Case: Union of India Vs. Shri Harbhajan Singh Dhillon

Sikri, CJ.(with Roy and Palekar JJ.)1. This appeal is from the judgment of the High Court of Punjab and Haryana in Civil Writ No. 2291 of 1970 which was heard by a Bench of five Judges. Four Judges held that S.24 of the Finance Act, 1969 in so far as it amended the relevant provisions of the Wealth Tax Act, 1957, was beyond the legislative competence of Parliament. Pandit, J., however, held that the impugned Act was intra vires the legislative powers of Parliament. The High Court accordingly issued a direction to the effect that the Wealth Tax Act, as amended by Finance Act, 1969 in so far as it includes the capital value of the agricultural land for the purposes of computing net wealth, was ultra vires the Constitution of India.2. We may mention that the majority also held that the impugned Act was not a law with respect to entry 49 List II of the Seventh Schedule to the Constitution; in other words, it held that this tax was not covered by entry 49 List II of the Seventh Schedule.3. The Wealth Tax Act, 1957, was amended by Finance Act, 1969, to include the capital value of agricultural land for the purposes of computing net wealth. "Assets" is defined in S.2(e) to include property of every description, movable or immovable. The exclusions need not be mentioned here as they relate to earlier assessment years. "Net Wealth" is defined in S.2 (m) to mean "the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, includes assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owned by the assessee on the valuation date" - other than certain debts which are set out in the definition. "Valuation date" in relation to any year for which the assessment is to be made under this Act is defined in S.2(q) to mean the last day of the previous year as defined in S.3 of the Income-tax Act, if an assessment were to be made under this Act for that year. We need not set out the proviso here. Section 3 is the charging section which reads:"3. Subject to the other provisions contained in this Act there shall be charged for every assessment year commencing on and from the first day of April 1957 a tax (hereinafter referred to as the "wealth-tax") in respect of the net wealth on the correspondent valuation date of every individual, Hindu Undivided Family and company at the rate or rates specified in the Schedule".4. Section 4 includes certain assets as belonging to the assessee.5. Section 5 gives certain exemptions in respect of certain assets. We need only reproduce S.5 (iv-a):"5 (iv-a) Agricultural land belonging to the assessee subject to a maximum of one hundred and fifty thousand rupees in value:Provided that where the assessee owns any house or part of a house situated in a place with a population exceeding ten thousand and to which the provisions of clause (iv) apply and the value of such house or part of a house together with the value of the agricultural land exceeds one hundred and fifty thousand rupees, then the amount that shall not be included in the net wealth of the assessee under this clause shall be one hundred and fifty thousand rupees as reduced by so much of the value of such house or part of house as is not to be included in the net wealth of the assessee under clause (iv).Section 5 (iv-b), 5 (viii-a) and 5 (ix) read:"5 (iv-b) one building or one group of buildings owned by a cultivator of, or receiver of rent or revenue out of agricultural land:Provided that such building or group of buildings is on or in the immediate vicinity of the land and is required by the cultivator or the receiver of rent or revenue, by reason of his connection with the land, as dwelling- house store- house or out-house;""5 (viii-a) growing crops (including fruits on trees) on agricultural land and grass on such land:""(ix) The tools implements and equipment used by the assessee for the cultivation, conservation, improvement or maintenance of agricultural land, or for the raising or harvesting of any agricultural or horticultural produce on such land.Explanation: For the purposes of this clause, tools, implements and equipment do not include any plant or machinery used in any tea or other plantation in connection with the processing of any agricultural produce or in the manufacture of any article from such produce:"6. Section 7 (1) deals with the evaluation of the assets and provides that"subject to any rules made in this behalf, the value of any asset, other than cash for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date".7. Rest of the provisions are machinery provisions dealing with the authorities, assessment and special provisions dealing with special cases, like appeals, revisions, references payment and recovery of wealth tax, refunds and miscellaneous provisions.8. The submissions of Mr. Setalvad, appearing on behalf of the Union in brief were these: That the impugned Act is not a law with respect to any entry (including entry 49) in List II, if this is so, it must necessarily fall within the legislative competence of Parliament under entry 86, read with entry 97 or entry 97 by itself read with Art. 248 of the Constitution; the words "exclusive of agricultural land" in entry 86 could not cut down the scope of either entry 97 List I or Art. 248 of the Constitution.9. The submissions of Mr. Palkiwala, who appeared on behalf of the respondent in the appeal, and the other counsel for the interveners, in brief, were these: It was the scheme of the Constitution to give States exclusive powers to legislate in respect of agricultural land, income on agricultural land and taxes thereon; in this context the object and effect of specifically excluding agricultural land from the scope of entry 86 was also to take it out of the ambit of entry 97 List I and Art. 248; the High Court was wrong in holding that the impugned Act was not a law in respect of entry 49 List II.10. It was further urged by Mr. Setalvad that 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 would arise. The learned counsel for the respondent contended that this manner of enquiry had not been even hinted in any of the decisions of this Court during the last 20 years of its existence and there must accordingly be something wrong with this test. He urged that insofar as this test is derived from the Canadian decisions, the Canadian Constitution is very different and those decisions ought not to be followed here and applied to our Constitution.11. It seems to us that the best way of dealing with the question of the validity of the impugned Act and with the contentions of the parties 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 competennce of Parliament:12. We have put these questions in this order and in this form becuase 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, Art. 246 Art. 248 and entry 97 List I, show that any matter, including tax, which has not been allotted exclusively to the State Legislatures under List II or concurrently with Parliament under List III, falls within List I, including entry 97 of that list read with Art.248.13. It seems to us unthinkable that the Constitution makers, while creating a sovereign democratic republic, withheld certain matters or taxes beyond the legislative competency of the legislatures in this country either legislating singly or jointly. The language of the relevant articles on the contrary is quite clear that this was not the intention of the Constituent Assembly. Chapter I of Part XI of the Constitution deals with Distribution of Legislative powers".Article 246 in this Chapter reads thus:"246. (1) Notwithstanding anything in clauses (2) and (3) Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the seventh schedule (in this Constitution referred to as the "Union List").(2) Notwithstanding anything in clause (3) Parliament: and subject to clause (1) the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List").(3) Subject to clauses (1) and (2) the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the "State List").(4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List".Reading Art. 246 with the three lists in the Seventh Schedule, it is quite clear that Parliament has exclusive power to make laws with respect to all the matters enumerated in List I and this notwithstanding anything in clauses (2) and (3) of Art. 246. The State Legislatures have exclusive powers to make laws with respect to any of the matters enumerated in List II, but this is subject to clauses (1) and (2) of Article 246. The object of this subjection is to make Parliamentary legislation on matters in List I and III paramount. Under cl. (4) of Art. 246 Parliament is competent also to legislate on a matter enumerated in State List for any part of the territory of India not included in a State. Article 248 gives the residuary powers of legislation to the Union Parliament. It provides:"248. (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List.(2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists".Under Art. 250 Parliament can legislate with respect to any matter in the State list if a proclamation of emergency is in operation. Under Art. 253 Parliament has power to make any law for the whole or part of the territory of India for the purpose of implementing any international treaty, agreement or convention.14. This scheme of distribution of legislative power has been derived from the Government of India Act 1935, but in one respect there is a great deal of difference, and it seems to us that this makes the scheme different insofar as the present controversy is concerned. Under the Government of India Act, the residuary powers were not given either to the Central Legislature or to the Provincial Legislatures. The reason for this was given in the Report of the Joint Committee on Indian Constitutional Reform, volume I para 56. The reason was that there was profound cleavage of opinion existing in India with regard to allocation of residuary legislative powers. The result was the enactment of S.104 of the Government of India Act, which provided;"104. Residual powers of legislation.(1) The Governor-General may by public notification empower either the Federal Legislature or a Provincial Legislature to enact a law with respect to any matter not enumerated in any of the lists in the Seventh Schedule to this Act, including a law imposing a tax not mentioned in any such List and the executive authority of the Federation or of the Province, as the case may be, shall extend to the administration of any law so made, unless the Governor-General otherwise directs.