Commissioner Of Wealth Tax vs Dr. Karan Singh And Others Etc

"In our view the High Court was right in holding that the impugned Act was not a law with respect to entry 49, List II, or did not impose a tax mentioned in entry 49, List H. If that is so, then the legislation is valid either under entry 86, List I, read with entry 97, List I. or entry 917 List I, 584 standing by itself.' It was only after arriving at the conclusion finally that the question whether the impugned Act (we will prefer *to call it as the Finance Act, 1969) fell within Entry 86, List I, read with Entry 97, List I, or Entry 97, List I alone, was adverted to; and while so doing the fact, that it was not necessary to decide this issue was taken note of Mr. Sorabjee is right that the observations in this part of the judgment from p. 73G to p. 74E were made in view of the judgment of Shelat, J. on Entry 86, and these observations were critical of the minority view on Entry 86, but the respondents before us are failing to appreciate that a critical comment made on a certain statement does not, in absence of an expression to that effect, necessarily lead to the inference that the converse is true.

It may mean that the statement requires further consideration or that the grounds given in support of the statement are fallacious or inadequate or that the matter requires a fuller examination and until that is done, the assumed correctness of statement cannot be accepted. The basic rules of interpreting Court judgments are the same as those of construing other documents. The only difference is that the Judges are presumed to know the tendency of parties concerned to interpret the language in the judgments differently to suit their purposes and the consequent importance that the words have to be chosen very carefully so as not to give room for controversy. The principle is that if the language in a judgment is plain and unambiguous and can be reasonably interpreted in only one way it has to be understood in that sense, and any involved principle 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 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 II, 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 I, 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 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 585 as indicated below, will be helpful.

16. After pointing out two or three features which, in the opinion of Sikri CJ., were inconsistent with the views of Shelat J., the judgment stated--

"Therefore, it seems to us that the whole of the impugned Act clearly falls within entry 97 List I.' At the cost of repetition we would like to point out that the impugned Act was the 1969 Amendment Act. The distinction between the Amendment Act and the original Wealth Tax Act was always present in the mind of the learned Chief justice as is clear from the very next sentence, which reads thus :-

"We may mention that this Court has never held that the original Wealth Tax Act fell under entry 86 List I. It was only assumed that the original Wealth Tax Act fell within entry 86 List I and on that assumption this entry was analysed and contrasted with entry 49 List II."

Mr. Sorabjee laid great emphasis on the above sentences and urged that ,an inference should be drawn therefrom about the majority view holding that Entry 86 was not attracted. We do not agree with him. In his judgment Shelat, J. had referred to several decisions in favour of holding Entry 86 applicable and the last sentence quoted above, was only a comment on that part of the judgment. Besides, there is further indication given in the very next sentence, which, in our view, reiterates the conclusion already reached and recorded at page 72G (quoted above) and that is in the following words :-

"Be that as it may, we are clearly of the opinion that no part of the impugned legislation falls within entry 86 List I."

(emphasis added) In the next paragraph the permissibility of the parliament combining its powers under Entry 86 with its powers under Entry 97 was considered and answered in the affirmative. This was apparently the conclusion made at page 72G (quoted above) that the legislation should be held to be valid under Entry 86 List I, read with Entry 97 List I. 586

17. We, therefore, interpret the judgment of Sikri CJ. (on behalf of himself and two other learned Judges) as holding that

(i) the proper way of testing the validity of a parliamentary statute under our Constitution was first to see whether the parliamentary legislation was with respect to a matter or tax mentioned in List II; if it was not, no other question win arise;

(ii) the 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 I, or Entry 9 7 List I 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 the Parliament from combining its powers under Entry 86 List I with its powers under Entry 97, List I.

18. 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, CJ., and was left open for future when such an occasion arose. While so doing certain observations critical to the views of Shelat, J. were ex- pressed but merely on account of this, Dhillon's judgment cannot be treated to be a binding precedent preventing this Bench from considering the main issue on merits.

587 19. The position, therefore, is that the issue as to whether the Wealth' Tax Act, 1957 (without its amendment Act, 1969, as it has been conceded on behalf of the appellant to be inapplicable to the State of Jammu and Kashmir), extends to the State of Jammu and Kashmir or not, is, as mentioned earlier, dependent on the question whether the Act falls under Entry 86, List I quoted in paragraph 3 above or not. The residuary power in the case of Jammu and Kashmir is with the State and cases relied upon by the parties are of no help.

