Sudhir Chandra Nawn Vs. Wealth-Tax
Officer, Calcutta & Ors [1968] INSC 119 (23 April 1968)
23/04/1968 SHAH, J.C.
SHAH, J.C.
RAMASWAMI, V.
BHARGAVA, VISHISHTHA MITTER, G.K.
VAIDYIALINGAM, C.A.
CITATION: 1969 AIR 59 1969 SCR (1) 108
CITATOR INFO:
RF 1970 SC 169 (6) R 1970 SC 192 (5) APL 1970
SC 999 (9) RF 1972 SC1061 (61,89,100,139,174) RF 1977 SC1657 (4) F 1980 SC 271
(10,11) R 1990 SC 85 (22)
ACT:
Wealth Tax Act, 1957, s. 3-Validity and scope
ofConstitution of India, Art. 246 Cls. (1) & (3); 7th Schedule Entry 86
List I and Entry 49 List II-scope of-If Parliament competent to legislate to
levy wealth-tax on assets including land and buildings.
HEADNOTE:
The petitioner moved under Art. 32 for a writ
to quash an order of assessment and penalty and notices of demand for recovery
of tax for the years 1959-60, 1960-61 and 1961-62 under the Wealth Tax Act,
1957. It was contended, inter alia, on his behalf that (i) Wealth tax is
chargeable only on the accretion of wealth during the financial year; (ii)
Parliament could not have intended that the same assets should continue to be
charged to tax year after year; (iii) since the expression "net
wealth" in s. 3 includes nonagricultural lands and buildings of an
assessee and power to levy tax on lands and buildings is, reserved to the State
Legislatures by Entry 49 List II of the 7th Schedule to the, Constitution,
Parliament was incompetent to legislate for the levy of wealth tax on the
capital value of assets which include non-agricultural lands and buildings; and
(iv) s. 7(1) of the Act was ultra vires.
HELD:That (i) The charge imposed by s. 3 is
clearly on the "not wealth on the corresponding valuation date' and not on
the increase in the wealth of the assessee, or accretion to the wealth of the
assesee since the last valuation date.
[110 C-D] (ii) There is no constitutional
prohibition against Parliament levying tax in respect of the same
subject-matter or taxing event in successive assessment periods. [110 D] (iii)
The tax which is imposed by entry 86 List I is not directly a tax on lands and
buildings. It is a tax imposed on the capital value of the assets of
individuals and companies on the valuation date. Wealth-tax is not imposed on
the components of the assets of the assessee but on the total assets which he
owns after taking his liabilities into account. On the other hand, entry 49
List II of the Seventh Schedule contemplates the levy of tax on lands and
buildings or both as units. It is normally not concerned with the division of
interest or ownership in the units of lands or buildings which are brought to
tax. [110 G-H; 111 C-D] Tax on lands and buildings is directly imposed on lands
and buildings, and bears a definite relation to it, while tax on the capital
value of assets bears no definable relation to lands and buildings which may
form a component of the total assets of the assessee. [111 D] Ratta Ram v. The
Province of East Punjab, [1948] F.C.R. 207;
referred to.
Even assuming that there is some overlapping
between the two entries, the Parliament had power to legislate in respect of
levy of wealth-tax ,in respect of the lands and buildings which may form part
of the assets of an assessee. [112 D-E] 109 In re : The Central Provinces and
Berar Act No. XIV of 1938.
[1939] F.C.R. 18, 49; referred to.
Exclusive power of the State Legislature
under clause (3) of Art. 246 has to be exercised subject to cl. (1) ie., the
exclusive power which the Parliament has in respect of the matters enumerated
in List I. Assuming that there is a conflict between entry 96 List I and entry
49 List II, which is not capable of reconciliation, the power of Parliament to
legislate in respect of a matter which is exclusively entrusted to it must
supersede pro tanto the exercise of power of the State Legislature. [113 D-E]
Khan Bahadur Chowakkaran Kaloth Mammad Kevi v. Wealth-tax Officer, Calicut, 44
I.T.R. 277; Vysyaraju Badri Narayanamurthy v. Commissioner of Wealth-tax, Bihar
& Orissa, 56 I.T.R. 298; and Sri Krishna Rao L.Balckai v. Third Wealth-tax
Officer, A.I.R. 1963 Mys. 111; referred to.
Observations of Jagdish Sabai, J. in Oudh
Sugar Mills Ltd., Hargaon v. State of U.P. and another, A.I.R. 1960 All. 136;
disapproved.