(2) In the discharge of his functions under this section the Governor-General shall act in his discretion".15. It appears from para 50 of this report that "the method adopted by the White Paper (following in this respect the broad lines of Dominion Federal Constitutions) is to distribute legislative power between the Central and Provincial Legislatures respectively, and to define the Central and Provincial spheres of government by reference to this distribution" and because of apparently irreconcilable difference of opinion that existed between the great Indian communities with regard to the allocation of residuary powers, the Joint Committee found itself unwilling to recommend an alteration of the White Paper proposal.16. There does not seem to be any dispute that the Constitution makers wanted to give residuary powers of legislation to the Union Parliament. Indeed, this is obvious from Art. 248 and entry 97 List I. But there is a serious dispute about the extent of the residuary power. It is urged on behalf of the respondent that the words "exclusive of agricultural land" in entry 86 List I were words of prohibition prohibiting Parliament from including capital value of agricultural land in any law levying tax on capital value of assets. Regarding entry 97 List I it is said that if a matter is specifically excluded from an entry in List I, it is apparent that it was not the intention to include it under entry 97 List I; the words "exclusive of agricultural land" in entry 86 by themselves constituted a matter and therefore they could not fall within the words "any other matter" in entry 97 List I. Our attention was drawn to a number of entries in List I where certain items have been excluded from List I. For example, in entry 82, taxes on agricultural income have been excluded from the ambit of "taxes on income", in entry 84 there is exclusion of duties of excise on alcoholic liquors for human consumption and on opium, Indian hemp and other narcotic drugs and narcotics; in entry 86, agricultural land has been excluded from the field of taxes on the capital value of the assets; in entry 87, agricultural land has again been excluded from the Union Estate duty in respect of property; and in entry 88, agricultural land has been further excluded from the incidence of duties in respect of succession to property. It was urged that the object of these exclusions was to completely deny Parliament competence to legislate on these excluded matters.17. It will be noticed that all the matters and taxes which have been excluded, except taxes on the capital value of agricultural land under entry 86 List I fall specifically within one of the entries in List II. While taxes on agricultural income have been excluded from entry 82 List I, they form entry 46 List II, duties of excise excluded in entry 84 List I have been included in entry 51 List II; agricultural land exempt in entry 87 has been incorporated as entry 48 List II; and similarly, agricultural land exempted from the incidence of duties in respect of succession to property has been made the subject matter of duties in respect of succession in entry 47 List II.18. It seems to us that from this scheme of distribution it cannot be legitimately inferred that taxes on the capital value of agricultural land were designedly excluded from entry 97 List I. In this connection it is well to remember that the first draft of the 3 lists was attached to the report of the Union Powers Committee dated July 5, 1947 (see Vol. V Constituent Assembly Debates, page 60) List I then consisted of 87 entries and there was no residuary entry. It was on August, 1947 that Mr. N. Gopalaswami Ayyangar moved that this report be taken into consideration. At that stage it was evident that in the case of Indian States the residuary subjects were to stay with the Indian States unless they were willing to cede them to the Centre. He said:"Now, Sir, when this Committee met after its first report had been presented, we were relieved of the shackles which we had imposed on ourselves on account of the acceptance of the Cabinet Mission Plan and the Committee came to the conclusion that we should make the Centre in this country as strong as possible consistent with leaving a fairly wide range of subjects to the provinces in which they would have the utmost freedom to order things as they liked. In accordance with this view, a decision was taken that we should make three exhaustive Lists, one of the Federal subjects, another of the Provincial subjects and the third of the Concurrent subjects and that if there was any residue left at all, if in the future any subject cropped up which could not be accommodated in one of these three Lists, then that subject should be deemed to remain with the Centre so far as the Provinces are concerned.This decision, however is not one which the Committee has applied to the States. You will find a reference to this in the Report. What is said there is that these residuary subjects will remain with the States unless the States are willing to cede them to the Centre. Well, I do not know if those who represent the States in this House will take any decision of the kind which perhaps the Committee hoped for when it said so; but we have got to take things as they are.There is another matter which it is important that we should recognise. Residuary subjects in the case of provinces are subjects which are not accommodated in any of the three long lists that we have appended to the Report. Residuary subjects in the case of the States would really mean all subjects which are not included in the Federal List. I want to draw attention to this because I know my Honble Friend Dr. Ambedkar would rather see that the State accede also on certain items which are included in the Concurrent List, if not the whole of that list. There is a school of opinion in favour of that, but as things stand now the report stands today, all the subject included in the Provincial List all the subjects included in the Concurrent List, and whatever subjects may not be included in the federal list are with the States".If the residuary subject had ultimately been assigned to the States could it have been seriously argued that vis-a-vis the states the matter of Taxes on "Capital value of agricultural land" would have been the powers of States? Obviously not, if so, there can be no reason for excluding it from the residuary powers ultimately conferred on Parliament. The content of the residuary power does not change with its conferment on Parliament.19. It may be that it was thought that a tax on capital value of agricultural land was included in Entry 49, List II. This contention will be examined a little later. But if on a proper interpretation of Entry 49, List II, read in the light of Entry 86, List I, it is held that tax on the capital value of agricultural land is not included within Entry 49, List II or that the tax imposed by the impugned statute does not fall either in Entry 49, List II or Entry 86, List I. It would be arbitrary to say that it does not fall within Entry 97, List I. We find it impossible to limit the width of Article 248 and Entry 97, List I by the words "exclusive of agricultural land" in Entry 86, List I. We do not read the words "any other matter" in Entry 97 to mean that it has any reference to topics excluded in Entries 1-96, List I. It is quite clear that the words "any other matter" have reference to matters on which the Parliament has been given power to legislate by the enumerated Entries 1-96, List I and not to matters on which it has not been given power to legislate. The matter in Entry 86, List I is the whole entry and not the entry without the words "exclusive of agricultural land". The matter in Entry 86, List I again is not tax on capital value of assets but the whole entry. We may illustrate this point with reference to some other entries. In Entry 9, List I "Preventive Detention for reasons connected with defence, foreign affairs or the security of India" the matter is not Preventive Detention but the whole entry. Similarly, in Entry 3, List III "Preventive Detention for reasons connected with the Security of the State the maintenance of public order or the maintenance of supplies and services essential to the community" the matter is not preventive detention but the whole entry. It would be erroneous to say that Entry 9, List I and Entry 3 List III deal with the same matter. Similarly, it would we think be erroneous to treat Entry 82, List I (taxes on income other than agricultural income) as containing two matters, one, tax on income, and the other, as "other, than agricultural income". It would serve no useful purpose to multiply illustrations.20. It seems to us that the function of Article 246 (1) read with Entries 1-96, List I, is to give positive power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so. Accordingly we do not interpret the words "any other matter" occurring in Entry 97, List I to mean a topic mentioned by way of exclusion. These words really refer to the matters contained in each of the Entries 1 to 96. The words "any other matter" has to be used because Entry 97, List I follows Entries 1-96, List I. It is true that the field of legislation is demarcated by Entries 1-96, List 1, but demarcation does not mean that if Entry 97 List I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of Entry 97, List I is removed by the wide terms of Article 248. It is framed in the widest possible terms. On its terms the only question to be asked is: Is the matter sought to be legislated included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III : No question has to be asked about List I. If the answer is in negative then it follows that Parliament has power to make laws with respect to that matter or tax.21. It must be remembered that the function of the lists is not to confer powers; they merely demarcate the legislative field. The Federal Court while interpreting the Government of India Act in the Governor-General in Council v. Releigh Investment Co., AIR 1944 FC 51, observes:"It would not be right to derive the power to legislate on this topic merely from the reference to it in the List, because the purpose of the Lists was not to create or confer powers, but only to distribute between the Federal and the provincial Legislatures the powers which had been conferred by Sections 99 and 100 of the Act.22. In Harakchand Ratanchand Banthia v. Union