1965 PLP 585 (PTD)

NARASIMHAM, C. J.-In these three references under section 27 (1) of the Wealth-tax Act, 1957, the main question for consideration is the constitutional validity of the Wealth-tax Act (hereinafter referred to as the Act). In Reference No. 42 of 1962, which deals with assessment to wealth-tax for the year 1957-58, the further question for decision by this Court is whether the Act could have limited retrospective effect so as to apply to the wealth of an assessee for the previous year. The Act was passed by Parliament and brought into force with effect from April 1, 1957. The Statement of Objects and Reasons (see Gazette of India, Extraordinary, dated 28th March 1957, Part II, section 2, page 132) reveals that the object of the Act is to impose an annual tax on the net wealth of individuals, Hindu undivided families and companies. "The wealth-tax is an important constituent of an integrated tax structure which the Government have been aiming at for some time and it is inconsistent with the avowed goal of the attainment of a socialistic pattern of society". This goal appears to have been aimed at with a view to implement Article 39 (c) of the Constitution which seeks to prevent concentration of wealth in the hands of a few individuals which is perhaps the necessary evil of any capitalistic system. The Act authorises the imposition of wealth-tax at certain rates on the net wealth, either of an individual or of a Hindu undivided family subject to certain exemptions specified in section

5. The Schedule attached to the Act gives the rates at which wealth-tax is leviable on the net wealth. Different rates of assessment have been provided for assessing tax on: (i) an individual, and (ii) a Hindu undivided family. The net wealth of a person is defined in clause (m) of section 2 of the Act and it would include all assets including movable and immovable property. Section 4 however says that, in computing the net wealth of an individual, any transfer made directly or indirectly, otherwise than for adequate consideration, either to a wife (living with him) or to a minor child, shall be ignored and the assets so transferred shall be computed as the net wealth of the transferor himself. That section further provides that transfers to other persons also, if the transfer is revocable, shall be ignored. The constitutional validity of the Act was challenged in Bombay in Mahavirprasad, Badridas v. M. S. Yagnik ((1959) 37 I T R 191), in Andhra Pradesh in Subramaniam v. Wealth-tax Officer, Eluru ((1960) 40 I T R 567), in Allahabad in Judgal Kishore v. Wealth-tax Officer, Special Circle, C-Ward, Kanpur ((1962) 44 I T R 94 (F B)), in Kerala in Mammad Keyi v. Wealth-tax Officer, Calicut ((1962) 44 I T R 277), and in Mysore in Sri Krishna Rao L. Balekai v. Third Wealth-tax Officer ((1963) 48 I T R 472). In all these decisions the High Courts have upheld the validity of the Act. In Kerala, however, the learned Judges in Mammad Keyi v. Wealth-tax Officer, Calicut struck down the provisions of the Act relating to Hindu undivided families as unconstitutional on the ground that there is an unfair discrimination between a Hindu undivided family and a non-Hindu undivided family such as the Moplah family governed by the Marumakkatayam law and the Christian undivided family. Mr. Narasaraju, eminent counsel for the petitioner, while reiterating some of the arguments which were rejected in the aforesaid decisions, raised some new points also which require careful consideration. His submissions may be classified as follows:- (i) The legislative competence of Parliament to pass the Act which depends on a proper construction of entry 86 of List I of the Seventh Schedule to the Constitution along with entry 49 of List II of the said Schedule. (ii) Contravention of the fundamental rights guaranteed under Article 14 and Article 19 (1) (f). Parliament passed the Act in exercise of the legislative power conferred by entry 86 of List I of the Seventh Schedule, which reads as follows: "Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies . . . . . ." Entry 49 of the State List (List II) reads as follows: "Taxes on lands and buildings." This entry is exclusively within the State field. It is true that paramountcy is given to the legislative power of Parliament by the non-obstante clause occurring to clause (1) of Article 246 of the Constitution; and clause (3) of that Article makes the power of the State Legislature subject to the power of the Union Legislature under clause (1). Hence, there can be no doubt that if there is any overlapping between entry 86 of List I and entry 49 of List II, Parliament's power to legislate must prevail. But as pointed out by the Federal Court in In re: Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 ((1938) 1 S T C 1, 40): "A reconciliation should be attempted between two apparently conflicting jurisdictions by reading the two entries together and by interpreting and, where necessary, modifying the language of the one by that of the other. If indeed such a reconciliation should prove impossible, then, and only then, will the nonobstante clause operate and the Federal power prevail. But the clause ought to be regarded, as a last resource, a witness to the imperfections of human expression and the fallibility of legal draftmanship." The aforesaid observations were made while construing the corresponding provisions of the Government of India Act, 1935 (section 100). As regards the principles to be followed in construing entries dealing with the legislative