(iv) Section 7(1) of the Wealth-tax Act is
not ultra vires.
Section 7 ,only directs that the valuation of
any asset other than cash has to be made subject to the rules. It does not
contemplate that there shall be rules before an asset can be valued. Failure to
make rules for valuation of a type of asset cannot therefore affect the vires
of s. 7.
[114 F--G]
ORIGINAL JURISDICTION : Writ Petitions Nos.
153 to 155 of 1967.
Petition under Art. 32 of the Constitution of
India for the enforcement of fundamental rights.
Nirmal Mukherjee and P. K. Mukherjee, for the
petitioner.
C. K. Daphtary, Attorney-General, T. A.
Ramachandran and R.
N. Sachthey, for respondents Nos. 1 to 3.
Naunit Lal, for intervener No. 1.
M. R. K. Pillai, for intervener No. 2.
C. B. Agarwala and O. P. Rana, for intervener
No. 3.
The Judgment of the Court was delivered by
Shah, J. For the years 1959-60, 1960-61 and 1961-62 the petitioner was assessed
to tax under the Wealth-tax Act, 1957, by the Wealth-tax Officer, C-Ward,
District 11 (1), Calcutta. The petitioner failed to pay the tax and proceedings
for recovery of tax and penalty were taken against him. The petitioner then
moved this Court for a writ quashing the order of assessment and penalty and
notices of demand for recovery of tax. The petition was sought to be supported
on numerous grounds, none of which has, in our judgment, any substance. The
plea that wealthtax is chargeable only on the accretion of wealth during the
financial year is contrary to the plain words of the charging section. Section
3 of the Wealth-tax Act, as it stood in the relevant years, declared that there
shall be charged for every financial year a 110 tax in respect of the net
wealth. on the corresponding valuation date of every individual, Hindu
undivided family and company ,it the rate or rates specified in the Schedule.
The expression net wealth" is defined in
s. 2(m) as meaning "the amount by which the aggregate value computed in
accordance with the provisions of the Act of all the assets, wherever located,
belonging to the assessee on the valuation date, including assets required to
be included in this net wealth as on the date under the Act, is in excess of
the aggregate value of all the debts owed by the assessee on the valuation
date, other than............. The expression "assets" is defined in
s. 2(e) as inclusive of property of every description, movable or immovable,
but not including agricultural land and growing crops, grass or standing trees
on such land. By s. 3 charge is imposed upon the net wealth of an assessee on
the corresponding valuation date. The charge thereby imposed is on the
"net wealth on the corresponding valuation date" and not on the
increase in the wealth of the assessee, or accretion to the wealth of the
assessee since the last valuation date.
It was urged that the Parliament could not
have intended that the same assets should continue to be charged to tax year
after year. But there is no constitutional prohibition against the Parliament
levying tax in respect of the same subject-matter or taxing event in successive
assessment periods.
The Parliament enacted the Wealth-tax Act in
exercise of the power under List I of the Seventh Schedule entry 86 "Taxes
on the capital value of assets, exclusive of agricultural lands, or individuals
and companies : taxes on the capital of companies". That was so assumed in
the decision of this Court in Banarsi Dass, v. Wealth-tax Officer, Special
Circle, Meerut(1), and counsel for the petitioner accepts that the subject of Wealth-tax
Act falls within the terms of entry 86 List I of the Seventh Schedule. He says,
however, that since the expression "net wealth" includes nonagricultural
lands and buildings of an assessee, and power to levy tax on lands and
buildings is reserved to the State Legislature by entry 49 List II of the
Seventh Schedule, the Parliament is incompetent to legislate for the levy of
wealth-tax on the capital value of assets which include nonagricultural lands
and buildings. The argument advanced by counsel for the petitioner is wholly
misconceived. The tax which is imposed by entry 86 List I of the Seventh
Schedule is not directly a tax on lands and buildings. It is a tax imposed on
the capital value of the assets of individuals and companies, on the valuation
date. The tax is not imposed on the components of the assets of the assessee :
it is imposed on the total assets which the assessee owns, and in determining
the net wealth not only the encumbrances specifically charged against (1) 56
I.T.R. 224.
