultural  land, being a part of the assets, came  within the  scope  . of Entry 86.  It was argued that Entry  86  of List  I  did not empower Parliament to  levy  wealth-tax  on undivided  families.   This point was decided  :against  the assessee by the learned Judges observing (see p. 376) "Whenever  a question arises as to the source of power,  the task  of  the court is to locate that power in  one  or  the other  of the Lists ... As mentioned earlier, it Is not  the case  of  the  assessee that the power in  question  can  be located  either  in  List II or  List  III.   Therefore,  it follows  that Parliament has power to legislate on the  sub- ject either under entry 86, failing that under the residuary

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power  given to it under entry 97.  It makes  no  difference whether  the source of the power is in entry 86 or in  entry 97.   Therefore, we hold that Parliament had  competence  to enact  a law providing for imposing wealth-tax on  undivided families." The Madras High Court had to deal with the question in  Raja Sir  M.  A.   Muthiah Chettiar V.  Wealth-tax  Officer  (4). The (1) 44 I.T.R. 94.              (2) 52 I.T.R. 372, (3) 48 I.T.R. 472              (4) 53 I.T.R.504. 133 petitioner   there  asked  for  the  issue  of  a  writ   of prohibition to direct the Wealth-tax Officer to forbear from taking  proceedings pursuant to the notices issued and  also for  a similar writ restring  the Expenditure  Tax  Officer. The only question in the first petition was, whether s. 3 of the  Wealth-tax Act offended Art 14 of the  Constitution  in that it left out of its ambit Marummakkattayam tarwards.  It was held that the charging section of the Wealth-tax Act did not  fall within the mischief of the equality clause of  the Constitution  as  Government  was free to  exercise  a  wide discretion  in selecting the subjects of  legislation.   The Kerela  case  above referred to came up in  appeal  to  this Court : the judgment there is reported in 52 I.T.R. 605  and allowing  the  appeals and remanding the case  to  the  High Court  this  Court  observed that it was  not  necessary  to consider  whether  the view of the High Court on  the  first question  relating to legislative competence was or was  not correct. The,  judgment  of the Special Bench of the  Allahabad  High Court already referred to came up for consideration in  this Court in Banarasi Das v. Taxing Officer(1).  The  appellants contended before this Court that the taxes which  Parliament was  empowered to levy under entry 86 could only be  imposed on individuals and if these bodies were outside the scope of entry  86 they could not be subjected to such a  levy  under Entry 97 "as that entry referred to matters other than those specified  in  entries 1 to 96 of List I as  well  as  those enumerated  in Lists 11 and III and since Wealth-tax  was  a matter  specifically enumerated in Entry 86, Entry 97  could not be held to take in the said tax." In regard to Art.  248 the  argument was that it must be read with Entry 97 and  if wealth-tax  in  respect of the capital value  of  assets  of Hindu undivided families was outside both Entry 86 and Entry 97,   the  residuary  power  of  legislation  conferred   on Parliament  by Art. 248 could not be invoked in  respect  of tax  imposed  on  the  capital  value  of  assets  of  Hindu undivided families by the impugned provision" (p. 358). On  behalf of the Wealth Tax Officer it was argued that  the impugned  provision  was primarily valid under Entry  86  in List  I.  In the alternative, it was argued  that  Entry  97 which  was a residuary entry would take in all  matters  not enumerated  in  List II or List III including  any  tax  not mentioned  in either of those Lists.  It was urged that  the words  "matter" mentioned in Entry 97 cannot take  in  taxes specified  in Entry 86, but it refers to the subject  matter in   respect  of which Parliament seeks to make a law  under Entry  97  .The bulk of the arguments there  turned  on  the inter pretation     of  the word "individuals" in  Entry  86 and as to whether the use of that word justified the levy of a tax on Hindu undivided families.  According to this Court (1) [1965] 2 S.C.R. 355. 134               "the basic assumption on which the appellants’               argument rests is that the Constitution-makers