20. The. argument of Mr. Sorabjee is that the expression "capital value of assets" in Entry 86 does not signify the same thing as not wealth as defined in Wealth Tax Act. For calculating the 'capital value of assets' only the encumbrances which are charged on the assets, can be deducted from the market value of the assets, and not the general liabilities of the individual owning the assets, which are to be taken into account for the purpose of wealth-tax. Adopting the observations of HJ. Kania, J. (as he then was) in Sir Byramjee v. Province of Bombay, AIR 1940 (Bombay) 65 at 75, it was asserted that under Entry 86, 'the tax should be on the total capital assets and not on individual portions of a person's capital". In Sir Byramjee's case the relevant entry was Entry 55 in List I of the Government of India Act, 1935, similar to the present Entry 86. The learned counsel pointed out that Bombay decision was approved by the Federal Court in.' Ralla Ram v. Province of East Punjab, AIR 1949 FC 81. Reference was also made to the judgment in Municipal Corporation v. Gordhandas, AIR 1954, Bombay 188 at 194. In support of his stand that Wealth Tax Act is covered by Entry 86 Dr. Gauri Shanker took us through the background in which the Wealth Tax Act was enacted. He placed before us the legislative practice in other countries also as reported by OECD Committee on Fiscal Affairs and the discussion by Kaldor in his book "Indian Tax Reforms". Dealing with the deductions which are allowed under the Wealth Tax Act for liabilities and debts, the learned counsel proceeded to say that is the methodology of levy of this form of capital taxation adopted interna- tionally. 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."

588 In the next paragraph of the Report, the equity of allowing debts not related to the acquisition of assets is also discussed The 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.

21. 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' and "assets". It is firmly established that in co the language of constitutional enactments conferring legislative power the most liberal construction should put upon the words so that the same have effect in their widest amplitude. See Navinchandra Mafatlal v. The Commissioner of Income-Tax Bombay City, [1955] 1 SCR 829, 836, 837. In Sri Ram Ram Narain Medhi v. The State of Bombay, [1959] Suppl. I SCR 489, this Court followed the I approach indicated by the Privy Council in British Coal Corporation v. The King, 1935 Appeal Cases p. 500, 518 in the following words :-

"Indeed, in interpreting a constituent or organic statute such as the Act, that construction most beneficial to the widest possible amplitude of its powers must be adopted."

and further declared that the heads of legislation should not be construed in a narrow and pedantic sense but should be given a large and liberal interpretation. It is also settled that for finding out the true nature and character of a taxing Act, the charging section has to be construed with the help of the other relevant provisions. In the case of the Wealth-tax Act Sections 3 to 7 read with Sections 2

(e) and 2 (m) have to be examined. Section 3 levies an annual tax in respect of the net wealth on the valuation date on every individual etc. at the rate specified in the schedule. Section 7 mandates that the value for the purpose of charge shall be the value estimated to be the price which in the opinion of the assessing officer it would fetch if sold in the open market on the valuation date. The expres- sion "net wealth' is defined in section 2 (m) as the amount by which the aggregate value computed in accordance with the prescribed provisions, is in excess of the aggregate value of all the debts owned by, the assessee.

589 Thus it appears that the tax is an annual levy on the total value of all assets owned by an assessee excluding exempted properties. Such value is the price which the property would fetch if sold in the market; in other words its capital value. From the capital value, certain liabilities and debts are to be deducted to arrive at the net wealth. The base of the tax is capital value and net wealth assessable is capital value after deductions of debts and liabilities. The expression 'capital value" of assets is not capable of any prescribed definition but as pointed out in Harvard Law School World Tax Series, Taxation in the Federal Republic of Germany, quoted by Sikri, CJ. in his judgment, "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 "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 pre-suppose a taxpayer with independent legal existence, that is, an individual or a legal entity Guridical 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 partnership, association of the civil law, or other combination of persons without separate legal existence. Taxes of the first type give consideration to the tax-payer's ability to pay, while those of the second type consider merely the value of the taxable object, such as the capital of a business, in the case of the trade tax on business capital, or the assessed value of real property, in the case of the real property tax."

590 If we may point out with respect, Sikri CJ. having quoted the above passage with approval at page 72 of [1972] 2 S.C.R., says rather inexplicably at page 74.

"It seems to us that the other part of entry, i.e., 'tax on the capital of companies" in entry 86 List I also seems to indicate that this entry is not strictly concerned with taxation of net wealth because capital of a company is in one sense a liability of the company and not its asset. Even if it is regarded as an asset, there is nothing in the entry to compel Parliament to provide for deduction of debts. It would also be noticed that entry 86 List I deals only with individuals and companies but net wealth tax can be levied not only in individuals but on other entities and associations also. It is true that under entry 86 List I aggregation is necessary because it is a tax on the capital value of assets of an individual but it does not follow from this that Parliament is obliged to provide for deduction of debts in order to determine the capital value of assets of an individual or a company.' (emphasis supplied) According to the learned Chief Justice it is not incumbent on Parliament to provide for deduction of debts in ascertaining the capital value of the assets. But, having said so, the learned Chief Justice does not proceed further and say that such deduction, if provided, changes the character of tax from a tax on capital value to something else. Indeed on principle, such a statement could 'not have been made or supported. The learned Chief Justice repeatedly stated that the Parliament or the legislature need not provide for such deductions, but without carrying the thought to its logical conclusion, concluded that "the whole of the impugned Act' (which as pointed out hereinbefore means the Act 24 of 1969 amending the Wealth Tax Act) "clearly falls within entry 97 of List I.' We have already indicated in paragraph 16 earlier that the expression 'the whole of the impugned Act', did not refer to the wealth tax as origniahy 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 the individuals group of individuals like H.U.F. and companies. The Tax is not upon the 591 assets as such but is upon the individual and companies with reference to the 'capital value of the assets' held by them. As explained in Assistant Commissioner of Urban Land Tar v. Buckingham Camatic Co. Ltd, 75 ITR 603.

