1970 (4) TMI 59 - SC - Income Tax

Whether Parliament had no power to legislate with respect to taxes on gifts of lands and buildings ? Held that - The pith and substance of the Gift-tax Act is to place the tax on the gift of property which may include lands and buildings. It is not a tax imposed directly upon the 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 in 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 ground 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

Summary

Issues:
Challenge to Parliament's power to legislate on taxes on gifts of lands and buildings.

Analysis:
The Supreme Court heard six appeals challenging the High Court of Mysore's decision that Parliament lacked the authority to legislate on taxes concerning gifts of lands and buildings. The High Court based its decision on the interpretation of entries in the State List, particularly entries 18 and 49, which were believed to reserve the power to tax lands and buildings exclusively to the State Legislatures. The Gift-tax Act of 1958, which imposed taxes on gifts made in that year, was at the center of the dispute. The Act was enacted by Parliament under its residuary powers derived from entry 97 of the Union List read with article 248 of the Constitution. The High Court's ruling was based on the argument that the subject of gift taxes fell within the scope of entries in the State List, thus limiting Parliament's authority. However, the Supreme Court disagreed with this interpretation.

The Court emphasized the division of legislative topics into three categories: enabling laws, enabling taxes, and enabling fees and stamp duties. It clarified that not every entry grants the right to levy a tax, and taxes are specifically mentioned to encompass the entirety of the power of taxation. Entry 18 of the State List does not confer additional taxation powers, and any tax must be expressly mentioned for imposition. The pith and substance of the Gift-tax Act were analyzed, highlighting that it taxed the total value of gifts made in a year, not the lands and buildings themselves. The Act focused on the transmission of title through gifts, rather than a direct tax on the properties. As entry 49 of the State List referred to taxes directly linked to the ground ownership of lands and buildings, it did not cover the gift tax imposed by Parliament. Since no other entry encompassed gift taxes, Parliament's residuary powers under entry 97 of the Union List were deemed applicable for enacting such legislation.

The Court referenced previous judgments from various High Courts in India that had considered similar issues, noting that the Mysore High Court's view stood alone. It was highlighted that the division of taxing entries indicated a clear distinction between taxes on general ownership of lands and buildings and taxes on gifts of property. The judgment under appeal was deemed to be overruled implicitly based on the Supreme Court's decision in a related case concerning the imposition of wealth tax. Ultimately, the Supreme Court allowed the appeals, asserting Parliament's authority to levy gift taxes under its residuary powers, and no costs were awarded. One appeal abated due to the death of the sole respondent.

In conclusion, the Supreme Court upheld Parliament's power to legislate on taxes related to gifts of lands and buildings, rejecting the High Court's interpretation of the relevant entries in the State List. The judgment clarified the distinction between taxes on general ownership of properties and taxes on gifts, emphasizing the application of Parliament's residuary powers in the absence of specific entry provisions.