Seth Banarsi Das Vs. Wealth Tax
Officer, Special Circle Meerut  INSC 283 (8 December 1964)
08/12/1964 GAJENDRAGADKAR, P.B.
(CJ) GAJENDRAGADKAR, P.B. (CJ) HIDAYATULLAH, M.
CITATION: 1965 AIR 1387 1965 SCR (2) 355
CITATOR INFO :
RF 1967 SC1176 (9) R 1969 SC 59 (3) R 1972
SC1061 (99,171,174) R 1972 SC2119 (3) RF 1981 SC1269 (3)
Wealth-tax Act, 1957 (No. 27 of 1957), s.
3-Hindu undivided families made chargeable to wealth tax-Section whether ultra
vires-Constitution of India, Seventh Schedule, List 1, Entry 86.
The appellants who were Hindu undivided
families challenged the levy of wealth tax on them on the ground that s. 3 of
the Wealth-tax Act, 1957, in so far as it brought to charge Hindu undivided
families was ultra vires being beyond the terms of Entry 86 in List 1. Their
writ petitions before the High Court having been rejected, but a certificate of
fitness having been granted, they appealed to the Supreme Court.
The contentions urged by the appellants were
: (1) Hindu undivided families were not mentioned as possible assessees in
Entry 86 and groups of individuals were not covered by the word 'individuals'
used therein. (2) Individuals constituting a Hindu undivided family could not
be subjected to the tax because the coparceners are a fluctuating body and
their shares in the capital assets of the family are liable to increase or
decrease and cannot be definitely predicated for the accounting year as a whole
unless partition is made. (3) Entry 86 had to be read in a restrictive manner
because unlike Entry 82 it specified the assessable entities, and by separately
referring to companies it introduced a limitation on the denotation of the word
'individuals'. (4) In income-tax legislation a distinction had always been
maintained between individuals and Hindu undivided families and the same must
be deemed to have been observed in framing Entry 86.
HELD : The impugned section was valid because
Parliament was competent to legislate in respect of Hindu undivided families
under Entry 86.
(i)The word 'individuals' in Entry 86 takes
in its sweep groups of individuals like Hindu undivided families. The
Constitution-makers were fully aware that the Hindu citizens of the 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.
[364 B-C] Case-law referred to.
Commissioner of Income-tax, Madhya Pradesh
& Bhopal v. Sodra Devi; Damayanti Sahni v. Commissioner of Income-tax, 32
I.T.R. 615, relied on.
(ii)Groups of individuals the capital value
of whose assets would be subjected to the payment of wealth tax, would
naturally be groups of individuals who form a unit and who own the said assets
together. The fact that the rights of individuals constituting the group are
liable to be decreased or increased does not make any difference when the
question is whether the word 'individuals' is wide enough to include groups of individuals.
[361 F-G] (iii)The Entries in the legislative Lists must be given the widest
interpretation; they must not be read in a narrow and restricted sense. [359 D]
356 United Provinces v. Mst. Atiqa Begum and Ors.,  F.C.R. 110, relied
There is nothing in the context of Entry 86
which can be said to introduce an element of restriction or limitation while
interpreting the word 'individuals'. [360 A-E) It is true that Entry 82 is
couched in wider terms than Entry 86. This is natural because what Entry 82
purports to do is to recognise the legislative competence of Parliament to levy
taxes on income, the only limitation being that the income must be other than
agricultural income. Since Entry 86 refers to taxes on the capital value of
asset-,, the Constitution makers must have thought that it was necessary to
specify whose assets should be subject to the taxes contemplated by the Entry.
Each Entry has to be independently interpreted, and a restrictive
interpretation of Entry 86 would not be justified because of the words of Entry
82. [360 D-E] Nor would a restrictive interpretation of the word 'individuals'
be justified on the ground that companies had not been included within that
term in the Entry. Since it was intended to tax the capital of companies it was
thought desirable to specify companies as a matter of precaution along with
individuals. [360 F] (iv) Legislative history showing that the taxing statutes
drew a distinction between 'individuals' and Hindu undivided families cannot
afford any material assistance in construing Entry 86. Occurring in an organic
document like the Constitution the word 'individuals' need not necessarily
receive the same construction as in taxing statutes. [362 FG] Navinchandra
Mafatlal v. The Commissioner of Income-tax, Bombay City, 1 S.C.R. 829 and
Navnitlal C. Javeri v. K. K. Sen, Appellate Assistant Commissioner of
Income-tax, Bombay,  1 S.C.R. 909 referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 124 to 129 of 1964.