power, their Lordships of the Supreme Court in Raja Jagannath Bakhsh Singh v. State of Uttar Pradesh ((1962) 464 T R 169, 175 (S C)) observed as follows: " .. . . . . it is an elementary cardinal rule of interpretation that the words used in the Constitution which confer legislative power must receive the most liberal construction and if they are words of wide amplitude, they must be interpreted so as to give effect to that amplitude. It would be out of place to put a narrow or restricted construction on words of wide amplitude in a Constitution. A general word used in an entry like the present one must be construed to extend to all ancillary or subsidiary matters which can fairly and reasonably be held to be included in it." Mr. Narasaraju's arguments as regards the construction of the two entries may be summed up as follows: (i) Construing entry 86 of List I and entry 49 of List II harmoniously, the "assets" referred to in entry 86 of List I must be held to exclude all lands, whether agricultural, or non-agricultural and buildings, and the State Legislature alone has the right to legislate for the imposition of taxes on lands and buildings. (ii) The collocation of the entries from 82 to 88 in List I shows that a tax can be levied only once in respect of taxable event and just as the same income cannot be charged twice to income-tax (entry 82) or the same goods cannot be charged twice to customs duty (entries 83 and 84) or there cannot be an imposition of death duty or succession duty more than once (entries 87 and 88), entry 86 should be so construed as to prevent the same assets from being taxed more than once. (iii) The expression "individual" in entry 86 must be so construed as to exclude a Hindu undivided family. (iv) Entry 86 does not authorise the levy of a tax on assets not belonging to individuals. Hence, transfers in favour of wives or minor children made out of love and affection (which are otherwise valid) should not be ignored only for the purpose of wealth-tax. Each of these arguments will be dealt with in turn. As regards the first point, the very principle of construction of an entry in a Constitution, enunciated by the Supreme Court in the case cited above, will go against Mr. Narasaraju's contention. The word "assets" in entry 86 of List I is not qualified by any limiting expression. On the other hand by excluding agricultural lands only the framers of the Constitution made it absolutely clear that all other assets would come within the scope of that entry. It is true that entry 49 of List II is also wide enough to include not only agricultural lands but also non-agricultural lands, as pointed out by the Supreme Court in Raja Jagannath Bakhsh Singh v. State of Uttar Pradesh. It was however urged that the makers of the Constitution could not have thought of conferring on the State Legislature the power to impose taxes on non-agricultural lands and at the same time conferring power on Parliament to levy taxes on the capital value of those lands. The obvious reply to this argument is that if that was the intention there is no reason why, in entry 86 of List 1, only agricultural lands should have been expressly excluded. There was nothing to prevent the makers of the Constitution from excluding, from the scope of that entry, all lands agricultural and non-agricultural, and also buildings. Apart from this reason I would with respect adopt the reasons given by the Bombay High Court in Municipal Commissioner, Municipal Corporation of the City of Ahmedabad v. Gordhandas Hargovandas (A I R 1954 Bom. 188) while construing the corresponding entries (entry 55 of List I (Federal List)) and entry 42 of List II (Provincial List) in the Government of India Act, 1935. There, the learned Judges pointed out that the pith and substance of the two entries were fundamentally different. Entry 55 (here entry 86 of List 1) dealt with capitalised value of assets whereas entry 42 (here entry 49 of List II) was not directly concerned with the capitalised value of lands and buildings, though in a particular piece of legislation the capital value may be taken as the basis for levying tax. That will only be a method of collecting tax which is an "accident of administration" to quote their Lordships of the Privy Council in Governor-General-in-Council v. Province of Madras ((1938-50) 1 S T C 135). The aforesaid Bombay view has been adopted by the Kerala High Court in Mammad Keyi v. Wealth-tax Officer, Calicut and by the Mysore High Court in Sri Krishna Rao L. Balekai v. Third Wealth-tax Officer. The Bombay case went up in appeal to the Supreme Court and the judgment of the Supreme Court pronounced on March 28, 1963, in C. A. No. 253 of 1956, does not yet appear to have been reported as Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad (A I R 1963 S C 1742). There the majority of the Judges set aside the judgment of the Bombay High Court on another ground. Hence, they did not give their views on the constitutional question regarding the construction of entry 55 of List I and entry 42 of List II of the Government of India Act, 1935, but the minority Judge (Sarkar, J.) endorsed the view taken by the Bombay Judges and observed that the fact that the Bombay Act provided for the tax being quantified on the basis of the capital value of the land tax does not take it out of item 42 of List II and place it under item 55 of List I. The learned Judge further observed: "The Provincial Legislature had been given the power to tax units of lands and buildings irrespective of their