Second Gift Tax Officer, Mangalore, Vs.
D. H. Nazareth  INSC 86 (2 April 1970)
02/04/1970 HIDAYATULLAH, M. (CJ)
HIDAYATULLAH, M. (CJ) SHAH, J.C.
CITATION: 1970 AIR 999 1971 SCR (1) 195 1970
SCC (2) 267
CITATOR INFO :
RF 1972 SC1061 (57,64,101,112) F 1985 SC1211
(41) R 1990 SC 85 (23) D 1990 SC1637 (36)
Constitution of India, 1950, Art. 248,
Schedule VII, Union List, Entry 97 and State List, Entries 18 and 49--Gift Tax
Act (18 of 1958)--Enacted by Parliament under residuary power--Competence of
Gift tax was levied under the Gift Tax Act,
1958, on gifts, of coffee plantations, paddy and other agricultural lands and
buildings, made by the respondents. The Gift Tax Act was enacted by Parliament but
there is no entry in the Union or Concurrent Lists mentioning such a tax. The
High Court held that Parliament was not competent to enact a law imposing a
gift tax on lands and buildings, because, entries 18 and 49 of the State List
reserved the power to State Legislatures.
On appeal to this Court.
HELD : The Constitution divides the topics of
legislation into three broad categories : (a) entRies enabling laws to be made,
(b) entries enabling taxes to be imposed, and (c) entries enabling fees and
stamp duties to be collected. The taxes are separately mentioned and contain
the whole of the power of taxation, except entry 97 of the Union List under
which, Parliament ha,-, exclusive power to make a law in respect of any matter
not enumerated in the Concurrent or State Lists and the power includes the
power of making a law imposing a tax not mentioned in either of the Lists. [199
GH] Entry 18 of the State List dealing with 'land', though very wide, does not
therefore confer any power of taxation and cannot authorise a tax not expressly
mentioned.[199 H] Entry 49 of the State List contemplates a tax directly levied
by reason of the general ownership of lands and buildings. But the pith and
substance of the Gift Tax Act is to place the tax on the gift of property which
may include land, and buildings. It is not a tax imposed directly upon lands
and buildings but is a tax upon the value of the total gifts made in a year
which is above the exempted limit. The lands and buildings are valued only as a
measure of the value of the gift and what is taxed is the gift. A gift tax is
thus not a tax on lands and buildings as such but is a levy upon a particular
use, namely, the transmission of title by gift. [200 A-E] There being no other
entry in the State List which might cover a gift tax, the residuary powers of
Parliament under Art. 248, and entry 97 of the Union List, could be exercised
by Parliament to enact the law. [200 E-F] Sudhir Chandra Nawn v. Wealth Tax
Officer, Calcutta & Ors.
(1968) 69 I.T.R. 897 (S.C.) followed.
S. Dhandapani v. Addl. Gift Tax Officer,
Cuddalore, (1963) 49 I.T.R. 712, Shyam Sunder v. Gift Tax Officer, A.I.R. 1967
All. 19, Jupadi Sesharatnam v. Gift Tax officer, Palacole, (1960) 38 I.T.R. 93
and Joseph v. Gift Tax, Officer, (1964) 45 I.T.R. 66, approved.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 664 to 669 of 1967.
Appeals from the judgment and order dated
March 22, 1962, July 23, 1962, July 24, 1962, July 12, 1963 and August 14, 1963
in Writ Petitions Nos. 1077 of 1959, 19 and 739 of 1960, 157 of 1961, 970 of
1962 and 594 of 1963.
Jagadish Swarup, Solicitor-General, S. K.
Aiyar and R. N. Sachthey, for the appellants (in all the appeals).
S. V. Gupte, A. K. Varma, J. B. Dadachanji,
0. C. Mathur and Ravinder Narain, for the respondent. (in C. A. Nos. 664 and
668 of 1967).
O. P. Rana, for the intervener for the State
of U.P. M. R. K. Pillai, for the intervener for the State of Kerala.
B. Sen, Santosh Chatterjee and G. S.
Chatterjee for Sukumar Bose, for the State of West Bengal.
S. Govind Swaminathan, Advocate-General,
Tamil Nadu, A. V. Rangam and M. Subramaniam, for the State of Tamil Nadu.