of India, (AIR 1970 SC 1453 ) Ramaswami, J., speaking on behalf of the Court, while dealing with the Gold (Control) Act (45 of 1968) observed:"Before construing these entries it is useful to notice some of the well-settled rules of interpretation laid down by the Federal Court and by this Court in the matter of construing the entries. The power to legislate is given to the appropriate legislature by Article 246 of the Constitution. The entries in the three Lists are only legislative heads or fields of legislation, they demarcate the area over which the appropriate legislatures can operate."23. We are compelled to give full effect to Article 248 because we know of no principle of construction by which we can cut down the wide words of a substantive article like Article 248 by the wording of an entry in Schedule VII. If the argument of the respondent is accepted, Article 248 would have to be re-drafted as follows:"Parliament has exclusive power to make any law with respect to any matter not mentioned in the Concurrent List or State List, provided it has not been mentioned by way of exclusion in any entry in List I.We simply have not the power to add a proviso like this to Article 248.24. We must also mention that no material has been placed before us to show that it was ever in the mind of anybody, who had to deal with the making of the Constitution, that it was the intention to prohibit all the legislatures in this country from legislating on a particular topic.25. Mr. Palkiwala referred to the following extract from para 2 of the report of the Union Powers Committee, dated July 5, 1947 (Constituent Assembly Debates, Vol.5, Page 58):"We think that residuary power should remain with the Centre. In view however of the exhaustive nature of the three lists drawn up by us, the residuary subject could only relate to matters which, while they may claim recognition in the future, are not at present identifiable and cannot there be included now in the lists".26. Basing himself on this extract he said that the tax on "net wealth" was well known and if it had been the desire to include it, it would have been mentioned.27. We do not think it is legitimate manner of interpretation. The debates show that notwithstanding that certain taxes were known to the members of the Constituent Assembly they were not mentioned in the final list. Yet it can hardly be argued that they would not fall within the residuary powers.28. In the report of the Expert Committee on Financial Provisions, dated December 5, 1947, (Constituent Assembly Debates, Volume 7, page 53) it is stated that one of the terms of reference was:"IX. On the basis that the residuary powers are vested in the Centre in the new Constitution so far as the Provinces are concerned, and in the States so far as the States are concerned, is it necessary that any additional specific taxes should be entered in the Provincial List, and if so, what?The Committee reported in para 72 as follows:It appears that under the new Constitution, residuary powers will be vested in the Centre, so far as the Provinces are concerned, while the corresponding residuary powers in respect of the States will be vested in the States themselves. The question has therefore been raised whether, as a consequence, as many specific taxes as possible should not be entered in the provincial List of subjects. We cannot think of any important new tax that can be levied by the Provinces, which will not fall under one or the other of the existing categories included in the Provincial List. We think that the chance of any practical difficulty arising out of the proposed constitutional position is remote, and, in any case, it seems to us that if a tax is levied by the Centre under its residuary powers, there will be nothing to prevent the proceeds of the whole or a part of this tax being distributed for the benefit of the Provinces only. As a matter of abundant caution, however, it may be laid down in the Constitution that if any tax is levied by the Centre in future under its residuary powers, and to the extent that the States do not agree to accede to the Centre in respect of the corresponding subject, the whole or a part of the proceeds of the tax shall be distributed between the Provinces and the acceding State only.This disposes of item IX of our Terms of Reference."The Committee recommended certain Articles:"198. Salt duties and excise duties - (1) No duties on salt shall be levied by the Federation...................................."198-A. Taxes not enumerated in any of the lists in the Ninth Schedule. If any tax not mentioned in any of the lists in the ninth Schedule to this Constitution is imposed by Act of the Federal Parliament by virtue of Entry 90 of the Legislative List, such tax shall be levied and collected by the Federation but a prescribed percentage of the net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Chief Commissioners: Provinces shall not form part of the revenue of the Federation, but shall be assigned to the units within which that tax is leviable in that year, and shall be distributed among the units in accordance with such principles of distribution as may be prescribed".29. The Committee further recommended that in the Provincial Legislative List in the Ninth Schedule, for Entry 50, the following may be substituted, namely:"50. Taxes on the sale, turnover or purchase of goods including taxes in lieu thereof on the use or consumption within the Province of goods liable to taxes within the Province on sale, turnover or purchase; taxes on advertisement".30. Two points emerge from this. The Constituent Assembly knew how to prohibit Parliament from levying a tax (See proposed Article 198-A set out above.) Secondly they knew of certain taxes as taxes on the use of consumption of goods. The proposal to include them in the Provincial List was not accepted. Indeed, Shri T.T. Krishnamachari said this about this proposal*.*Constituent Assembly Debates Vol. 7 p. 232"Sir, one other recommendation of the Export Committee is I am afraid, rather mischievous. That is, they have suggested in regard to sales tax - which is Item 58 in List 2 - that the definition should be enlarged so as to include Use Tax as well, going undoubtedly on the experience of the American State Use Tax which, I think, is a pernicious recommendation. I think, it finds a reflection in the mention of Sales Tax in Item 58 which ought not to be there".31. If Parliament were to levy a Use Tax, it could hardly be thrown out on the ground that it cannot be included in the residuary powers because the tax was known at the time of the framing of the Constitution. Indeed it does not seem to be a sound principle of interpretation to adopt to first ascertain whether a tax was known to the framers of the Constitution and include it in the residuary powers only if it was not known. This would be an impossible test to apply. Is the Court to ask members of the Constituents Assembly to give evidence or is the Court to presume that they know of all the possible taxes which were being levied throughout the world? In our view the only safe guide for the interpretation of an article or articles of an organic instrument like our Constitution is the language employed, interpreted not narrowly but fairly in the light of the broad and high purposes of the Constitution but without doing violence to the language. To interpret Article 248 in the way suggested by the respondent would in our opinion be to do violence to the language.32. We are, however, glad to find from the following extracts from the debates that our interpretation accords with what was intended.33. Entry 91 in the draft Constitution corresponds to the present Entry 97, List I. Article 217 of the draft Constitution corresponds to Article 246 of the Constitution. Article 223 of the draft Constitution corresponds to Article 248 of the Constitution.34. While dealing with Entry 91, List of the draft Constitution, Sardar Hukum Singh moved the following amendments:"That in Entry 91 of List I, the word other be deleted".Extracts from the debates on the proposed amendment are reproduced below:"Sardar Hukum Singh (Constituent Assembly Debates, Vol.9 page 854) : .............. "The object of this Entry 91 is, whatever is not included in Lists II and III must be deemed to have been included in this list. I feel that it would be said in very simple words, if the word other were omitted, and then there would be no need for this list absolutely. Ultimately, it comes to this that whatever is not covered by Lists II and III is all embraced in the Union List. This could be said in very simple words and we need not have taken all this trouble which we have taken".Mr. Naziruddin Ahmad (Constituent Assembly Debates, Vol.9 page 855):"Mr. President, Sir, I do not wish to oppose entry 91. It is too late to do it, but I should submit that the moment we adopted entry 91, it would involve serious redrafting of certain articles and entries. Under Article 217 we have stated in substance that entries in List I will belong to Union, List II to States and List III common to both. That was the original arrangement under which we started. We took the scheme from the Government of India Act. When an entry like 91 was considered at an earlier stage we agreed that the residuary power should be with the Centre. This was an innovation, as there was nothing like it in the Government of India Act. As soon as we accept entry No.91, Article 217 and a few other articles would require redrafting and entries 1 to 90 would be redundant. In fact all the previous entries - from 1 to 90 would be rendered absolutely unnecessary. I fail to see the point now retaining entries 1 to 90. If every subject which is not mentioned in Lists II and III is to go to the Centre what is the point in enumerating entries 1 to 90 of List I? That would amount to absolutely needless, cumbersome detail. All complications would be avoided and matter simplified by redrafting Article 217 to say that all matters enumerated in List II must belong to the States, and all matters enumerated in List III are assigned to the Centre and the States concurrently and that every other conceivable subject must come within the purview of the Centre. There was nothing more simple or logical than that. Instead, a long elaborate List has been needlessly incorporated. This was because List I was prepared in advance and entry No.91 was inserted by way of afterthought. As soon as entry 91 was accepted, the