111 any item of asset, but the general
liability of the assessee to pay his debts and to discharge his lawful
obligations have to be taken into account. In certain exceptional cases, where
a person owes no debts and is under no enforceable obligation to discharge any
liability out of his assets, it may be possible to break up the tax which is
leviable on the total assets into components and attribute a component to lands
and buildings owned by an assessee. In such a case, the component out of the
total tax attributable to lands and buildings may in the matter of computation
bear similarity to a tax on lands and buildings levied on the capital or annual
value under entry 49 List II. But the legislative authority of Parliament is
not determined by visualizing the possibility of exceptional cases of taxes
under two different heads operating similarly on tax-payers.
Again entry 49 List II of the Seventh
Schedule contemplates the levy of tax on lands and buildings or both as units.
It is normally not concerned with the division of interest or ownership in the
units of lands or buildings which are, brought to tax. Tax on lands and
buildings is directly imposed on lands and buildings, and bears a definite
relation to it. Tax on the capital value of assets bears no definable relation
to lands and buildings which may form a component of the total assets of the
assessee. By legislation in exercise of power under entry 86 List I tax is
contemplated to be levied on the value of the assets.
For the purpose of levying tax under entry 49
List II the State Legislature may adopt for determining the incidence of tax
the annual or the capital value of the lands and buildings. But the adoption of
the annual, or capital value of lands and buildings for determining tax
liability will not, in our judgment, make the fields of legislation under the
two entries overlapping.
In Ralla Ram v. The Province of East
Punjab(1) the Federal Court held that the tax levied by s. 3 of the Punjab
Urban Immoveable Property Tax Act, 17 of 1940, on buildings and lands situated
in a specified area at such rate not exceeding twenty per centum of the annual
value of such buildings and lands, as the Provincial Government may by
notification in the Official Gazette direct in respect of each such rating area
was not a tax on income, but was a tax on lands and buildings within the
meaning of item No. 42 of List II of the Seventh Schedule of the Government of
India Act, 1935. In that case it was contended that under the provisions of the
Punjab Act the basis of the tax was the annual value of the buildings and since
the same basis was used in the Income-tax Act for determining the income from
property and generally speaking the annual value is the fairest standards for
measuring income and, in many cases, is indistinguishable from it, the tax
levied by the impugned Act was in substance a tax on income. The Court pointed
out that the annual value is not neces(1) [1948] F.C.R. 207.
112 sarily actual income, but is only, a
standard by which income may be measured, and merely because the Income-tax Act
had adopted the annual value as the standard for determining the income, it did
not follow that, if the same standard is employed as a measure for any other
tax, that latter tax becomes also a tax on income.
In the case of a tax on lands and buildings,
the value, capital or annual, would be determined by taking the land or
building or both as a unit and subjecting the value to a percentage of tax. In
the case of wealth-tax the charge is on the valuation of the total assets
(inclusive of lands and buildings) less the value of debts and other
obligations which the assessee has to discharge. Merely because in determining
the taxable quantum under taxing statutes made in exercise of power under
entries 86 List I and 49 List II, the basis of valuation of assets is adopted,
trespass on the, field of one legislative power over another may not be
assumed.
Assuming that there is some overlapping
between the two entries, it cannot, on that account be said that the Parliament
had no power to legislate in respect of levy of wealth-tax in respect of the
lands and buildings which may form part of the assets of the assessee. As
observed by Gwyer, C.J., in In re: The Central Provinces and Berar Act No. XIV
of 1938(1) :
". . . . that a general power ought not
to be so construed as to make a nullity of a particular power conferred by the
same Act and operating in the same field, when by reading the former in a more
restricted sense effect can be given to the latter in its ordinary and natural
meaning." Apparently an entry "taxes on lands and buildings" is
a more general entry than the entry in respect of a tax on the annual value of
assets of an individual or a company, and by conferring upon Parliament the
power to legislate on capital value of the assets including lands and
buildings, the power of the State Legislature was pro tanto excluded.
The scheme of Art. 246 of the Constitution
which distributes legislative powers upon the Parliament and State Legislature
must be remembered. Article 246 provides:
"(1) Notwithstanding anything in clauses
(2) and 3 Parliament has exclusive power to make laws with respect to any of
the matters enumerated in List I in the Seventh Schedule.
(1) [1939] F.C.R. 18,49.
113 (2) Notwithstanding anything in clause
(3), Parliament, and, subject to clause (1), the Legislature of any State also,
have power to make laws with respect to any of the matters enumerated in List
III in the Seventh Schedule.