value and the Central Legislature the power to tax the value of assets." It is true that in Oudh Sugar Mills Ltd. v. State of U. P. (A I R 1960 All. 136) the Bombay view has not been accepted in full and some observations have been made to the effect that for the purpose of giving full scope to entry 49 of List II, entry 86 of List I should be construed as excluding both agricultural and non-agricultural lands from its scope. But the learned Judge (Sahay, J.) pointed out (paragraph 35) that this question did not directly arise for decision, and hence, his observations are in the nature of obiter. In my opinion, the express exclusion of agricultural lands in entry 86 of List I is decisive. I would therefore reject this contention of Mr. Narasaraju. The entries dealing with the power of taxation are dealt with in List I, beginning with entry 82 which deals with taxes on income other than agricultural income. It is true that the power of taxation conferred by entries 82, 83, 84, 87 and 88 can be used only once, in respect of a taxable event, such as income, entry of goods, production of goods, death duty, succession duty, etc. But such a result flows from the nature of the taxable event which is the basis of those entries. Thus the same sum of money cannot accrue as "income" more than once, the same goods cannot enter a country or leave a country except once, and similarly, a person can die only once and another person can succeed to an item of property only once. But as regards entry 86 of List I the taxable event is the ownership of the assets; and the ownership continues unless it is divested subsequently. There is also no principle of public finance in support of the view that a tax on the capitalised value of assets can be levied only once. The location of entry 86 in List I may be a mere accident of draftsmanship and too much importance should not be given to the location of the entries, if the language of a particular entry, on a reasonable construction does not support such a restrictive interpretation. Learned standing counsel for the Department rightly invited my attention to the provisions of section 14 of the General Clauses Act, which applies to the construction of constitutional provisions also. There it is stated that the statutory power conferred (here by the Constitution) can be exercised from time to time as occasion arises unless a different intention appears. No such different intention appears in the language used in entry

86. Mr. Narasaraju urged that if such a view be accepted it may be open to Parliament to authorise the levy of wealth-tax on the same assets not only annually as at present, but once in three months or even once a month, and thus completely appropriate the net wealth of an assessee. This argument was advanced also to show the unreasonableness of the restriction while considering the infringement of Article 19(1) (f) of the Constitution. In my view this is more a question of policy which must be left to the wisdom of the Legislature than one of interpretation of the constitutional provision. In the well-known saying of Chief Justice Marshall in M'Culloch v. Maryland ((1819) 4 L Edn. 579), the power to tax also includes the power to destroy. The limitations of this principle have however been summarised in a recent book, American Jurisprudence, Volume 51, Taxation, pages 80-81 as follows: "When a Legislative Body having power to tax a certain subject-matter actually imposes such a burdensome tax as effectually to destroy the right to perform the act or to use the property subject to the tax, the validity of the enactment depends upon the nature and character of the right destroyed. If so great an abuse is manifested as to destroy natural and fundamental rights which no free Government could consistently violate, it is the duty of the judiciary to hold such an Act unconstitutional. In any other case, however, since the taxing power conferred by the Constitution knows no limits except those expressly stated in that instrument, it must follow that if a tax is within the lawful power, the exertion of that power may not be judicially restrained because of the results to arise from its exercise." In a very recent (unreported) judgment of the Supreme Court in Rai Ramakrishna v. State of Bihar ((1963) 50 I T R 171, 180 (S C)) (Civil Appeals Nos. 16 and 17 of 1963) decided on February 11, 1963, the same principle has been reiterated as follows: "The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the Legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes Article 19, Courts will naturally be circumspect and cautious. Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the Legislature for achieving its confiscatory purposes." But this question is to some extent academic here because under the scheme of the Act wealth-tax is assessable on the net wealth only once a year. The constitutional validity of the Act may however be open to challenge if the charging section (section 3) is worded so as to authorise the levy of wealth-tax on the net wealth, say once a fortnight or once a month, so as to make it oppressively burdensome or confiscatory in nature, within the meaning of the principles enunciated in the aforesaid passages. But as the section stands at present, it is not open to any such challenge. The third contention of Mr. Narasaraju deals with the interpretation of the word "individual". It is true that in the Indian Income-tax Act the word "individual" is used in contradistinction to a Hindu undivided family but the argument that