Lal Narayan Sinha, Advocate-General, Bihar,
D. P. Singh nad V. J. Francis, for the intervener for the State of Bihar.
K. A. Chitaley, Advocate-General, State of
Madhya Pradesh, M.N. Shroff and I. N. Shroff, for the intervener for the State
of Madhya Pradesh.
E. S. Venkataramiah, Advocate-General, Mysore
and S. P. Nayar, for the intervener for the State of Mysore.
J. C. Medhi, Advocate-General, Assam and
Naunit Lal, for the intervener for the State of Assam.
The Judgment of the Court was delivered by
Hidayatullah, C.J. These six appeals by certificate under Art. 132(1) of the
Constitution are filed against the decision of the High Court of Mysore, declaring
that Parliament had no power to legislate with respect to taxes on gift of
lands and buildings. The High Court passed a detailed judgment on two of the
petitions by which the competence of Parliament was challenged and followed its
own decision in the other four cases. It is not necessary to give the facts of
the six petitions in the High Court. As illustrative of the facts involved we
may mention on W.P. No. 1077 of 1959. In that case a certain D. H. Nazareth,
owner of a coffee plantation, 197 made a gift by registered deed, January 22,
1958, of a coffee plantation and other properties in favour of his four sons.
The market value of the property was Rs. 3,74,080 and the coffee plantation
accounted for Rs. 3,24,700. Gift tax of Rs. 35,612/was demanded. If the coffee
_plantation was left out of consideration the tax was liable to be reduced by
Rs. 3,4,036. The authority to charge gift tax on the gift of the coffee
plantation was challenged and the right of Parliament to impose a gift tax on
lands and buildings questioned. In some of the other cases agricultural or
paddy lands or buildings were the subjects of gifts and they were similarly
taxed and the tax questioned.
The High Court held that, entry 49 of the
State List read with entry 18 of the same list reserved the power to tax lands
and buildings to the Legislature of the States and Parliament could not,
therefore, use the residuary power conferred by entry 97 of the Union list.
This decision is challenged before us.
The Gift Tax Act was passed in 1958 and
subjected gifts made in the year ending March 31, 1958 to tax. The Act
contained the usual exempted limits and other exemptions. We need not concern
ourselves with them here. We are only concerned with the validity of
parliamentary legislation imposing gift tax at all.
To consider the objection to the Gift Tax Act
which was sustained by the High Court a few general principles may be borne in
mind. Under Art. 245 Parliament makes laws for the whole or any part of the
territory of India and the Legislatures of the States for the whole or part of
their respective States. The subject matter of laws are set out in three lists
in the Seventh Schedule. List I (usually referred to as the Union List)
enumerates topics of legislation in respect to which Parliament has exclusive
power to make laws and List II (usually referred to as the State List)
enumerates topics of legislation in respect to which the State Legislatures
have exclusive power to make laws. List III (usually referred to as the
Concurrent List) contains topics in respect to which both Parliament and
Legislature of a State have power to make laws.
Inconsistency between laws made by Parliament
and those made by the Legislatures of the State, both acting under the
Concurrent List, is resolved by making Parliamentary law to prevail over the
law made by the State Legislature. So long as the Parliamentary law continues,
the State law remains inoperative but becomes operative once the Parliamentary
law, throwing it into shadow, is removed. Then there is the declaration in Art.
248 of the residuary powers of legislation. Parliament has exclusive 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 mentioned in either of those lists.
198 For this purpose, and to avoid any
doubts, an entry has also been included in the Union List to the following
"97. Any other matter not enumerated in
List II or List III including any tax not mentioned in either of those
It will, therefore, be seen that the
sovereignty of Parliament and the Legislatures is a sovereignty of enumerated
entries, but within the ambit of an entry, the exercise of power is as plenary
as any legislature can possess, subject, of course, to the limitations arising
from the Fundamental Rights. The entries themselves do not follow any logical
classification or dichotomy. As was said in State of Rajasthan v. S. Chawla and
another (1) the entries in the list must be regarded as enumeration simplex of
broad categories. Since they are likely to overlap occasionally, it is usual to
examine the pith and substance of legislation with a view to determining to
which entry they can be substantially related, a slight connection with another
entry in another list notwithstanding. Therefore, to find out whether a piece
of legislation falls within any entry its true nature and character must be in
respect to that particular entry. 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.
