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TMI Blog1993 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... to extend the Act to the State of Jammu and Kashmir. The provisions in article 370 (omitting the parts which are not relevant here) are in the following terms : " Temporary provisions with respect to the State of Jammu and Kashmir. -(1) Notwithstanding anything in this Constitution,-. . . (b) the power of Parliament to make laws for the said State shall be limited to (i) those matters in the Union List and the Concurrent List which, in consultation with the Government of the State, are declared by the President to correspond to matters specified in the Instrument of Accession governing the accession of the State to the Dominion of India as the matters with respect to which the Dominion Legislature may make laws for that State ; and (ii) such other matters in the said Lists as, with the concurrence of the Government of the State, the President may by order specify ... (d) such of the other provisions of this Constitution shall apply in relation to that State subject to such exceptions and modifications as the President may by order specify. " By the Presidential Order made under article 370(1) called the Constitution (Application to Jammu and Kashmir) Order, 1954, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es lay down in unmistakable terms that the Act is covered by entry 97. Even on the merits, they say, the Act is relatable to entry 97, List 1, and not to entry 86 of List I. Learned counsel for the appellants, on the other hand, say that Dhillon does not lay down any such proposition. According to them, the earlier decisions of the Constitution Benches holding the said Act as relatable to entry 86 are in no manner shaken by Dhillon. They argued further that independent of any decision, the Act is clearly relatable only and exclusively to entry 86, List I. Reliance upon entry 97 of List I is necessary to sustain the extension of the Act to agricultural lands. But, inasmuch as the Act, as applied to the State of Jammu and Kashmir has no application to agricultural lands/assets, entry 97 is irrelevant in the present case, they say. The Wealth-tax Act, 1957, was passed imposing a tax on the capital value of the net wealth of every individual, Hindu undivided family and company. Section 3 provides for a tax in respect of the net wealth on the corresponding valuation date. The expression " net wealth " has been defined by section 2(m) as the amount by which the aggregate value computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( Entry 49 of List 11 reads as follows : " 49. Taxes on lands and buildings " ). The argument was that the " capital value of the assets " occurring in entry 86 takes in the value of the lands and buildings and, therefore, Parliament was not competent to levy tax on such assets. This argument was repelled by a Constitution Bench holding that, in the case of wealth-tax, the charge is on the valuation of the total assets (inclusive of lands and buildings ) minus the value of debts and other obligations which the assessee has to discharge whereas, in the case of tax on lands and buildings, the value capital or annual-would be determined by taking the land or building or both as a unit and subjecting the value of a percentage to tax. It was observed (at page 901) : "Merely because in determining the taxable quantum under taxing statutes made in exercise of power under entries 86, List I, and 49, List 11, the basis of valuation of assets is adopted, trespass on the field of one legislative power over another may not be assumed ". Shah J. referred with approval to the decisions of the High Courts of Kerala (Khan Bahadur Chowakkaran Keloth Mammad Keyi v. Wealth-tax Officer [1962] 44 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered one by S. M. Sikri C.J., for himself and for S. C. Roy and D. G. Palekar JJ., holding the amendment as valid ; the second, a separate but concurring judgment by G. K. Mitter J., and the third (the dissenting opinion) by J. M. Shelat I., on behalf of himself and A. N. Ray and I.D. Dua JJ. The reasoning of Mr. Soli Sorabjee, learned counsel for the respondents, runs as follows : Shelat J. (minority opinion) addressed himself pointedly to the question whether entry 86 could be held to cover the enactment in question and the definite conclusion was that it did. Since agricultural land has been excluded from the purview of entry 86 in express terms, he held that entry 97 cannot be relied upon or resorted to sustain the amendment impugned therein, Accordingly, he concluded that the amending Act was ultra vires the powers of Parliament. Mitter J., on the other hand, declared in unhesitating terms that entry 86 did not cover either the Act as originally enacted or as amended by Act 24 of 1969. Sikri C.J., no doubt, adopted a different approach altogether. According to the learned Chief justice, it was not really necessary to examine whether the impugned amendment is relatable to entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that each of them considers the matter separately, and then they consider the matter jointly, interchanging their judgment so that every one of them has seen the judgments of the others. If they mean to differ in their view, they say so openly