Appeals from the judgment and decree dated
March 23, 1961 of the Allahabad High Court in Civil Misc. Writs Nos. 2127, 2128
and 2980 to 2983 of 1959.
N. C. Chatterjee and J. B. Agarwala, for the
appellants (in C. A. Nos. 124 and 125 of 1964).
A. V. Viswanatha Sastri and J. P. Goyal, for
the appellant (in C.A. No. 126/1964).
J. P. Goyal, for the appellants (in C. A.
Nos. 127 to 129 of 1964).
S. V. Gupte, Solicitor-General, R, Ganapathy
Iyer, R. H.
Dhebar and B. R. G. K. Achar, for the
respondents (in all the appeals) The Judgment of the Court was delivered by
Gajendragadkar, C. J. The common question of law which this group of six
appeals raises for our decision is whether section 3 of the Wealth-Tax Act,
1957 (No. 27 of 1957) (hereinafter called 'the Act) in so far as it purports to
levy a charge of wealth tax in respect of the net wealth of a Hindu undivided
family at the 357 specified rate, is valid. The respective appellants in these
appeals who constitute Hindu undivided families were charged under s. 3 and
they challenged the validity of the said charge on the ground that the said
section was ultra vires. The writ petitions filed by these appellants were
heard by a Special Bench of the Allahabad High Court consisting of Gurtu,
Upadhya, and Jagdish Sahai, JJ. Gurtu and Jagdish Sahai, JJ. have rejected the
appellants' contention and have upheld the validity of the impugned provision.
According to Jagdish Sahai, J., the impugned
section is intra vires, because Parliament had legislative competence to enact
the said provision under Entry 86 in List 1 of the Seventh Schedule to the
Constitution. Gurtu, J. who agreed with the said conclusion, however sustained
the impugned provision under Entry 97 in List 1 read with Art. 248 of the
Constitution. Upadhya, J. held that neither of the said provisions conferred
legislative competence on Parliament to enact the impugned provision, and so,
he came to the conclusion that, the said provision was ultra vires and the
charge levied against the appellants was, therefore, invalid. In accordance
with the majority decision, the writ petitions filed by the respective
appellants were dismissed.
The appellants then applied for and obtained
certificates from the said High Court, and it is with the certificates issued
in their favour that they have come to this Court in appeal.
The Act was passed in 1957 to provide for the
levy of wealth tax. Section 3 of the Act provides that subject to the other
provisions contained in this Act, there shall be charged for every financial
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. The three Constitutional provisions
relevant to the decision of the point raised before us in these appeals may now
be set out.
Entry 86 in List 1 deals with taxes on the
capital value of the assets, exclusive of agricultural land, of individuals and
companies; taxes on the capital of companies. Entry 97 in the said List refers
to any other matter not enumerated in List II or List III including any tax not
mentioned in either of those Lists. Article 248 -reads thus :"(1)
Parliament has exclusive power to make any law with respect to any matter not
enumerated in the Concurrent List or State List.
358 .lm15 (2)Such power shall include the
power of making any law imposing a tax not mentioned in either of those
The appellants contend that the word
"individuals" used in Entry 86 cannot take in Hindu undivided
families. The taxes which Parliament is empowered to levy under this Entry can
be levied only on individuals and not on groups of individuals, and on
companies. A Hindu undivided family consists of different coparceners who are,
no doubt, individuals, but inasmuch as the impugned provision purports to levy
wealth tax on the capital value of the assets of the Hindu undivided families
as such, the tax is not levied on individuals, but on groups of individuals,
and, therefore, is outside the scope of Entry 86. The appellants further urge
that if the Hindu undivided families are outside the scope of Entry 86, they
cannot be subjected to the levy of wealth tax under Entry 97, because Entry 97
refers to matters other than those specified in Entries 1 to 96 in List 1 as
well as those enumerated in Lists II and III.
Since wealth tax is a matter which is
specifically enumerated in Entry 86 of List 1, Entry 97 cannot be held to take
in the said tax in respect of Hindu undivided families.
In regard to Art. 248, the appellants'
argument is that the said article must be read together with Entry 97 in List
and if wealth tax in respect of the capital
value of the assets of Hindu undivided families is outside both Entry 86 and
Entry 97, the residuary power of legislation conferred on Parliament by Art.
248 cannot be invoked in respect of the tax imposed on the capital value of the
assets of Hindu undivided families by the impugned provision. That is how the
validity of the impugned provision has been challenged before us.