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             wanted  to  exclude the capital value  of  the               assets  of  Hindu  un-divided  families   from               taxes.   That is why their contention is  that               the impugned provision would not be  sustained               either  under  entry 86 or under entry  97  of               List or even under Art. 248." (p. 360). To this the Court’s reaction was :               "On the face of it, it is impossible to assume               that  while thinking of levying taxes  on  the               capital  value  of  assets,  Hindu   undivided               families could possibly have been intended  to               be left out". (p. 361). It was further said (p. 364) :               "The Constitution-makers were fully aware that               Hindu  citizens of this country normally  form               Hindu  ,undivided families and if  the  object               was  to  levy taxes ,on the capital  value  of               assets  it  is inconceivable  that  ,the  word               ’individuals’  was  introduced  in  the  entry               with. ,the object of excluding from its  scope               such a large and extensive area which would be               covered by Hindu undivided families." Accordingly  the  Court  came to  the  conclusion  that  the "impugned section is valid because Parliament was  competent to  legislate in respect of Hindu undivided  families  under Entry 86". .Having come to the said conclusion it was  said. (see at p. 364)               "This question has been considered by  several               High  courts and the reported  decisions  show               consensus in judicial opinion in favour of the               construction   of  Entry  86  which  we   have               adopted." This is followed by reference to the decisions of the Bombay High Court, Andhra Pradesh High Court, Mysore High Court and the  Madras  High  Court  which  have  been  already  noted. According to this Court :               ".......  these reported decisions  show  that               the  validity  of the impugned  provision  was               challenged  before  the  High  Courts  on  the               ground  that the Hindu undivided family is  an               association and as such, the capital value  of               its assets could not be taxed under Entry 86." The Court observed at p. 365               "Since  we  have come to the  conclusion  that               Entry  86  covers  cases  of  Hindu  undivided               families,   it  follows  that   the   impugned               provision  is  valid  under  the  said   Entry               itself.   That being so, it is unnecessary  to               consider whether the validity of the  impugned               provision can be sus- 135               tained under Entry 97 or under Art. 248 of the               Constitution." It  will be noted that the argument there was not whether  a tax or net wealth was covered by the entry "capital value of the assets" but whether "individuals" on whom the burden was to  fall  under that entry, could  include  Hindu  undivided families  and  this  Court was really  not  called  upon  to examine this aspect of the matter. In S. C. Nawn v. Wealth-tax Officer (supra) the substance of the argument was that wealth-tax was chargeable only on  the accretion  of  wealth  during the financial  year  and  that Parliament  could  not have intended that  the  same  assets should continue to be charged to tax year after year.  It is to  be noted that in the writ petition filed in this  Court,

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the assessee did not contend that the tax on net wealth  was not chargeable under the Act of 1957under Entry 86 or in any other  Entry  of the Union List and naturally  there-was  no occasion for this Court to go into that question as is clear from a passage as p. II 0 of the judgment :               "The Parliament enacted the Wealth-tax Act  in               exercise  of  the power under List I  of  the,               Seventh   Schedule  entry  86-"Taxes  on   the               capital   value   of  assets,   exclusive   of               agricultural  lands, or individuals  and  com-               panies;  taxes on the capital  of  companies".               That  was so assumed in the decision  of  this               Court  in Banarsi Dass v. Wealth Tax  Officer,               Special  Circle, Meerut (supra),  and  counsel               for the petitioner accepts that the subject of               Wealth-tax  Act  falls within  the  terms’  of               entry 86 List I of the Seventh Schedule.  What               he  argued bowever was that........ since  the               expression   ’net   wealth’   includes    non-               agricultural   lands  and  buildings   of   an               assessee,  and power to levy tax on lands  and               buildings    is   reserved   to   the    State               Legislatures  by  Entry  49  List  II  of  the               Seventh    Schedule,   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.,, This was however turned down by the Court observing               "The tax which is imposed ’by entry 86 List  I               of the Seventh Schedule is not directly a  tax               on  lands and buildings.  It is a tax  imposed               on   the  capital  value  of  the  assets   of               individuals  and companies, on  the  valuation               date.    The  tax  is  not  imposed   an   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 asset,  but  the               general  liability of the assessee to pay  his               debts and to discharge his lawful 136               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               manner  of computation bear similarity to  tax               on  lands and buildings levied on the  capital               or  annual value under entry 49 List .II.  But               the legislative authority of Parliament is not               determined  by visualizing the Possibility  of               exceptional cases of taxes under two different                             heads operating similarly on tax-payer s." The Court went on to add :               "Again  entry  49  List  II  of  the   Seventh               Schedule contemplates the levy or tax on lands               and  buildings  or  both  as  units.   It   is