the makers of the Constitution being aware of this distinction made in the Indian Income-tax Act must be presumed to have accepted that distinction while making entry 86 of List I, is somewhat far-fetched. In fact, their Lordships of the Supreme Court themselves in Commissioner of Income-tax v. Sodra Devi ((1957) 32 I T R 615) have pointed out that the word "individual" has not been defined in the Income-tax Act and "there is authority for the proposition that the word `individual' does not mean only a human being but is wide enough to include a group of persons forming a unit". A Hindu undivided family is not a corporation but is merely a group of individuals forming a unit-see Mahavirprasad Badridas v. M. S. Yagnik following in Subramaniam v. Wealth-tax Officer, Eluru and Mammad Keyi v. Wealth-tax, Officer, Calicut. Doubtless the Allahabad High Court in Jugal Kishore v. Wealth-tax Officer, Special Circle, C-Ward, Kanpur has taken a slightly different view. The majority of the Judges were of opinion that a Hindu undivided family may not come within the scope of the expression "individual", but one of the learned Judges (Gurtu, J.) was prepared to go so far as to hold that legislation in respect of wealth-tax on a Hindu undivided family would be saved by the residuary power conferred by entry 97 of List I. Only one Judge (Upadhya, J.) was prepared to go so far as to say that the Act is ultra vires inasmuch as it imposes a tax on the capital assets of a Hindu undivided family. With respect I am inclined to follow the view taken by the Bombay, Kerala and Andhra High Courts in this respect. The fourth contention of Mr. Narasaraju is in respect of section 4 of the Act. It was urged that when the legislative power conferred by entry 86 of List I is restricted to assets of individuals, the Legislature cannot, by a deeming provision in the Act, include the assts of some other persons for the purpose of taxation. He contended that if there is a transfer by an individual in favour of his wife (living with him), or his minor children even without consideration, which is otherwise valid under any other law in force in India (such as the Transfer of Property Act), the Legislature while passing the Act must recognise such transfers and cannot, by a deeming provision in section 4 of the Act, ignore such transfers for the purpose of assessment. The object of section 4 is clear. It is meant to prevent evasion of tax by transfer made by an assessee in favour of his wife or minor children living with him, and also transfers made in favour of other persons which are not irrevocable. It was conceded by Mr. Narasaraju that the power to legislate for the levy of a tax includes the ancillary power to legislate for the purpose of preventing evasion of such tax and, in my opinion, section 4 of the Act has been enacted in exercise of this ancillary power of preventing evasion. I shall discuss this section, presently while dealing with Mr. Narasaraju's arguments on infringement of fundamental rights under Article 19 (1) (f) but it is sufficient to say at this stage that that section cannot be held to be outside the legislative competence of Parliament conferred by entry 86 of List I. As regards infringement of fundamental rights the main argument of Mr. Narasaraju is that Article 19 (1) (f) is contravened and the provisions of the Act will not amount to a reasonable restriction in the interest of the public saved by clause (5) of Article

19. The unreasonableness, according to him, arises in the following manner: (a) Recurring tax on the same assets of a person is excessive interference with a citizen's right to hold property. (b) Refusal to recognise the validity of transfers in favour of wives and minor children is also an unreasonable restriction. ??????????? These arguments do not appeal to me. It is conceded that the wealth-tax is levied by the authorities for a public purpose and to that extent any law providing for taxation may abridge the fundamental rights. It is true that their Lordships of the Supreme Court in Chhotabhai Jethabhai Patel & Co. v. Union of India (A I R 1962 S C 1006) and Raja Jagannath Bakhsh Singh v. State of Uttar Pradesh emphasised that though taxation laws may not be hit by Article 31 (2), nevertheless they must satisfy the requirements of Articles 14 and

19. But in considering whether the restrictions are reasonable or not, the Court must have due regard to the Directive Principles of State Policy. Hence, once it is held that the levy of wealth-tax is for a public purpose, i.e., for preventing the concentration of wealth in a few hands, even periodical levy of the tax annually for that purpose, with a view to implement the provisions of Article 39 (c) must be held to be a reasonable restriction subject to the limitations mentioned in the passages quoted at page 9 of this judgment. Then again, the refusal to recognise a transfer in favour of wives and minor children living with the assessee where such transfer is not for adequate consideration (though otherwise valid) must be held to be a reasonable restriction having regard to the main object of preventing large-scale evasion of the tax. Doubtless, if such transfers have been ignored for all purposes the restriction may be held to be unreasonable. But it should be remembered that section 4 only refuses to recognize such transfers for the limited purpose of assessment of wealth-tax. The transfers are valid for other purposes. By expressly excluding those transfers made for adequate consideration or made in