drafting should have been altered accordingly. Article 217 should have been rewritten on the above lines and matters would have been simplified. May I suggest even at this late stage that these needless entries be scrapped and Article 217 be re-written and things made simple? I had an amendment to that effect but I did not move it because I know that any reasons behind an amendment would not be deemed fit for consideration by the House."Prof. Shibban Lal Saksena (Constituent Assembly Debates, Vol.9 pages 855-856):"Sir, today is a great day that we are passing this entry almost without discussion. This matter has been the subject of discussion in this country for several years for about two decades. Today it is being allowed to be passed without any discussion. The point of view of Mr. Naziruddin Ahmad is not correct. In fact Dr. Ambedkar has said that if there is anything left, it will be included in this item 91. I therefore, think that it is a very important entry. There should not be any deletion of items 1 to 90. I know this entry will include everything that is already contained in the first 90 entries as well as whatever is left. This entry will strengthen the Centre and weld our nation into one single nation behind a strong Centre. Throughout the last decade the fight was that provincial autonomy should be so complete that the Centre should not be able to interfere with the provinces, but now the times are changed. We are now for a strong Centre. In fact some friends would like to do away with provincial autonomy and would like a unitary Government. This entry gives powers to the Centre to have legislation on any subject which has escaped the scrutiny of the House. I support this entry".The Honourable Dr. B. R. Ambedkar (Constituent Assembly Debates, Vol.9 pages 856-857):"My President, I propose to deal with the objection raised by my friend Sardar Hukam Singh. I do not think he has realised what is the purpose of entry 91 and I should therefore like to state very clearly what the purpose of entry 91 in List I is. It is really to define a limit or scope of List I and I think we could have dealt with this matter, viz. of the definition of and scope of Lists II and III by adding an entry such as 67 which would read:"Anything not included in List II or III shall be deemed to fall in List I". That is really the purpose of it. It could have been served in two different ways, either having an entry such as the one 91 included in List I or to have an entry such as the one which I have suggested - that anything not included in List II or III shall fall in List I". That is the purpose of it. But such an entry is necessary and there can be no question about it. Now I come to the other objection which has been repeated if not openly at least whispered as to why we are having these 91 entries in List I when as a matter of fact we have an article such as 223 which is called residuary article which is Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. Theoretically I quite accept the proposition that when anything which is not included in List II or List III is by a specific article of the Constitution handed over to the Entry it is unnecessary to enumerate these categories which we have specified in List I. The reason why this is done is this. Many States people, and particularly the Indian States at the beginning of the labours of the Constituent Assembly, were very particular to know what are the legislative powers of the Centre. They wanted to know categorically and particularly; they were not going to be satisfied by saying that the Centre will have only residuary powers. Just to allay the fears of the Provinces and the fears of the Indian States, we had to particularise what is included in the symbolic phrase "Residuary powers". That is the reason why we had to undergo this labour notwithstanding the fact that we had Article 223.I may also say that there is nothing very ridiculous about this, so far as our Constitution is concerned, for the simple reason that it has been the practice of all federal constitutions to enumerate the powers of the Centre, even those federations which have got residuary powers given to the Centre. Take for instance the Canadian Constitution. Like the Indian Constituion, the Canadian Constitution also gives what are called residuary powers to the Canadian Parliament. Certain specified and enumerated powers are given to the Provinces. Notwithstanding this fact the Canadian Constitution. I think in Article 99, proceeds to enumerate certain categories and certain entries on which the Parliament of Canada can legislate. That again was done in order to allay the fears of the French Provinces which were going to be part and parcel of the Canadian Federation. Similarly also in the Government of India Act; the same scheme has been laid down there and Section 104 of the Government of India Act, 1935 is similar to Article 223 here. It also lays down the proposition that the Central Government will have residuary powers. Notwithstanding that, it had its List I. Therefore there is no reason, no ground to be over-critical about this matter. In doing this we have only followed as I said, the requirements of the various Provinces to know specifically what these residuary powers are, and also we have followed well-known conventions which have been followed in any other federal constitutions. I hope the House will not accept either the amendment of my Friend Sardar Hukam Singh nor take very seriously the utterings of my Friend Mr. Naziruddin Ahmad".35. It seems to us that this discussion clearly shows that it was realised that the old entry 91 would cover every matter which is not included in Lists II and III, and that entries were enumerated in List I following the precedent of the Canadian Constitution and also to inform the provinces and particularly the Indian States as to the legislative powers the Union was going to have.36. The same conclusion is also arrived at if we look at some of the speeches made when the third reading of the Constitution was taken up. Extracts from those speeches are reproduced below:"Shri Alladi Krishnaswami Ayyar (Constituent Assembly Debates, Vol.11, 838):"In regard to the distribution and allocation of legislative power, this Assembly has taken into account the political and economic conditions obtaining in the country at present and has not proceeded on any a priori theories as to principles of distribution in the constitution of Federal Government. In regard to distribution, the Centre is invested with residuary power, specific subjects of national and all India importance being expressly mentioned".Shri T.T. Krishnamachari (Constituent Assembly Debates, Vol.11, 952-964):"I would in this connection deal with a point raised regarding the vesting of the residuary powers. I think more than one honourable Member mentioned that the fact that the residuary power is vested in the Centre in our Constitution, makes it a unitary Constitution. It was, I think, further emphasised by my honourable Friend Mr. Gupta in the course of his speech. He said: "The test is there. The residuary power is vested in the Centre. I am taking my Friend Mr. Gupta quite seriously, because he appears to be a careful student who has called out this particular point from some text book on federalism. I would like to tell honourable Members that it is not a very important matter in assessing whether a particular Constitution is based on a federal system from the point of view whether the residuary power is vested in the States or in the Central Government. Mr. K. C. Wheare who has written recently a book on Federalism has dealt with this point"."Now if you ask me why we have really kept the residuary power with the Centre and whether it means anything at all, I will say that it is because we have gone to much absolute length to enumerate the powers of the Centre and of the States and also the powers that are to be exercised by both of them in the concurrent field. In fact, to quote Professor Wheare again, who has made a superficial survey of the Government of India Act, the best point in the Government of India Act is the complete and exhaustive enumeration of powers of Schedule VII.To my mind there seems to be the possibility of one power that has not been enumerated, which might be exercised in the future by means of the use of the residuary power, namely the capital levy on agricultural land. This power has not been assigned either to the Centre or to the Units. It may be that following the scheme of Estate Duty and succession duty on urban and agricultural property, even if the Centre has to take over this power under the residuary power after some time. It would assign the proceeds of this levy to the provinces, because all things that are supposed to be associated with agriculture are assigned to the provinces.(emphasis supplied) I think the vesting of the residuary power is only a matter of academic significance today. To say that because residuary power is vested in the Centre and not in the provinces this is not a Federation would not be correct".37. The above speech of Mr. T. T. Krishnamachari shows that the members were aware that certain known taxes had not been included specifically in the three lists.38. It is, therefore, difficult to escape from the conclusion that in India there is no field of legislation which has not been allotted either to Parliament or to the State legislatures. In Attorney-General for Ontario v. Attorney-General for Canada, 1947 AC 127 at p.150 Lord Jowitt, L.C., recalled the following words of Lord Loreburn, L.C., in Attorney-General for Ontario v. Attorney-General for Canada, 1912 AC 571 at p.581 and reiterated them:"Now, there can be no doubt that under this organic instrument the powers distributed between the Dominion on the one hand, and the provinces on the other hand, cover the whole area of self-government within the whole area of Canada. It would be subversive of the entire scheme and policy of the Act to assume that any point of internal self-Government was withheld from Canada".39. The last sentence applies much more to the Constitution of a sovereign democratic republic. It is true that there are some limitations in Part III of the Constitution on the legislatures in India but they are of a different character. They have nothing to do with legislative competence. If this is the true scope of residuary powers of Parliament, then we are unable to see why we should not, when dealing with a