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             normally  not concerned with the  division  of               interest or ownership in the units of lands or               buildings  which are brought to tax.   Tax  on               lauds  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." it  is  therefore  quite clear  that  the  whole  discussion proceeded  on the assumption that imposition of tax  on  the net  wealth  was  justified  under  Entry  86  List  I.  The assessee’s  contention was that capital value of  lands  and buildings would fall under entry 49 and would therefore fall within  the  exclusive field of legislation  of  the  State. This  was turned down by the Court holding that the  concept of a tax on net wealth which included not only the value  of ’the  assets  but  excluded the  general  liability  of  the assessee to pay his debts was one entirely different from  a concept of tax attributable to lands and buildings as  such. With   respect,  this  was  the  proper  approach   to   the identification  of the subject matter of  legislation  i.e.- that  the levy had no direct relationship to  the  aggregate value of the assets of an "individual" but his net worth 137 which was to be determined by deducting his liabilities from the total value of the assets held by him. In Assistant Commissioner v. Buckingham & Carnatic Co.  Ltd. (supra)  Madras  Act 12 of 1966 was  inter  alia  challenged before  the Madras High Court as violative of Arts.  14  and 19(1)  (f)  of the Constitution.  Before this Court  it  was contended  inter  alia on behalf of the  assessee  that  the impugned Act fell under Entry 86 List I and not under  Entry 49 of List II, and as Entry 49 envisaged taxes on lands  and buildings  the impugned Act which imposed tax on land  could not  be  held  to fall under that entry.   The  argument  on behalf  of  the respondent was that the "impugned  Act  was, both in form and substance taxation on capital and was hence beyond  the  competence of ’the State Legislature."  It  was urged  that  "to tax on the basis of  capital  or  principal value of assets was permissible to Parliament under List  I, entries 86 and 87 and to the State under entry 48 of List 11 "Taxation under Entries 86 and 88 formed a group of  entries the scheme of which was to carry out the directive principle of Art. 39(c) of the Constitution and the method of taxation of  capital  or  principal  value  was  prohibited  even  to Parliament  in  respect of other taxes and  ’to  the  States except  in  respect of estate duty  on  agricultural  land". This was turned down by the Court observing (see p. 277) :               "...... there is no warrant for the assumption               that entries 86, 88 of List I and Entry 48  of               List  II  form a special group  embodying  any               particular scheme .... The legislative entries

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             must   ’be   given   a   large   and   liberal               interpretation,  the  reason-being  that   the               allocation of the subjects to the lists is not               by way of scientific or logical definition but               by way of a mere simplex enumeration of  broad               categories.  We see no reason, therefore,  for               holding  that the entries 86 and 87 of List  I               preclude  the St-ate Legislature  from  taxing               capital  value  of lands and  buildings  under               Entry 49 of List II." The Court went on to add :               "In  our opinion there is no conflict  between               Entry  86 of List I and Entry 49 of  List  II.               The basis of taxation 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               the assets.  It is imposed on the total assets               which the assessee owns and in determining the               net   wealth   not   only   the   encumbrances               -L256Sup.CI/72 138               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               relation to lands and buildings which may form               a  component  of  the  total  assets,  of  the               assessee.....  For the purpose of levying  tax               under Entry 49, List II the State  Legislature                             may adopt for determining the incidenc e of  tax               the  annual or the capital value of the  lands               and buildings.  But the adoption of the annual               or  capital value of lands and  buildings  for               determining  tax liability will not  make  the               fields  of legislation under the  two  entries               overlapping.  ,  The two  taxes  are  entirely               different  in their basic concept and fall  on               different subject matters." Sri Prithvi Cotton Mills Ltd. v. Broach Municipality (supra) was  the  aftermath of the judgment of this Court  in  Patel Gordhandas’s  case  (supra).   To undo the  effect  of  that decision   the  Gujarat  Legislature  passed   the   Gujarat Imposition of Taxes by Municipalities (Validation) Act  1963 seeking to validate the imposition of the tax as well as  to avoid  any future interpretation of the Act on the lines  on which  Rule  350-A  was construed.  Sec. 3 of  the  Act  was passed to validate past assessments and collection of  rates on  lands and buildings on the basis of capital value  or  a

