1993 (2) TMI 5 - SC - Wealth-tax

Held that the Wealth-tax Act, as originally enacted was covered by entry 86 of List I of the Constitution, and its extension to the State of Jammu and Kashmir was perfectly constitutional and, consequently, the impugned judgment of the High Court is not correct.

Issues Involved:
1. Applicability of the Wealth-tax Act, 1957, to the State of Jammu and Kashmir.
2. Legislative competence of Parliament under Article 370 to extend the Wealth-tax Act to Jammu and Kashmir.
3. Classification of the Wealth-tax Act under the appropriate entry in the Union List of the Seventh Schedule.
4. Interpretation of Entry 86 and Entry 97 of List I in the context of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Applicability of the Wealth-tax Act, 1957, to the State of Jammu and Kashmir:
The respondents contended that the Wealth-tax Act, 1957, is not applicable to Jammu and Kashmir as Section 1(2) of the Act extending it to Jammu and Kashmir is ultra vires the power of Parliament. The High Court upheld this argument, citing Article 370, which limits Parliament's legislative competence to extend laws to Jammu and Kashmir.

2. Legislative Competence of Parliament under Article 370:
Article 370 provides that Parliament's power to make laws for Jammu and Kashmir is limited to matters in the Union List and the Concurrent List, as specified in the Instrument of Accession or with the concurrence of the State Government. The Presidential Order of 1954 applied the Constitution of India to Jammu and Kashmir with exceptions and modifications, including the omission of Article 248 and Entry 97 of List I. The High Court agreed that the Wealth-tax Act is relatable to Entry 97, which is not applicable to Jammu and Kashmir, thus deeming the extension of the Act to the State incompetent.

3. Classification of the Wealth-tax Act under the Appropriate Entry in the Union List:
The principal question was whether the Wealth-tax Act (excluding agricultural land) relates to Entry 86 or Entry 97 of List I. The appellants argued that the Act is relatable to Entry 86, which covers taxes on the capital value of assets exclusive of agricultural land. The respondents contended that the Act is covered by Entry 97, which pertains to "any other matter not enumerated in List II or List III." The court examined previous decisions, including Banarsi Dass v. WTO, Sudhir Chandra Nawn v. WTO, and Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd., which supported the view that the Wealth-tax Act falls under Entry 86.

4. Interpretation of Entry 86 and Entry 97 of List I:
The court analyzed the decision in Union of India v. Harbhajan Singh Dhillon, where the validity of including agricultural land in the Wealth-tax Act was challenged. The majority in Dhillon held that the amendment was valid under Entry 97, but the court did not conclusively determine whether the original Wealth-tax Act fell under Entry 86 or Entry 97. The court in the present case concluded that the Wealth-tax Act, as initially enacted, is a "net-wealth tax" imposed on individuals and companies based on the capital value of their assets, minus debts and liabilities, and falls under Entry 86. The court rejected the argument that the exclusion of debts and liabilities changes the nature of the tax from a tax on capital value to something else.

Conclusion:
The Supreme Court held that the Wealth-tax Act, 1957, as originally enacted, falls under Entry 86 of List I, making its extension to Jammu and Kashmir constitutional. The judgment of the High Court was set aside, and the writ petitions were dismissed. The appeals were allowed without costs.

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