Central Act, enquire whether it is legislation in respect of any matter in List II for this is the only field regarding which there is a prohibition against Parliament. If a Central Act does not enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of List I or List III a Central Act would rightly fit in.40. It was accepted that this test had been applied in Canada, but it was argued that the Canadian Constitution is completely different from the Indian Constitution. It is true that the wording of Ss. 91 and 92 of the Canadian Constitution is different and the Judicial Committee has interpreted these sections differently at different periods, but whatever the interpretation, it has always held that the lists are exhaustive. The scheme of distribution of Legislative powers between the Dominion and the Provinces is essentially the same as under our Constitution. In this matter it is best to quote the words of the Judicial Committee or some learned authors rather than interpret Ss. 91 and 92 ourselves.41. In Canadas Federal System by Lefroy it is stated at page 120 as follows:"In determining the validity of a Dominion Act, the first question to be determined is, whether the Act falls within any of the classes of subjects, enumerated in Section 92, and assigned exclusively to the legislatures of the provinces. If it does, then the further question will arise, whether the subject of the Act does not also fall within one of the enumerated classes of subjects in Section 91, and so does not still belong to the Dominion Parliament. But if the Act does not fall within any of the classes of subjects in Section 91, no further question will remain".42. The learned author cited four Privy Council cases in support of the above statement. In one case (Russel v. The Queen), (1882) 7 AC 829 (836) the Privy Council was concerned with the validity of the Canada Temperance Act, 1878. In this connection Sir Montague E. Smith, observed:"The general scheme of the British North America Act with regard to the distribution of legislative powers, and the general scope and effect of Ss. 91 and 92, and their relation to each other, were fully considered and commented on by this Board in the case, of Citizens Insurance Co. v. Parsons, (1881) 7 AC 96. According to the principle of construction there pointed out, the first question to be determined is, whether the Act now in question falls within any of the classes of subjects enumerated in Sec. 92 and assigned exclusively to the Legislatures of the Provinces. If it does, then the further question would arise, viz., whether the subject of the Act does not also fall within one of the enumerated classes of subjects in Sec. 91, and so does not still belong to the Dominion Parliament. But if the Act does not fall within any of the classes of subjects in Sec.91, no further question will remain, for it cannot be contended, and indeed was not contended at their Lordships bar, that, if the Act does not come within one of the classes of subjects assigned to the Provincial Legislatures, the Parliament of Canada had not, by its general power "to make laws for the peace, order and good government of Canada" full legislative authority to pass it".43. In Halsburys Laws of England (Third Edition, Volume 5, page 498) the rule is put thus:"In determining the validity of legislation the general method of inquiry is to ask first, whether the matter comes within the classes expressed by statute to be exclusively within the powers of the provinces; if it does not, the power belongs exclusively to Parliament, but even if it does appear to come within those classes, the exclusive power still belongs to Parliament if it also falls within the enumerated class within the legislative authority of Parliament".44. In Attorney-General for Canada v. Attorney-General for British Columbia, 1930 AC 111 at p. 118 Lord Tomlin, after referring to Ss. 91 and 92 of the Canadian Constitution, observed as follows:"Questions of conflict between the jurisdiction of the Parliament of the dominion and provincial jurisdiction have frequently come before their Lordships Board, and as the result of the decisions of the Board the following propositions may be stated:(1) The legislation of the Parliament of the Dominion, so long as it strictly relates to subjects of legislation expressly enumerated in S.91, is of paramount authority, even though it trenches upon matters assigned to the provincial legislatures by S.92, see Tenant v. Union Bank of Canada, (1894 AC 31).(2) The general power of legislation conferred upon the Parliament of the Dominion by S.91 of the Act in supplement of the power to legislate upon the subjects expressly enumerated must be strictly confined to such matters as are unquestionably of national interest and importance, and must not trench on any of the subject enumerated in S.92 as within the scope of provincial legislation, unless these matters have attained such dimensions as to affect the body politic of the Dominion: see Attorney-General for Ontario v. Attorney-General for the Dominion 1896 AC 348.(3) It is within the competence of the Dominion Parliament to provide for matters which, though otherwise within the legislative competence of the provincial legislature, are necessarily incidental to effective legislation by the Parliament of the Dominion upon a subject of legislation expressly enumerated in S.91: see Attorney-General of Ontario v. Attorney-General for the Dominion, 1894 AC 189 and Attorney-General for Ontario v. Attorney-General for the Dominion, 1896 AC 348.(4) There can be a domain in which provincial and Dominion legislation may overlap, in which case neither legislation will be ultra vires if the field is clear, but if the field is not clear and the two legislations must meet the dominion legislation must prevail; see Grand Trunk Rly. of Canada v. Attorney-General of Canada, 1907 AC 65".45. This statement was approved of in In re. The Regulation and Control of Aeronautics in Canada, 1932 AC 54, in In re, Silver Brothers, Ltd., 1932 AC 514 and in Canadian Pacific Rly. Co. v. Attorney-General for British Columbia, 1950 AC 122.46. It would be noticed that the second proposition was based on 1896 AC 348 and the words "In supplement" are said to have been used for the first time by the Privy Council.47. It is quite true, as Mr. Palkiwala points out, that one way of reading Ss. 91 and 92 of the Canadian Constitution is that S.91 gives general powers and then gives certain specific powers by way of illustration, and that apparently was the interpretation placed on the Act by the Privy Council before 1896 AC 348. But whatever the interpretation, the same test was applied by the Privy Council before 1896 in Russel v. The Queen, (1882) 7 AC 829 and after this case.48. The learned counsel referred to five cases of this court and the Federal Court to show that the Canadian cases should not be relied on as the Canadian Constitution was different. It is true that the Canadian Constitution is different in many respects and for some purposes it would be misleading to rely on the Canadian cases. In Chhotabhai Jethabhai Patel v. Union of India, (1962) Supp 2 SCR 1 = (AIR 1962 SC 1006 ) the question was the interpretation of Entry 84 List I (Duties of excise on tobacco....) and entry 60 List II (Taxes on professions, trades, calling and employments). This Court held that the Canadian cases which were cited before it did not afford any assistance because in Canada analogous problems are always concerned with questions of direct and indirect taxation. We agree that in the interpretation of entry 84 (duties of excise...) it would be misleading to rely on cases dealing with direct and indirect taxation.49. Similarly, in 1942 in Province of Madras v. M/s. Boddu Paidanna, 1942 FCR 90 = (AIR 1942 FC 33) the Federal Court was concerned with the interpretation of entry 45 List I of the Government of India Act (duties of excise on tobacco...) and entry 48 List II (taxes on the sale of goods and on advertisements). On these matters the Canadian cases could not possibly be of any assistance or relevance.50. In State of Bombay v. R.M.D. Chamarbaugwala, 1957 SCR 874 (918) = (AIR 1957 SC 699 (717)) this court rightly held that the decisions of the American Supreme Court and the decisions of the Australian High Court and of the Privy Council on S.92 of the Australian Constitution should be used with caution and circumspection, because our Constitution was different and it had provided adequate safeguards in cl. (6) of art. 19 and in arts. 303-425.51. In Atiabari Tea Co. v. State of Assam, (1961) 1 SCR 809 (838) = (AIR 1961 SC 232 (244)) this court was again dealing with Art. 301 and Art. 304 of the Constitution. Sinha, C.J. speaking for himself observed that he had deliberately refrained from making references to or relying upon decisions from other countries like the U. S.A. or Australia.52. Again in the Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (1963) 1 SCR 491 at p.510 = (AIR 1962 SC 1406 at p. 1415) Das, J., referring to the Australian decisions under S.92, observed:"Valuable as those decisions might be in showing how the problem of freedom of trade, commerce and intercourse was dealt with in other federal Constitutions, the provisions of our Constitution must be interpreted against the historical background in which our Constitution was made; the background of problems which the Constitution makers tried to solve according to the genius of the Indian people whom the Constitution makers represented in the Constituent Assembly".53. On the contrary, in Subrahmanyan Chettiar v. Muttuswami Goundan, 1940 FCR 188 = (AIR 1941 FC 47) while interpreting S.100 of the Government of India Act, which corresponds to S.246 of the Constitution, Gwyer C.J., observed at p.200:"The British North America Act 1867 contains analogous provisions and it can scarcely be doubted that Parliament enacted the later Act".54. Then he referred to Ss. 91 and 92 of the British North America Act and observed at page 201."As interpreted by the Judicial Committee, the British North America Act presents an exact analogy to the India Act, even to the overriding provisions in S.100 (1) of the latter:"The rule of construction is that general language in the heads of S.92, yields to particular expressions in S.91, where the latter are unambiguous". per Lord Haldane in Great West Saddlery Co. v. The King (1921) 2 AC 91 at p.116. The principles laid down by the Judicial Committee in a long series of