when they come to deliver their judgments, and if they do not do this, it must be taken that each of them agrees with the judgments of the others." Learned counsel also recommended adoption of the practice followed in England for considering the judgments of the House of Lords indicated in the case of Overseers of Manchester v. Guardians of Ormskirk Union [1890] 24 QBD 678, 682, in the following terms : " Where in the House of Lords one of the learned Lords gives an elaborate explanation of the meaning of a statute, and some of the other learned Lords present concur in the explanation, and none express their dissent from it, it must be taken that all of them agreed in it. " By way of further elaboration, Mr. Sorabjee contended that this principle is applicable even to the views of dissenting judges, unless the majority opinion expressly disagrees with the same. He referred to the decision in Rustom Cavasjee Cooper v. Union of India [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68] 2 SCR 154 (162E-163B), Additional District Magistrate, Jabalpur v. Shivakant Shukla, AIR 1976 SC 1207 ; [1976] 2 SCC 521 (page 714, para 474), Sreenivasa General Traders v. State of Andhra Pradesh, AIR 1983 SC 1246 ; [1983] 4 SCC 353 (page 379, para 30) and Rajpur Ruda Meha v. State of Gujarat [1980] 2 SCR 353 (354H, 356D-E) ; AIR 1980 SC 1707. During the course of the hearing, counsel placed learned and interesting arguments dealing with the rules relating to precedents as mentioned above, and an attempt was made to distinguish the foreign judgments on the ground that article 141 of the Constitution of India, in mandatory terms, lays down that the law declared by the Supreme Court shall be binding on all courts within the territory of India. It was also suggested that the expression "courts" within the meaning of article 141 does not include the Supreme Court and the Supreme Court is not bound by its own decisions Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court [1990] 3 SCC 682. We have also examined all the three judgments given in Dhillon's case [1972] 83 ITR 582 (SC) placed by learned advocates in great detail and analysed at co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is to ask ourselves two questions ; first, is the impugned Act legislation with respect to entry 49, List II ? and, secondly, if it is not, is it beyond the legislative competence of Parliament ? The learned Chief justice did not stop at that. He proceeded to say further (at page 591 of 83 ITR) : "We have put these questions in this order and in this form because we are definitely of the opinion, as explained a little later, that the scheme of our Constitution and the actual terms of the relevant articles, namely article 246, article 248 and entry 97, List I, show that any matter, including tax, which has not been allotted exclusively to the State Legislatures under List 11 or concurrently with Parliament under List III, falls within List I, including entry 97 of that list, read with article 248. " In his learned judgment, Sikri C.J. considered the constitutional scheme specially with reference to articles 246, 248, 250 and 253 and section 104 of the Government of India Act, 1935. While considering the Constituent Assembly debates and other relevant documents dealing with the process which ultimately led to the making of the Constitution as it was finally adopted, the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of artificial construction has to be avoided. Further, if there be any doubt about the decision, the entire judgment has to be considered, and a stray sentence or a casual remark cannot be treated as a decision. Examined in this light, the judgment of the learned Chief justice indicates that the main question agitating his mind was : if levy of wealth-tax on agricultural land is not within the purview of List It, if it is not warranted by any entry in List III and if it is also not within the purview of entry 86 of List 1, then which is the authority competent to levy it ? Evidently, there cannot be a subject-matter or tax which no Legislature under the Constitution can levy. Accordingly, he held, the said tax is warranted by entry 97 of List I read with article 248. The question whether the Wealth-tax Act (without reference to the impugned Finance Act, 1969) falls within entry 86 did not arise for consideration and was not answered but left undetermined, by the learned Chief justice, though Mitter J., did certainly express himself on it. A reference to other parts of the very passage relied upon by Mr. Sorabjee, as indicated below., will be helpful. After pointing out two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned Act was not a law with respect to entry 49, List II, or for that matter any other entry in that List ; (iii) consequently, the legislation (that is the 1969 Amendment Act) was valid either under entry 86, List I, read with entry 97, List I, or entry 97, List I, standing by itself ; (iv) it was not necessary to decide the question whether the impugned Act fell within entry 86, List I, read with entry 97, List 1, or entry 97, List 1, alone ; (v) there were several fallacies in the reasoning of the minority judgment holding entry 86, applicable, and the assumption made therein that this question was settled earlier by this court was not