On the other hand, the respondent, the Wealth
Tax Officer, seeks to sustain the validity of the impugned provision primarily under
Entry 86 in List 1. It is contended on his behalf that the word
"individuals" used in Entry 86 is wide enough to take within its
sweep groups of individuals and as such, Hindu undivided families fall within
the scope of the area covered by Entry 86. In the alternative, it is argued
that Entry 97 which is 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. According to the respondent, the word "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 subject-matter of the tax imposed by 359 the impugned provision is the
capital value of the assets of a Hindu undivided family and if that is held not
included in Entry 86, it would fall within the scope of Entry 97, because it
satisfies the requirement specified by the said Entry, namely, that the said
matter should not have been enumerated in List 11 or List 111. In regard to
Art. 248, the respondent's case is that this article prescribes the residuary
power of legislation conferred on Parliament and must be read independently of
the Lists. In other words, even if the impugned provision cannot be sustained
by reference to Entry 86 or Entry 97 in List 1, the power of Parliament to levy
the tax imposed by the impugned provision can, nevertheless, be claimed under
the provisions of Art.
248. That, in its broad outlines, is the
nature of the controversy between the parties in the present appeals.
Logically, the first question to consider is
whether the impugned provision can be referred to Entry 86 or not. In
construing the word "individuals" used in the said Entry, it is
necessary to remember that the relevant words used in the Entries of the
Seventh Schedule must receive the widest interpretation. As Gwyer, C.J., has
observed in The United Provinces v. Mst. Atiqa Begum and Others(1), "none
of the items in the Lists is to be read in a narrow or restricted sense, and
that each general word should be held to extend to all ancillary or subsidiary
matters which can fairly and reasonably be said to be comprehended in it. I
deprecate any attempt to enumerate in advance all the matters which are to be
included under any of the more general descriptions; it will be sufficient and
much wiser to determine each case as and when it comes before the Court".
Another rule of construction which is also
well-established is that it may not be reasonable to import any limitation in
interpreting a particular Entry in the lists by comparing the said Entry or
contrasting it with any other Entry in that very List. While the Court is
determining the scope of the area covered by a particular Entry, the Court must
interpret the relevant words in the Entry in a natural way and give the said
words the widest interpretation. What the Entries purport to do is to describe
the area of legislative competence of the different legislative bodies, and so,
it would be unreasonable to approach the task of interpretation in a narrow or
(1)  F. C. R. 110, 134 3Sup./65 7 360
The appellants no doubt contrast Entry 86 with Entry 82 and contend that the
said contrast brings out an element of limitation or restriction which should
be imported in construing Entry 86. Entry 82 refers to taxes on income other
than agricultural income. The argument is that the power to levy taxes on
income is not conditioned by reference to individuals or companies; it is an
unlimited extensive power. In contrast with this Entry, it is urged that
limitation is introduced by Entry 86, because it seeks to confer power to levy
taxes on the capital value of the assets of individuals and companies. The
assessees are indicated by this Entry, and that that itself introduces an
element of limitation. 'Me appellants attempt to place their case alternatively
by emphasising the fact that the word "individuals" in the context
cannot mean companies, because companies are separately and distinctly
that again, it is said, introduces an element
of limitation ,on the denotation of the word "individuals".
"Individuals', therefore, must mean
individuals and cannot mean groups of individuals, that is the main contention
raised by the appellants. We are not impressed by this argument. It is true
that Entry 82 does not refer to the assessees, and that is natural because what
it purports to do is to recognise the legislative competence of Parliament to
levy taxes on income, the only limitation being that the income must be other
than agricultural income. Since Entry 86 refers to taxes on the capital value
of the assets, the Constitution-makers must have thought that it was necessary
to specify whose assets should be subject to the taxes contemplated by the Entry,
and that explains why individuals and companies are mentioned. Since companies
are specifically mentioned along with individuals, it may be permissible to
contend that companies in the context are not included in the word
"individuals", or it may perhaps be that since Entry 86 wanted to
specify that the taxes leviable under it have to be taxes on the capital of the
companies, it was thought desirable that companies should be specified as a
matter of precaution along with individuals.
However that may be, it is not easy to
understand why the word "individuals" cannot take in its sweep groups
of individuals like Hindu undivided families. The use of the word
"individuals" in the plural is not of any special significance,
because under S. 13 (2) of the General Clauses Act, 1897 (No. 10 of 1897),
words in the singular shall include the plural, and vice versa.