decisions for the interpretation of the two sections of the British North America Act may therefore be accepted as a guide for the interpretation of similar provisions in the Government of India Act".55. It is true that Gwyer C. J. was dealing with the question of pith and substance and the true nature and character of the legislation for the purpose of determining whether it is a legislation with respect to matters in this list or that list but at least his judgment shows that where the provisions are similar, the principles laid down by the Judicial Committee, should be accepted as a guide.56. Similarly, Varadachariar J., observed at P.235:"It seems to me necessary to point out that the assumption in the Patna case that the scheme of S.100 of the Constitution Act is radically different from that of Ss. 91 and 92 of the British North America Act is not warranted. A long line of decisions beginning at least as early as Citizen Insurance Co. of Canada v. Parsons (1881) 7 AC 96 have interpreted these provisions of the Canadian Constitution, in a manner that almost assimilates their scheme to that adopted in S.100 of the Government of India Act. The position of the Provincial Legislatures under the Indian Constitution Act in respect of the subjects enumerated in List II and in relation to the subjects specified in List I is in essence the same as that above stated in regard to the powers of the Provincial Legislature under S.92 of the British North America Act. It will be clear from the decisions that the rules of interpretation adopted in the Canadian cases were evolved only as a matter of reasonableness and commonsense and out of the necessity of satisfactorily solving conflicts arising from the inevitable overlapping of subject in any system of federal constitution is made clear by the fact that in Gallagher v. Lynn, 1937 AC 863 (869), Lord Atkin applied the "pith and substance" rule when dealing with a question arising under the Government of Ireland Act - which did not embody a federal system at all - and in Shannon v. Lower Mainland Dairy Products Board, 1938 AC 708 (719-720) = (AIR 1939 PC 36 ) when dealing with a Canadian case he embodied in the judgment the principles enumerated in the Irish case".57. It was said that we would be destroying the federal structure of our Constitution if we adopted this line of enquiry. It seems to us that this test was perhaps applied by this Court in Second Gift Tax Officer v. Hazareth (1971) 1 SCR 195 ( at p. 220) (AIR 1970 SC 999 at p. 1002) where Hidayatullah, C.J., observed in dealing with the question of the gift tax:"Therefore either the pith and substance of the Gift Tax Act falls within entry 49 of State List or it does not. If it does, then Parliament will have no power to levy the tax even under the residuary powers. If it does not, then Parliament must undoubtedly possess that power under Art. 268 and entry 97 of the Union List".58. Be that as it may, we are unable to see how the adoption of this mode of enquiry will destroy the federal structure of our Constitution. The State Legislatures have full legislative authority to pass laws in respect of entries in List II, and subject to legislation by Parliament on matters in List III.59. It was also said that if this was the intention of the Constitution makers they need not have formulated List I at all. This is the point which was taken by Sardar Hukam Singh and others in the debates referred to above and was answered by Dr. Ambedkar. But apart from what has been stated by Dr. Ambedkar in his speech extracted above there is some merit and legal effect in having included specific items in List I for when there are three lists it is easier to construe List II in the light of Lists I and II. If there had been no List I, many items in List II would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it may, we have the three lists and a residuary power and therefore it seems to us that in this context; if a Central Act is, challenged, as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further question arises.60. In view of this conclusion, we now come to the question, i.e. whether the impugned Act is a law with respect to Entry 49, List II, or whether it imposes a tax mentioned in Entry 49 in List II? On this matter we have three decisions of this Court and although these decisions were challenged we are of the opinion that they interpreted Entry 49 List II correctly.61. In Sudhir Chandra Nawn v. Wealth Tax Officer, (1969) 1 SCR 108 (110) = (AIR 1969 SC 59 (61)) this Court was concerned with the validity of the Wealth Tax Act, 1957, as it originally stood. This Court proceeded on the assumption that the Wealth tax Act was enacted in exercise of the powers under Entry 86 List I. It was argued before this Court that since the expression net wealth includes non-agricultural lands and buildings of an assessee, and power to levy tax on lands and buildings is reserved to the State Legislatures by Entry 49 List II of the Seventh Schedule, Parliament is incompetent to legislate for the levy of wealth-tax on the capital value of assets which include non-agricultural lands and buildings.62. In rejecting this argument the Court observed:"The tax which is imposed by entry 86 List I of the Seventh Schedule is not directly a tax on lands and buildings. It is a tax imposed on capital value of the assets of individuals and companies, on the valuation date. The tax is not imposed on the components of the assets of the assessee; 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.....Again entry 49 List II of the Seventh Schedule contemplates the levy of tax on lands and buildings or both as units. It is normally not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of powers under entry 86 List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under entry 49 List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not, in our judgment, make the fields of legislation under the two entries overlapping".63. It was urged on behalf of the respondent that in Asstt. Commr. of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd., (1970) 1 SCR 268 = (AIR 1970 SC 169 ), this Court held that a tax on the capital value of land and buildings could be imposed under entry 49, List II, but it seems to us that this is not a correct reading of that decision. Reliance is placed on the following sentence at page 277:"We see no reason, therefore, for holding that the entries 86 and 87 of List I preclude the State Legislature from taxing capital value of lands and buildings under Entry 49 of List II".The above observations have to be understood in the context of what was stated later. Ramaswami, J., later observed in that Judgment as follows:"The basis of taxation under the two entries in quite distinct. As regards entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals, and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. 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 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....But entry 49 of List II, contemplates a levy of tax on lands and buildings or both as units. It is not concerned with the division of interest or ownership in the units of lands and buildings which are brought to tax. Tax on lands and buildings, is directly imposed on lands and buildings and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of powers under Entry 86. List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under entry 49, List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under the two entries overlapping. The two taxes are entirely different in their basic concept and fell on different subject matters".(emphasis supplied).64. In 1971-1 SCR 195 (200) = (AIR 1970 SC 999 ) this Court, while considering the validity of the Gift Tax Act, 1958, considered the scope of legislation under entry 49 List II. Hidayatullah, C.J., observed:"Nor is it possible to read a clear cut division of agricultural land in favour of the States although the intention is to put land in most of its aspects in the State List. But however wide that entry, it cannot still authorise a tax not expressly mentioned".The Court further observed:"Since entry 49 of the State List contemplates a tax directly levied by reason of the general ownership of lands and buildings, it cannot include the gift tax as levied by Parliament".65. The requisites of a tax under entry 49, List II may be summarised thus:(1) It must be a tax on units, that is lands and buildings separately as units.(2) The tax cannot be a tax on totality, i.e. it is not a composite tax on the value of all lands and buildings.(3) The tax is not concerned with the division of interest in the building or land. In other words, it is not concerned whether one person owns or occupies it or two or more persons own or occupy it.66. In short, the tax under entry 49 List II is not a personal tax but a tax on property.67. It seems to us that this Court definitely held and we agree with the conclusion that the nature of the Wealth Tax imposed under the Wealth Tax Act, as originally stood, was different from that of a tax under entry 49, List II, and it did not fall under this entry.68. The distinction between a net wealth tax and tax on property is clearly brought out in the following extracts, and supports the conclusion arrived at by this Court.69. Readings on Taxation in Developing Countries by Fird and Oldman elucidates the concept of Wealth Tax as follows, at page 281:"The term net wealth tax is usually defined as a tax annually imposed on the net value of all assets less liabilities of particular tax-payers - especially individuals. This definition distinguishes the net wealth tax from other types of taxation of net wealth, such as death duties and a capital levy; the former are imposed only at infrequent intervals - once a generation - while the latter is a one-time charge, usually with the primary purpose of redeeming a war-time national debt. The net wealth tax is really intended to tax the annual yields of capital rather than the principal itself as do death duties or a capital levy, even though it is levied on the value of the principal. Since it taxes net wealth, it also differs from property taxes imposed on the gross value of property - primarily real property - in a number of countries. The net wealth tax gives consideration to the taxpayers taxable capacity through the deduction of all outstanding liabilities and personal exemptions as well as through other devices, while the property tax