favour of a wife who is living separate from the husband-assessee, the apparent unreasonableness of the restriction is removed. It should be pointed out here that there is a similar provision in the Indian Income-tax Act, 1922: see section 16 (3). Though, the Constitution has been in force from 1950, this provision has not been challenged till now on the ground that it amounts to an unreasonable restriction on the fundamental right of a person to hold and dispose of property. On the other hand, in a very recent judgment of the Supreme Court in Philips John Plasket Thomas v. Commissioner of Income-tax ((1963) 49 I T R (S C) 97) (Civil Appeals Nos. 352 to 35 of 1962), decided on March 22, 1963, the aforesaid provision in the Income-tax Act was analysed and it was observed : "It clearly aims at foiling an individual's attempt to avoid or reduce the incedence of taxation by transferring his assets to his wife or minor child." The challenge under Article 14 is also equally unconvincing Mr. Narasaraju relied to some extent on the Kerala decision (already cited) striking down the provisions of the Act dealing with a Hindu undivided family on the ground that discriminated in favour of other (non-Hindu) undivided families. He further urged that the rates of tax as given in the Schedule providing for different rates for individuals and Hindu undivided families amounts to unfair discrimination. The scope of Article 14 of the Constitution has been explained in innumerable decisions by their Lordships of the Supreme Court and it is unnecessary to refer to them in detail here. The peculiar problem arising out of the existence of undivided families amongst non-Hindus does not arise in this State and in most other States in India. Moplahs, following the Marumakkatayam law, are found only in Kerala. Similarly. Christians following the Hindu law of coparcenary even after conversion must be very few indeed. It is open to Parliament to say that the number of undivided families of non-Hindus who may be assessable to wealth-tax is so negligible that it is not necessary to treat them as a separate entity. Again, it is open to the Legislature to classify a Hindu undivided family as a distinct unit apart from an individual, for the purpose of levying a separate rate of tax. This is a well-known feature found in the Indian Income-tax Act also, and, as far as I know, such classification has not been challenged as offending Article

14. With respect, therefore, I am unable to agree with the view taken by the Kerala High Court. I may also, in this connection, refer to another ingenious contention raised by Mr. Narasaraju. He urged that if for the purpose of construing entry 86 in List I the expression "individual" occurring therein is held to include an undivided Hindu family also, on the ground that a Hindu undivided family is only a group of individuals, the levy of a separate rate of wealth-tax on Hindu families as provided in the Schedule to the Act, must be held to be unconstitutional. According to him, the interpretation of the word "individual" in entry 86 of List I must be logically followed up in the provisions of the Act also. This argument cannot bear scrutiny. Once it is held that the power to tax is conferred by the entry, the classification of the assessees for the purpose of levying different rates of taxation must be left to the wisdom of the Legislature, and it need not necessarily follow the same rule of construction applied in interpreting an entry in the Legislative list. Considerations of equity, reason and justice; have no place in a taxing statute, which must be construed only on the basis of the language used therein: see Cape Brandy Syndicate v. Inland Revenue Commissioners ((1921) 1 K B 64) and 1834 (2) Dowl

497. I may now notice the last contention of Mr. Narasaraju. The Act was passed by Parliament and was published in the Gazette only on September 12, 1957. But it was given retrospective effect from April 1, 1957. Mr. Narasaraju, quite fairly, conceded in view of the pronouncement of the Supreme Court in Chhotabhai Jethabhai Patel & Co. v. Union of India that taxation measures may be retrospective, but urged that the computation of the net wealth with reference to the assets of the previous year on March 31, 1957, was not justified, because, according to him, the Act cannot be given retrospective effect earlier than April 1, 1957. This argument is also not correct. For the purpose of computing wealth-tax, the assets of the previous year as they stood on March 31, 1957, which are equivalent to the assets as on April 1, 1957 (the date on which the Act came into operation) have been taken into consideration. As pointed out by Lord Denman, C. J., in Queen v. Inhabitants of St. Mary Whitechapel ((1848) 116 E R 811), a statute is not retrospective merely because a part of the requisites for its action is drawn from a time antecedent to its passing. The assets of an individual on April 1, 1957, alone are liable to wealth-tax, but they must necessarily include the assets acquired by him in the previous year. For these reasons, I hold that the Act does not suffer from any of the constitutional infirmities urged on behalf of the petitioner. I also hold that the assessment for the year 1957-58 is valid. Questions Nos. 1 and 2 are accordingly answered in the negative and question No. 3 is answered in the affirmative. There shall be one consolidated hearing fee of Rs. 200 (Rupees two hundred) payable to the opposite-party. R. K. DAS, J.-I agree. Reference answered accordingly.