The basic assumption on which the appellants'
argument rests is that the Constitution-makers wanted to exclude the capital
value of the assets of Hindu undivided families from taxes. That is why 361
their contention is that the impugned provision would not be sustained either
under Entry 86 or under Entry 97 of List 1 or even under Art. 248. It is
difficult to accept this argument. 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 possible have been intended to be left out. We
can think of no rational justification for making any such assumption. In this
connection, it is significant that on the appellants' case, the capital value
of the assets of Hindu undivided families would never become the subject-matter
of wealth tax. Hindu undivided families, it is urged, are groups of individuals
and, therefore, should be outside Entry 86 and individuals who constitute such
Hindu undivided families could not be subjected to the levy of the tax, because
the body of coparceners who constitute such Hindu undivided families is a
fluctuating body and their shares in the capital assets of their respective
families are liable to increase or decrease and cannot be definitely predicated
for the accounting year as a whole, unless partition is made. Prima facie, such
a position appears to be plainly inconsistent with the scheme of Entry 86 and
it cannot be upheld unless the word "individuals" is reasonably
incapable of including groups of individuals.
It is true that when tax is levied on the
capital value of the, assets of Hindu undivided families, in a sense the assets
of individual coparceners are aggregated, and on the aggregate value a tax is
levied; but how the taxes should be levied and at what rate, is a matter for
the legislature to decide; that consideration cannot enter into the discussion
of the legislative competence of Parliament to enact the law. It is hardly
necessary to emphasise that groups of individuals, the capital value of whose
assets would be subjected to the payment of wealth tax, would naturally be
groups of individuals who form a unit and who own the said assets together. The
fact that the rights of the individuals constituting] the group are liable to
be decreased or increased does not make any difference when we are dealing with
the question as to whether the word "individuals" in wide enough to
include groups of individuals. We do not see anything in the context of Entry
86 which can be said to introduce an element of restriction or limitation while
interpreting the word "individuals".
Ordinarily, individuals would be treated as
such and the capital value of their separate assets would be taxed; but if
individuals form groups and such groups own capital assets, it is difficult to
see why the power to levy taxes on such capital assets should be held to be
outside the scope of Entry 86.
362 It is, however, urged that in
interpreting the word "individuals", it would be relevant to take
into account the legislative history of tax legislation. Section 3 of the
Indian Income-tax Act, 1922 (No. XI of 1922) is pressed into service for the
purpose of this argument. The said section provides, inter alia, that where any
Central Act enacts that income-tax shall be charged for any year at any rate,
tax at that rate shall be charged for that year in accordance with the
provisions of this Act in respect of the total income of the previous year of
every individual, Hindu undivided family, company or local authority, and of
every firm and other association of persons or the partners of the firm or the
members of the association individually. The argument is that s. 3 recognises
that the word "individual" would not include Hindu undivided family,
and so. Hindu undivided family has been separately mentioned by it. It is
pointed out that this distinction between an individual and a Hindu undivided
family has been recognised even in the earlier Income-tax Acts. Section 3(7) of
Act 11 of 1886, for instance, defines a 'person' as including a firm and a
Hindu undivided family; and S. 5 (i) (f) of the said Act which provides for
exceptions to the charging section 4, refers to any income which a person
enjoys as a member of a company, or of a firm, or of a Hindu undivided family,
when the company, or the firm, or the family is liable to the tax. Basing
themselves on the distinction which is made by the Income-tax Acts between an
individual and a Hindu undivided family, the appellants contend that the word
"individuals" should not be interpreted to include Hindu undivided
Assuming that the legislative history in the
matter of tax legislation supports the distinction between individuals and
Hindu undivided families, we do not see how the said consideration can have a
material bearing on the construction of the word "individuals" in
Entry 86. The tax legislation may, for convenience or other valid reasons, have
made a distinction between individuals and Hindu undivided families; but it
would not be legitimate to suggest that the word "individuals"
occurring in an organic document like the Constitution must necessarily receive
the same construction. Take, for instance, the traditional concept of income as
recognised by the tax law. It has been held by this Court in Navinchandra
Mafatlal v. The Commissioner of Income tax Bombay City(1), that the said
traditional concept of income cannot introduce consideration of restriction or
limitation in (1)  1 S.C.R. 829,857.
363 interpreting the word "income"
in Entry 54 in List 1 of the Seventh Schedule to the Government of India Act,
1935, which corresponds to Entry 82 in List 1 of the Seventh Schedule to the
Constitution. In that case, the validity of the tax levied on capital gains was
impeached on the ground that capital gains cannot be regarded as income, and
so, Entry 54 did not justify the levy of the tax on capital gains. In rejecting
this contention, this Court held that the word "income" occurring in
Entry 54 must receive the widest interpretation and could, therefore, be
interpreted to include a capital gain. In holding that the word
"income" included capital gain, this Court observed that the said
conclusion was reached not because of any legislative practice either in India
or in the United States or in the Commonwealth of Australia, but "because
such was the normal concept and connotation of the ordinary English word
'income'. Its natural meaning embraces -my profit or gain which is actually
Similarly, in Navnitlal C. Javeri v. K. K.