generally does not take these factors into account. The net wealth tax is therefore deemed to be imposed on the person of the taxpayer, while the property tax often deemed to be imposed on an object - the property itself".70. In Harvard Law School World Tax Series - Taxation in Columbia - Net Wealth Tax is defined at page 451 thus:"As a general rule, all debts owed by taxpayers whether to residents or to non-residents, are deductible if their existence is established in conformity with the legal requirements. The usual test of deductibility, as applied by the Division of National Taxes, is whether or not there is an actual, enforceable legal obligation, the amount of which is fixed or computable as on 31 December of the tax year".71. According to Harvard Law School World Tax Series - Taxation in Sweden - this tax has been levied in Sweden since a long time. Now it is regulated by law enacted in 1947, "Taxable Wealth" has been defined at page 625 as follows:"Taxable wealth consists of the capital value of the taxpayers assets, as those are defined in the law, to the extent that this value exceeds the capital value of his debts."72. In Harvard Law School World Tax Series - Taxation in the Federal Republic of Germany - it is stated at page 152 that "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 Equalization of Burdens Law". It is further stated thus:"Some of the taxes on capital are deemed to be imposed on the person of the taxpayers while other are deemed to be imposed on an object. Examples of the former are the net worth tax and the capital levy under the Equalization 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 partnership association of the civil law, or other combination of persons without separate legal existence. Taxes of the first type give consideration to the taxpayers 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".73. 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 II. If that is so, then the legislation is valid either under entry 86, List I, read with entry 97, List I or entry 97 List I standing by itself.74. Although we have held that the impugned Act does not impose a tax mentioned in entry 49 List II, we would like to caution that in case the real effect of a Central Act, whether called a Wealth Tax Act or not, is to impose a tax mentioned in entry 49 List II the tax may be held as encroaching upon the domain of State legislatures.75. In this connection the following words of the Judicial Committee may be borne in mind. In Attorney-General for Canada v. Attorney-General for Ontario, 1937 AC 355 at p. 367 the Judicial Committee observed:"In other words, Dominion legislation, even though it deals with Dominion property, may yet be so framed as to invade civil rights within the province, or encroach upon the classes of subjects which are reserved to provincial competence. It is not necessary that it should be a colourable device, or a pretence. If on the true view of the legislation it is found that in reability in pith and substance the legislation invades civil rights within the Province, or in respect of other classes of subjects otherwise encroaches upon the provincial field, the legislation will be invalid. To hold otherwise would afford the Dominion an easy passage into the Provincial Domain".76. In Attorney-General for Alberta v. Attorney-General for Canada, 1939 AC 117 at p.130 the Judicial Committee observed:"It is not competent either for the Dominion or a Province under the guise, or the pretence, or in the form of an exercise of its own powers, to carry out an object which is beyond its powers and a trespass on the exclusive powers of the other: Attorney-General for Ontario v. Reciprocal Insurers, 1924 AC 328 (342): In re the Insurance Act of Canada, 1932 AC 41. Here again matters of which the Court would take judicial notice must be borne in mind, and other evidence in a case which calls for it. It must be remembered that the object or purpose of the Act, in so far as it does not plainly appear from its terms and its probable effect, is that of an incorporeal entity, namely, the Legislature and, generally speaking, the speeches of individuals would have little evidential weight".77. Although it is not necessary to decide the question whether the impugned Act falls within entry 86 List I read with entry 97 List I, or entry 97 List I alone, as some of our brethren are of the view that the original Wealth Tax Act fell under entry 86 List I, we might express our opinion on that point. It seems to us that there is a distinction between a true net wealth tax and a tax which can be levied under entry 86 List I. While legislating in respect of entry 86 List I it is not incumbent on Parliament to provide for deduction of debits in ascertaining the capital value of assets. Similarly, it is not incumbent on State Legislatures to provide for deduction of debits while legislating in respect of entry 49 List II. For example the State Legislature need not, while levying tax under entry 49 List II, provide for deduction of debits owed by the owner of the property. 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 debits. 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 on 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 debits in order to determine the capital value of assets of an individual or a company. Therefore, it seems to us that the whole of the impugned Act clearly falls within entry 97 List I. 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. Be that as it may, we are clearly of the opinion that no part of the impugned legislation falls within entry 86 List I.78. However, assuming that the Wealth Tax Act, as originally enacted, is held to be legislation under entry 86 List I, there is nothing in the Constitution to prevent Parliament from combining its powers under entry 86 List I with its powers under entry 97 List I. There is no principle that we know of which debars Parliament from relying on the powers under specified entries 1 to 96. List I and supplement them with the powers under entry 97 List I and Art 248, and for that matter powers under entries in the Concurrent List.79. In 1940 FCR 188 (203) = (AIR 1941 FC 47), Gwyer, C.J., while dealing with the validity of the Madras Agriculturists Relief Act 1938, observed:"That the provisions of the Act in their application to the decree obtained by the appellant were within the competence of the Madras Legislature to enact does not seem to me open to doubt. They may be justified by reference to entry no.4 and no.15 of List III, perhaps also to entry no. 2 in List II; I do not say that there may not be others, but these will suffice".80. In State of Bombay v. Narothamdas Jethabhai, 1951 SCR 51 = (AIR 1951 SC 69 ), Patanjali Sastri and Das, JJ., as they then were, relied on both items 1 and 2 of List II of the Government of India Act, 1935, to uphold the Bombay City Civil Court Act, 1948.81. It was contended that the case of residuary powers was different but we are unable to see any difference in principle. Residuary power is as much a power as the power conferred under Art. 246 of the Constitution in respect of a specified item.82. In in re the Regulation and Control of Aeronautics in Canada, 1932 AC 54 at p. 77 the Privy Council upheld the validity of a Parliamentary statute after supplementing the powers under the specified items in S.91 with the residuary powers. It observed:"To sum up, having regard (a) to the terms of S.132; (b) to the terms of the Convention which covers almost every conceivable matter relating to aerial navigation; and (c) to the fact that further legislative powers in relation to serial navigation reside in the Parliament of Canada by virtue of S.91, items 2, 5, and 7, it would appear that substantially the whole field of legislation in regard to aerial navigation belongs to the Dominion. There may be a small portion of the field which is not by virtue of specific words in the British North America Act vested in the Dominion; but neither is it vested by, specific words in the Provinces. As to that small portion it appears to the Board that it must necessarily belong to the Dominion under its power to make laws for the peace order and good government of Canada. Further their Lordships are influenced by the facts that the subject of aerial navigation and the fulfilment of Canadian obligations under S.132 are matters of national interest and importance; and that aerial navigation is a class of subject which has attained such dimensions as to affect the body politic of the Dominion."(emphasis supplied).83.

Decision:
1[ds]Art. 246 with the three lists in the Seventh Schedule, it is quite clear that Parliament has exclusive power to make laws with respect to all the matters enumerated in List I and this notwithstanding anything in clauses (2) and (3) of Art. 246. The State Legislatures have exclusive powers to make laws with respect to any of the matters enumerated in List II, but this is subject to clauses (1) and (2) of Article 246. The object of this subjection is to make Parliamentary legislation on matters in List I and III paramount. Under cl. (4) of Art. 246 Parliament is competent also to legislate on a matter enumerated in State List for any part of the territory of India not included in a State. Article 248 gives the residuary powers of legislation to the UnionArt. 