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percentage  of  capital value as also all  assessments  made before the passing of the Validation Act.  At the same  time s.  99  was  enacted in the Gujarat  Municipalities  Act  to provide for the levy of a tax on lands and buildings "to  be based  on the annual letting value or the capital  value  or the  percentage  of the capital value of  the  buildings  or lands  or  both."  The main question before  the  Court  was whether  the legislature possessed competence to pass a  law imposing a tax on lands and buildings on the basis of a per- centage of their capital value.  The Court noted that it was conceded  by counsel for the appellants that sec. 99 of  the Municipalities Act  was permissible legislation under  Entry 49 of List II. The  Court observed that :               "the  doubt which was created by entry  86  of               List I no longer exists after the decision  in               Sudhir Chandra Nawn’s case (supra).  As it had               been held in that case that tax under entry 86               was  not a direct tax on lands  and  buildings               but  on  net  assets it was open  to  a  State               Legis- 139               lature to levy a tax on lands and buildings as               units indicating the mode of levy which  could               include  one  based  on a  percentage  of  the               capital value." It  will thus be clear from the elaborate discussion of  the arguments  in  all  the cases regarding  the  imposition  of wealth-tax  in  different  High Courts  that  the  principal ground  of  attack  on the Wealth-tax Act  was  that  "Hindu undivided families" were not "individuals" and could not  be brought  to tax under Entry 86 of List I directly or by  the aid  of  Art. 248 read with Entry 97 of the said  List.   In most  of  the cases the learned Judges did not  feel  called upon to express any opinion with regard to the applicability of  Entry 97.  Barring the decision in Mohammad Keyi’s  case in the Kerala High Court, little was said about the scope of this Entry read with Art. 248.  When the matter came to this Court  effectively for the first time in Banarsi"Das’s  case (supra)  the  Judges  did not  think  that  the  legislative history   in   the  matter  of  denotation   of   the   word "individuals"  on which the appellants relied  could  really afford  any  material  assistance  in  construing  the  word "individuals"   in   entry   86.   The   Court   held   that "individuals"  in  Entry 86 would  include  Hindu  undivided families as had been the view of many High Courts. With respect no serious attempt was made in any of the cases to  properly identify the subject matter of the  legislation imposing  the  tax and ascertain whether  capital  value  of assets meant the same thing as net wealth as defined in  the Wealth Tax Act.  The various decisions and authorities cited above  which  bear  on the true meaning  of  the  expression "capital value of assets" make it amply clear that the  same can  only  mean  the market value of  the  assets  less  any encumbrances charged thereon.  The expression does not  take in  either the general liabilities of the individual  owning them or in particular the debts owed in respect of them.  In my view, the subject matter of legislation by Wealth Tax Act is  not covered by Entry 86 but by Entry 97 of List  I.  The capital value of the assets of an individual is as different from  his  net wealth as the market value  of  the  saleable assets  of a business is from its value as a  going  concern ignoring  the  goodwill.   When a business is  valued  as  a going’ concern its assets and liabilities whether charged on the fixed assets or not have to be taken into account but in

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computing  the value of the tangible assets of the  business the  general  liability  of  the  business  apart  from  the encumbrances on its assets do not figure.  To what use entry 86  can be put is not for us to speculate upon.  It  appears that the view of Professor Kaldor as expressed in his report on  Indian Tax Reform (Chapter 2) was that an annual tax  on wealth  should  be  a tax on accrual and not a  tax  on  the principal itself.  His suggestion was-that the tax should be on a graduated scale with a very low rate at the 140 lowest slab so that an assessee could meet both the  income- tax  liability and the wealth-tax liability without  feeling the  pinch.   It  must  also  be  noted  that  in  his  view agricultural land could only be taxed by way of wealth as  a result  of  a Constitutional amendment.  The  Government  of India  do  not  appear to have proceeded  on  the  lines  of Professor Kaldor’s suggestion.  Probably Entry 86 of List  I can  be utilised for levying a capital levy in an  emergency or by way of a marginal imposition of an individual’s assets without considering his holding of agricultural land.   Even assuming  Entry 49 of List II envisages imposition of  taxes on  lands  and  buildings’  adopting a  mode  Of  a  certain percentage on their capital value, lands and buildings  must still be subject to taxation as units and no aggregation  is possible.   Further,  no State Legislature is  competent  to levy a tax which would embrace an individual’s assets in the shape of lands and buildings situate outside the State. The  subject  matter of wealth tax  including  or  excluding agricultural lands etc. is not covered by Entry 86 of List I read  with Art. 246 of the Constitution, but by Entry 97  of List I read with Art. 248.  Although read by itself Entry 97 may  seem to suggest that the expression "any other  matter" has  reference to the other entries in List I,  Art.  248(1) makes  it  clear beyond doubt that such  matters  are  those which  are  not covered by entries in List II or  List  III. The  Constitution has not denied to the Union power to  levy wealth  tax inclusive of agricultural land as was  contended for on behalf of the respondents. The residuary field of legislation no longer lies barren  or unproductive.   It has already yielded fruitful  sources  of taxation like the Gift Tax Act, the Expenditure Tax Act  and borrowings as under the scheme of annuity deposits. In  the  above view of the matter, it is  not  necessary  to discuss  the  points  of similarity between  the  scheme  of distribution of legislative power under our Constitution and sections 91 and 92 of the British North America Act of 1867. Nor is it relevant to consider whether the words  "exclusive of  agricultural  land" in Entry 86 of List I are  words  of exclusion and not of prohibition. I  would  therefore  allow  the appeal  and  set  aside  the Judgment of the High Court but make no order as to costs.                            ORDER In  view  of the majority judgments the  appeal  is  allowed There shall be no order as to cost. V.P.S 141