"It is not a tax directly on the capital value of the assets of individuals and companies on the valuation date....... Me 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 encumbrances 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 Nawn.

22. The language of Entry 86 also clearly indicates that the tax is upon the individuals and not directly upon the assets or upon their value. The wealth-tax is determined with reference to the capital value of the assets minus the debts and other deductions mentioned in the Act. We cannot accept the argument that since the tax is contemplated to be levied upon the capital value of the assets of an individual the exclusion of his debts and other liabilities changes the nature and character of the tax. Indeed, the learned counsel for the respondents could not suggest any enactment relatable to Entry 86 except the Wealth Tax Act.

23. It is argued for the respondents that 'capital value of the assets' on a true interpretation can only mean market value of the assets minus any encumbrances charged upon the assets themselves. The expression does not take in, it is submitted, general liabilities of the person owning them. This argument, in our opinion, ignores the basic nature of the tax contemplated by Entry 86. It is a tax upon the net wealth of an individual. It is a net-wealth tax Net wealth of an individual necessarily means 'what all he owns minus what all he owes' and this is what the Act purports to tax.

24. Mr. Sorabjee relied upon the decisions of the Bombay High Court in Sir Byramjee Jeejeebhoy v. Province of Bombay and others, 1940 Bombay 592 65, and Municipal Corporation Ahmedabad v. Gordhandas, 1954 Bombay 188. In the first case, the question was whether the Bombay Finance Act, 1932 which levied tax upon urban immovable property was outside the competence of the Bombay legislature on the ground that the tax levied was one in the nature of Income Tax Act relatable to Entry 54 of the Federal List in the VII schedule to the Government of India Act, 1935. All the three Judges constituting the full Bench repelled the said argument. In the course of their discussion they also referred to Entry 55 of the Federal List; but that aspect did not arise in that case and, therefore, any passing observation made with respect to the content of the said Entry cannot be of any assistance to us in this case. Similarly, in Gordhandas the question was with respect to the power of the Bombay Municipal Corporation to levy tax on land. The petitioners contentions was that the said tax falls outside Entry 42 of List I1 of the VII Schedule to the 1935 Act (corresponding to Entry 49 of List I1 of our Constitution) and that the tax on land imposed by the said Act is really in the nature of tax contemplated by Entry 55 of the Federal List. Reliance was placed upon the decision in AIR 1940 Bombay 65. The said argument was dealt with by Gajendragadkar, J. (as he then was) in the following words:

"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 I1. Incident ally an argument was urged before the Full Bench even as to Entry 55 in List I. 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 must mean the totality of the assets. According to Mr. Justice Broomfield, the meaning of the expression capital value of the assets" in Entry 55 was by no means clear. He, however, added that it may be that what was intended was a tax on the total value of the assets in the nature of a capital levy. Mr. Justice Kania, on the other hand, expressed his clear opinion that under Entry 55 the 593 tax should be on the total capital assets and not on individual portions of a persons capital."

It was held that the said earlier decision in no manner supported the assessee's contention.

25. Lastly, reference was made to the decision of this Court in New Manek Chowk Mills v. Municipal Corporation, [1967] 2 SCR 679. In that case, it was held by this Court that Entry 49 in List II of the VII Schedule permits levy of tax on lands and buildings but not on machinery installed on land or in the building. It was held that rule 7 (2) of the Rules framed under Bombay Provincial Municipal Corporation Act, 1949 which provided that all plant and machinery contained or situated in any building or land shall be deemed to form part of such building or land was held to be beyond the legislative competence of the State. We are unable to see how the principle of this decision is of any assistance to the respondents herein.

26. For the reasons mentioned above, we hold that the wealth-tax, as originally enacted was covered by Entry 86 of List I of the Constitution, and its extention to the State of Jammu & Kashmir was perfectly constitutional and consequently the impugned judgment of the High Court is not correct. Accordingly these appeals are allowed, the impugned judgment is set aside and the Writ Petitions filed before the Jammu & Kashmir High Court are dismissed but in the circumstances without costs.

R.P. Appeals allowed.

594