The Gift Tax Act was enacted by Parliament
and it is admitted that no entry in the Union List or the Concurrent List
mentions such a tax. Therefore, Parliament purported to use its powers derived
from entry 97 of the Union List read with Art. 248 of the Constitution. This
power admittedly could not be invoked if the subject of taxes on gifts could be
said to be comprehended in any entry in the State List. The High Court has accepted
the contention of the tax-payers that it is so comprehended in entries 18 and
49 of the State List. Those entries read
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." "49. Taxes on lands
and buildings." The argument is that by entry 18, 'land' of all
description is made subject to legislation in the States and by entry 49 taxes
of (1)  Supp. 1 S.C.R. 904.
199 whatever description on lands in that
large sense and buildings generally fall also in the jurisdiction of the State.
Reference is made to entries 45, 46, 47 and 48 of the State List in which
certain taxes are to be imposed on land and agricultural land or income from
agriculture exclusively by the States in contrast with entries 82, 86, 87 and
88 where the taxes are imposed on properties other than agricultural land or
income from agriculture. It is submitted, therefore, that the general scheme of
division of taxing and other entries by which land particularly agricultural
land and income there from is reserved for the States shows that taxes on lands
and buildings read liberally must also cover taxes in respect of gifts of land
particularly agricultural land and buildings. If the entry so read can be
reasonably said to include the tax, then there can be no question of recourse
to the residuary powers of Parliament.
The matter is not res integra and however
attractive the argument, it cannot be accepted. Many High Courts in India have
considered this matter before the Supreme Court decided it. The Mysore view was
not followed in S. Dhandapani v. Addl. Gift Tax Officer, Cuddalore(1) (Madras
Shyam Sunder v. Gift Tax Officer(2)
(disapproved on another point in the Supreme Court). A contrary view was
earlier also expressed in Jupadi Sesharatnam v. Gift Tax Officer, Palacole(3)
(Andhra Pradesh High Court) and Joseph v. Gift Tax Officer (4) (Kerala High
Court). In fact the judgment under appeal stands alone.
The subject of entry 49 of the State List in
relation to imposition of Wealth Tax came up for consideration in Sudhir
Chandra Nawn v. Wealth Tax Officer, Calcutta & ors.(5) and the view of the
High Court on the construction of this entry was affirmed. Although the
judgment' under appeal was not referred to expressly the result is that it must
be taken to be impliedly overruled. In view of the decision of this Court it is
not necessary to deal with the matter except briefly.
The Constitution divides the topics of
legislation into three broad categories : (a) entries enabling laws to be made,
(b) entries enabling taxes to be imposed, and (c) entries enabling fees and
stamp duties to be collected. It is not intended that every entry gives a right
to levy a tax. The taxes are separately mentioned and in fact contain the whole
of the power of taxation. Unless a tax is specifically mentioned it cannot be
imposed except by Parliament in the exercise of its residuary powers already
mentioned. Therefore, entry 18 of the State List does not confer additional
power (1) (1963) 49 I.T.R. 712.
(3) (1960) 38 I.L.R. 93.
(5) (1968) 69 I.T.R. 897 (S.C).
(2) A.I.R. 1967 All. 19.
(4) (1964) 45 I.L.R. 66.
200 of taxation. At the most fees can be
levied in respect of the items mentioned in that entry, vide entry 66 of the
same list. 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 ListBut however wide that entry, it cannot still
authorise a tax not expressly mentioned. Therefore, either the pith 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. If it does not, then Parliament must undoubtedly possess
that power under Art. 248 and entry 97 of the Union List.
The pith and 'substance of Gift Tax Act is to
place the tax on the gift of property which may include land and buildings. It
is not a tax imposed directly upon lands and buildings but is a tax upon the
value of the total gifts made, in a year which is above the exempted limit.
There is no tax upon lands or buildings as units of taxation. 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 general ownership of lands and buildings) 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 the tax is not the same. 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. There being no other entry which covers a gift tax, the
residuary powers of Parliament could be exercised to enact a law. The appeals
must, therefore, be allowed but there shall be no order about costs throughout.
The appeal 666/67 however abates as the sole respondent died.
V.P.S. Appeals allowed.