(3) Subject to clauses (1) and (2), the
Legislature of any State has exclusive power to make laws for such State or any
part thereof with respect to any of the matters enumerated in List II in the
Seventh Schedule. " Exclusive power to legislate conferred upon Parliament
is exercisable, notwithstanding anything contained in cls. (2) & (3), that
is made more emphatic by providing in cl. (3) that the Legislature of any State
has exclusive power to make laws for such State or any part thereof with
respect to any of the matters enumerated in List II in the Seventh Schedule,
but subject to cls. (1) and (2). Exclusive power of the State Legislature has
therefore to be exercised subject to cl. (1) i.e. the exclusive power which the
Parliament has in respect of the matters enumerated in List I. Assuming that
there is a conflict between entry 86 List I and entry 49 List II, which is not
capable of reconciliation, the power of Parliament to legislate in respect of a
matter which is exclusively entrusted to it must supersede pro tanto the
exercise of power of the State Legislature. The problem reviewed from any angle
is incapable of a decision in favour of the assessee.
The High Courts have consistently taken the
view in cases in which the question under discussion expressly fell to be
determined, that the power to levy tax on lands and buildings under entry 49
List II does not trench upon the power conferred upon the Parliament by entry
86 List I, and therefore the enactment of the Wealth-tax Act by the Parliament
is not ultra vires. In Khan Bahadur Chowakkaran Kaloth Mammad Kevi v.
Wealth-tax Officer, Calicut(1), the High Court of Kerala held that wealth-tax
is specifically and in substance covered by entry 86 of the Union List of the
Seventh Schedule to the Constitution of India, and there is really no conflict
and no overlapping between the jurisdiction of the Parliament under entry 86 of
the Union List to enact a law levying a tax on the capital value of assets, and
of the State Legislature under entry 49 of the State List, to enact a law
levying a tax on lands and buildings.
A similar view was expressed by the Orissa
High Court in Vysyaraju Badri Narayanamurthy v. Commissioner of Wealthtax,
Bihar & Orissa (2) ; and also in Sri Krishna Rao L. Balckai v. Third
Wealth-tax Officer (3) .
Reliance was, however, placed by counsel for
the petitioner upon certain observations made by Jagdish Sahai, J. in Oudh (1)
44 I.T.R. 277.
(3) A.I.R. 1963 Mys. 111.
(2) 56 I.T.R. 298.
114 Sugar Mills Ltd. Hargaon v. State of U.P.
and another(1).
In that case the validity of the U.P. Large
Land Holdings Act 31 of 1957 was challenged on the ground that the power to tax
covered by the Act was not conferred upon the State Legislature by List II
entry 49. The Court in that case held that the tax under the Act was a tax on
the holding and not on the annual value or the capitalised value of the land
and the annual value was only the measure of the tax.
Jagdish Sahai, J., proceeded, however, to
observe that the meaning of the word "assets" in entry 86 of List I
should exclude land, both agricultural as well as non-agricultural, from its
ambit in order to give full scope to the expression "Taxes on land"
occurring in entry 49 of List R. But it was not necessary for deciding the
question falling to be determined in that case to enter upon the question
whether a tax on the capitalised value of non-agricultural lands forming part
of the assets of an assessee is covered by entry 86 List I or entry 49 List It.
That is so expressly stated by the learned Judge. The Court was concerned only
to deal with the question whether the U.P. Large Land Holdings Act fell within
entry 49 of List H. The observations made by the learned Judge were plainly
obiter, and, in our judgment, do not correctly interpret entry 86 List I.
The plea that s. 7(1) of the Wealth-tax Act
is ultra vires the Parliament is also wholly without substance. That clause
provi Subject to any rules made in this behalf, the value of any asset, other
than cash, for the purposes of this Act, shall be estimated to be the price
which in the opinion of the Wealth tax Officer it would fetch if sold in the
open market on the valuation date." It was urged that no rules were framed
in respect of the valuation of,' lands and buildings. But s. 7 only directs
that the valuation of any asset other than cash has to be made subject to the
rules. It does not contemplate that there shall. be rules before an asset can
be valued.
Failure to make rules for valuation of a type
of asset cannot therefore affect the vires of s. 7. It was also said that s.
7(1) which requires that the asset shall be valued at the price which it would
fetch if sold in the open market on the valuation date, was expropriatory. This
contention was not raised in the petition, and no ground is made out for
holding that the rate at which wealth-tax is levied is expropriatory.
The petitions fail and are dismissed with
costs. One hearing fee R.K.P.S. Petitions dismissed.
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