1968 (1) TMI 21 - HC - Wealth-tax

Petitions for certiorari and prohibition raise a question of the constitutional vires of the Wealth-tax Act, 1957, in so far as it imposes an annual tax in respect of the net wealth, particularly buildings - held that levy of wealth-tax is constitutionally valid

Issues Involved:
1. Constitutional vires of the Wealth-tax Act, 1957.
2. Legislative competence under Entry 86 of the Union List.
3. Violation of Article 19(1)(f) of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutional Vires of the Wealth-tax Act, 1957:
The petitions raised the question of the constitutional validity of the Wealth-tax Act, 1957, particularly concerning the annual tax on net wealth, including buildings. The petitioner, an ex-landholder, challenged the Act's legality on the grounds that it was beyond the legislative competence of Parliament and discriminatory in its incidence. Initially, the petitioner also attacked the validity of sections 3 and 4 of the Act for arbitrary classification but later abandoned this argument.

2. Legislative Competence under Entry 86 of the Union List:
The petitioner's submission on legislative competence was two-fold:
(a) Entry 86 of the Union List does not include the capital value of buildings.
(b) The entry does not authorize an annual recurring levy.

The court referred to B. & C. Co. Ltd. v. State of Madras, which had previously dealt with the scope of Entries 49 and 86 in the State and Union Lists, respectively. The court held that the two entries were distinct and did not overlap. Entry 86 covers the capital value of assets, including lands and buildings, while Entry 49 pertains to a tax on land or buildings themselves. The court found that the Orissa High Court in Vysyaraju Badri Narayanamurthy v. Commissioner of Wealth-tax expressed a similar view, affirming that Entry 86 includes lands and buildings, excluding only agricultural lands.

Regarding the annual levy, the court agreed with the Orissa High Court's view that Entry 86 allows for an annual tax on the capital value of assets. The court emphasized that the power under Entry 86 is plenary and includes the manner, frequency, and incidence of the charge on the net value of the assets. The court rejected the petitioner's argument that Entry 86 should be restricted to a one-time levy on the occasion of asset transfer.

3. Violation of Article 19(1)(f) of the Constitution of India:
The petitioner argued that the Wealth-tax Act violated Article 19(1)(f) of the Constitution, which guarantees the right to acquire, hold, and dispose of property. The petitioner contended that the aggregate burden of taxes, including wealth-tax, corporation tax, and urban land tax, made holding the property burdensome and unreasonable. The petitioner relied on the Privy Council decision in Attorney-General of Alberta v. Attorney-General of Canada, which struck down prohibitive taxation.

The court acknowledged that excessive taxation could violate fundamental rights but emphasized that each legislation's validity should be tested individually. The court found no warrant in the Constitution for striking down an enactment based on the aggregate effect of multiple taxes imposed by different legislatures. The court concluded that the Wealth-tax Act, by itself, did not violate Article 19(1)(f).

Conclusion:
The petitions were dismissed, and the court upheld the constitutional validity of the Wealth-tax Act, 1957, affirming Parliament's legislative competence under Entry 86 of the Union List and rejecting the claim of violation of Article 19(1)(f) of the Constitution. The court awarded one set of costs to the respondent, with counsel's fee fixed at Rs. 250.

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