correct ; (vi) be that as it may, so far as the impugned legislation (the 1969 Amendment Act) was concerned, it did not fall within entry 86 (vii) there is nothing in the Constitution to prevent Parliament from combining its powers under entry 86, List 1, with its powers under entry 97, List I. We, therefore, hold that the issue, whether the Wealth-tax Act, 1957, falls in entry 86 or not, was not finally decided in the judgment of Sikri C. J., and was left open for the future when such an occasion may arise. While so doing, certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed under the Wealth-tax Act for liabilities and debts, learned counsel proceeded to say that that is the methodology of levy of this form of capital taxation adopted internationally. Paragraph 1.39 of the OECD Committee's Report stated that : "Just as all assets to which a value can be attached should in principle be included in the tax base, so in principle all debts should be deducted from the taxpayer's assets, in order to arrive at his net wealth. " In the next paragraph of the Report, the equity of allowing debts not related to the acquisition of assets is also discussed. Learned counsel summed up by saying that the substance of the practice adopted in other countries and, the economic concept underlying the theory of equi-marginal sacrifice which is called the ability to pay, is that there will be no true measure of a person's net worth unless, from the gross aggregate capital value, deductions are given for liabilities and debts, and that is the rationale of entry 86 as also that of the Wealth-tax Act. We, must, therefore, ascertain the correct nature of the tax under the Wealth-tax Act and the scope of entry 86 by reference to the expressions "capital value" an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hool World Tax Series : Taxation in the Federal Republic of Germany, quoted by Sikri C.J. in his judgment (see [1972] 83 ITR 582, 613 ) : "....the taxes on capital which are summarised in this chapter are the net worth-tax, the real property tax, and the capital levy under the Equalisation of Burdens Law." The distinction between a net wealth tax levied upon a person and a tax on the property directly is pointed out in the same work in the following words (at page 613 of 83 ITR) : " Some of the taxes on capital are deemed to be imposed on the person of the taxpayer while others are deemed to be imposed on an object. Examples of the former are the net worth-tax and the capital levy under the Equalisation of Burdens Law, while the real property tax and the trade tax on business capital are classified in the latter category. The main importance of this distinction is that taxes in the first group presuppose a taxpayer with independent legal existence, that is, an individual or a legal entity (Juridical person), while in the case of taxes in the second group, the taxable object itself is deemed liable for the tax, in addition to its owner, so that the taxpayer can be a partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expression " the whole of the impugned Act " did not refer to the Wealth-tax Act as originally enacted. We are, therefore, of the opinion that the Wealth-tax Act (as originally enacted and extended to J K) is a "net-wealth tax" Act imposed upon individuals, groups of individuals like Hindu undivided families and companies. The tax is not levied upon assets as such but is upon individuals and companies with reference to the "capital value of the assets" held by them. As explained in Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603, 612 (SC) : " It is not a tax directly on the capital value of assets of individuals and companies on the valuation date ... The tax under entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only the encumbrance specifically charged against any item of assets, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account." This was also the view expressed in Sudhir Chandra Nawn v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alls outside entry 42 of List 11 of the Seventh Schedule to the 1935 Act (corresponding to entry 49 of List 11 of our Constitution ) and that the tax on land imposed by the said Act is really in the nature of a tax contemplated by entry 55 of the Federal List. Reliance was placed upon the decision in Byramji's case [1939], 7 ITR 670 ; AIR 1940 Bom 65 [FB]. The said argument was dealt with by Gajendragadkar J. (as he then was) in the following words (at page 194 of AIR 1954 Bom): "I have dealt with this question on the assumption that entry 55 in List I confers jurisdiction on the Central Legislature to levy a tax on the capital value, not only of all the assets, but of even a part of the assets. In AIR 1940 Bom 65 a Full Bench of this court had to consider the construction of entry 54 in List I as against entry 42 in List 11. Incidentally an argument was urged before the Full Bench even as to entry 55 in List 1. Chief justice Beaumont said that it was unnecessary to consider the argument based on entry 55 ; but, nevertheless, he observed that an analysis of the language employed in entries 54 and 55 respectively affords scope for the argument that the assets mentioned in entry 55 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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