Sen, Appellate Assistant Commissioner of Income-tax, Bombay(1), when this Court
had occasion to consider the validity of section 12(IB) read with s. 2 (6A) (e)
of the Indian Income-tax Act, 1922 (No. 11 of 1922) as it stood in 1955; the
question which was raised for its decision was whether it was competent to
Parliament to treat a loan advanced to a shareholder of a company as his
income. In answering the said question in favour of the impugned provision,
this Court observed that "though Parliament cannot choose to tax as income
an item which in no rational sense can be regarded as a citizen's income, it
would, nevertheless be competent to Parliament to levy a tax on a loan received
by the shareholder if it was satisfied that the said loan could rationally be
construed as his income. In considering this question, however, it would be
inappropriate to apply the test traditionally prescribed by the Income-tax Act
as such". Therefore we do not think that the legislative history in the
matter of the denotation of the word "individuals" on which the
appellants rely, can really afford any material assistance in construing the
word "individuals" in Entry 86.
Reverting then to Entry 86, the question
which we have to ask ourselves is whether on a fair and reasonable
construction, the word "individuals" in the context of the Entry can
legitimately be narrowed down to individuals as such and not to include groups
of individuals. If the object of making the Entry is to enable Parliament to
levy taxes on the capital value of the assets, (1)  1 S.C.R. 909 364 how
can it be said to be reasonable to introduce a limitation on the denotation of
the word "individuals" and to say that taxes could not be levied on
the capital value of the assets which belong to groups of individuals. If the
individuals constitute themselves into a group and such group owns capital
assets, it is not easy. to understand why the value of such assets should not
be included within the legislative field covered by Entry 86. The Constitution makers
were fully aware that the Hindu citizens of this country normally form Hindu
undivided families and if the object was to levy taxes on the capital value of
the 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. We
are, therefore, satisfied that the impugned section is valid, because
Parliament was competent to legislate in respect of Hindu undivided families
under Entry 86.
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 (vide
Mahavirprasad Badridas v. M. S. Yagnik, Second Wealthtax Officer, C-11 Ward,
Bombay(1) (Bombay High Court's decision); N. V. Subramanian v. Wealth Tax
Officer, Eluru(2) (Andhra Pradesh High Court's decision-single Judge Bench);
P. Ramabhadra Raju v. Union of India (8)
(Andhra Pradesh High Court's decision-Division Bench); Sarjerao Appasaheb
Shitole v. Wealth Tax Officer, A. Ward, Belgaum (4 ) (Mysore High Court's
decision); and Rajah Sir, M. A. Muthiah Chettiar v. Wealth Tax Officer, Special
Investigation Circle 'A', Madras(5) ( Madras High Court's decision). We ought
to add that 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. That naturally raised the question about the
true legal character and status of Hindu undivided family, and the contention
that they were associations has been rejected. Since that argument has not been
pressed before us, we have not thought it necessary to consider it.
Before we part with these appeals, we may
refer to an earlier decision of this Court in which the word
"individual" fell to be considered. In Commissioner of Income-tax,
Madhya Pradesh & (1) 37 I.T.R. 191 (3) 45 I.T.R. II 8 (5) 53 I.T.R. 504.
(2) 40 I.T.R. 567.
(4) 52 I.T.R. 372.
365 Bhopal v. Sodra Devi; Damayanti Sahni v.
Commissioner of Income-tax,(1) the question which arose for the decision of
this Court had relation to the construction of s. 16(3) of the Indian
Income-taxAct, 1922. That sub-section provides that in computing the total
income of any individual for the purpose of assessment, there shall be included
the items specified in clauses (a) and (b). What is the denotation of the word
"individual" was one of the points which had to be considered in that
case. According to the majority decision, though the word
"individual" is narrower than the word "Assessee", it does
not mean only a human being, but is wide enough to include a group of persons
forming a unit.
"It has been held", observed
Bhagwati, J. who spoke for the majority, "that the word 'individual'
includes a corporation created by a statute, e.g., a university or a bar
council, or trustees of a baronetcy trust incorporated by a Baronetcy Act. It
would also include a minor or a person of unsound mind". We are referring
to this case only for the purpose of showing that the word
"individual" was interpreted by this Court as including a group of
persons forming a unit.
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 sustained under Entry 97
or under Art. 248 of the Constitution.
The result is, the appeals fail and are
dismissed with costs.
(1) 32 I.T.R. 615.