250 Parliament can legislate with respect to any matter in the State list if a proclamation of emergency is in operation. Under Art. 253 Parliament has power to make any law for the whole or part of the territory of India for the purpose of implementing any international treaty, agreement or convention.14. This scheme of distribution of legislative power has been derived from the Government of India Act 1935, but in one respect there is a great deal of difference, and it seems to us that this makes the scheme different insofar as the present controversy is concerned. Under the Government of India Act, the residuary powers were not given either to the Central Legislature or to the Provincial Legislatures. The reason for this was given in the Report of the Joint Committee on Indian Constitutional Reform, volume I para 56. The reason was that there was profound cleavage of opinion existing in India with regard to allocation of residuary legislative powers. The result was the enactment of S.104 of the Government of IndiaThere does not seem to be any dispute that the Constitution makers wanted to give residuary powers of legislation to the Union Parliament. Indeed, this is obvious from Art. 248 and entry 97 List I. But there is a serious dispute about the extent of the residuary power.17. It will be noticed that all the matters and taxes which have been excluded, except taxes on the capital value of agricultural land under entry 86 List I fall specifically within one of the entries in List II. While taxes on agricultural income have been excluded from entry 82 List I, they form entry 46 List II, duties of excise excluded in entry 84 List I have been included in entry 51 List II; agricultural land exempt in entry 87 has been incorporated as entry 48 List II; and similarly, agricultural land exempted from the incidence of duties in respect of succession to property has been made the subject matter of duties in respect of succession in entry 47 List II.18. It seems to us that from this scheme of distribution it cannot be legitimately inferred that taxes on the capital value of agricultural land were designedly excluded from entry 97 List I. In this connection it is well to remember that the first draft of the 3 lists was attached to the report of the Union Powers Committee dated July 5, 1947 (see Vol. V Constituent Assembly Debates, page 60) List I then consisted of 87 entries and there was no residuary entry. It was on August, 1947 that Mr. N. Gopalaswami Ayyangar moved that this report be taken into consideration. At that stage it was evident that in the case of Indian States the residuary subjects were to stay with the Indian States unless they were willing to cede them to the Centre.It seems to us that the function of Article 246 (1) read with Entries 1-96, List I, is to give positive power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so. Accordingly we do not interpret the words "any other matter" occurring in Entry 97, List I to mean a topic mentioned by way of exclusion. These words really refer to the matters contained in each of the Entries 1 to 96. The words "any other matter" has to be used because Entry 97, List I follows Entries 1-96, List I. It is true that the field of legislation is demarcated by Entries 1-96, List 1, but demarcation does not mean that if Entry 97 List I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of Entry 97, List I is removed by the wide terms of Article 248. It is framed in the widest possible terms. On its terms the only question to be asked is: Is the matter sought to be legislated included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III : No question has to be asked about List I. If the answer is in negative then it follows that Parliament has power to make laws with respect to that matter or tax.21. It must be remembered that the function of the lists is not to confer powers; they merely demarcate the legislative field.We are compelled to give full effect to Article 248 because we know of no principle of construction by which we can cut down the wide words of a substantive article like Article 248 by the wording of an entry in Schedule VII. If the argument of the respondent is accepted, Article 248 would have to be re-drafted ashas exclusive power to make any law with respect to any matter not mentioned in the Concurrent List or State List, provided it has not been mentioned by way of exclusion in any entry in Listsimply have not the power to add a proviso like this to Article 248.24. We must also mention that no material has been placed before us to show that it was ever in the mind of anybody, who had to deal with the making of the Constitution, that it was the intention to prohibit all the legislatures in this country from legislating on a particular topic.We do not think it is legitimate manner of interpretation. The debates show that notwithstanding that certain taxes were known to the members of the Constituent Assembly they were not mentioned in the final list. Yet it can hardly be argued that they would not fall within the residuary powers.Two points emerge from this. The Constituent Assembly knew how to prohibit Parliament from levying a tax (See proposed Article 198-A set out above.) Secondly they knew of certain taxes as taxes on the use of consumption of goods. The proposal to include them in the Provincial List was not accepted. Indeed, Shri T.T. Krishnamachari said this about thisAssembly Debates Vol. 7 p. 232"Sir, one other recommendation of the Export Committee is I am afraid, rather mischievous. That is, they have suggested in regard to sales tax - which is Item 58 in List 2 - that the definition should be enlarged so as to include Use Tax as well, going undoubtedly on the experience of the American State Use Tax which, I think, is a pernicious recommendation. I think, it finds a reflection in the mention of Sales Tax in Item 58 which ought not to be there".If Parliament were to levy a Use Tax, it could hardly be thrown out on the ground that it cannot be included in the residuary powers because the tax was known at the time of the framing of the Constitution. Indeed it does not seem to be a sound principle of interpretation to adopt to first ascertain whether a tax was known to the framers of the Constitution and include it in the residuary powers only if it was not known. This would be an impossible test to apply. Is the Court to ask members of the Constituents Assembly to give evidence or is the Court to presume that they know of all the possible taxes which were being levied throughout the world? In our view the only safe guide for the interpretation of an article or articles of an organic instrument like our Constitution is the language employed, interpreted not narrowly but fairly in the light of the broad and high purposes of the Constitution but without doing violence to the language. To interpret Article 248 in the way suggested by the respondent would in our opinion be to do violence to the language.32. We are, however, glad to find from the following extracts from the debates that our interpretation accords with what wasHonourable Dr. B. R. Ambedkar (Constituent Assembly Debates, Vol.9 pagesPresident, I propose to deal with the objection raised by my friend Sardar Hukam Singh. I do not think he has realised what is the purpose of entry 91 and I should therefore like to state very clearly what the purpose of entry 91 in List I is. It is really to define a limit or scope of List I and I think we could have dealt with this matter, viz. of the definition of and scope of Lists II and III by adding an entry such as 67 which would read:"Anything not included in List II or III shall be deemed to fall in List I". That is really the purpose of it. It could have been served in two different ways, either having an entry such as the one 91 included in List I or to have an entry such as the one which I have suggested - that anything not included in List II or III shall fall in List I". That is the purpose of it. But such an entry is necessary and there can be no question about it. Now I come to the other objection which has been repeated if not openly at least whispered as to why we are having these 91 entries in List I when as a matter of fact we have an article such as 223 which is called residuary article which is Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. Theoretically I quite accept the proposition that when anything which isnot included in List II or ListIII is by a specific article of the Constitution handed over to the Entry it is unnecessary to enumerate these categories which we have specified in List I. The reason why this is done is this. Many States people, and particularly the Indian States at the beginning of the labours of the Constituent Assembly, were very particular to know what are the legislative powers of the Centre. They wanted to know categorically and particularly; they were not going to be satisfied by saying that the Centre will have only residuary powers. Just to allay the fears of the Provinces and the fears of the Indian States, we had to particularise what is included in the symbolic phrase "Residuary powers". That is the reason why we had to undergo this labour notwithstanding the fact that we had Article 223.I may also say that there is nothing very ridiculous about this, so far as our Constitution is concerned, for the simple reason that it has been the practice of all federal constitutions to enumerate the powers of the Centre, even those federations which have got residuary powers given to the Centre. Take for instance the Canadian Constitution. Like the Indian Constituion, the Canadian Constitution also gives what are called residuary powers to the Canadian Parliament. Certain specified and enumerated powers are given to the Provinces. Notwithstanding this fact the Canadian Constitution. I think in Article 99, proceeds to enumerate certain categories and certain entries on which the Parliament of Canada can legislate. That again was done in order to allay the fears of the French Provinces which were going to be part and parcel of the Canadian Federation. Similarly also in the Government of India Act; the same scheme has been laid down there and Section 104 of the Government of India Act, 1935 is similar to Article 223 here. It also lays down the proposition that the Central Government will have residuary powers. Notwithstanding that, it had its List I. Therefore there is no reason, no ground to be over-critical about this matter. In doing this we have only followed as I said, the requirements of the various Provinces to know specifically what these residuary powers are, and also we have followed well-known conventions which have been followed in any other federal constitutions. I hope the House will not accept either the amendment of my Friend Sardar Hukam Singh nor take very seriously the utterings of my Friend Mr. Naziruddin Ahmad".It seems to us that this discussion clearly shows that it was realised that the old entry 91 would cover every matter which is not included in Lists II and III, and that entries were enumerated in List I following the precedent of the Canadian Constitution and also to inform the provinces and particularly the Indian States as to the legislative powers the Union was going toT.T. Krishnamachari (Constituent Assembly Debates, Vol.11,would in this connection deal with a point raised regarding the vesting of the residuary powers. I think more than one honourable Member mentioned that the fact that the residuary power is vested in the Centre in our Constitution, makes it a unitary Constitution. It was, I think, further emphasised by my honourable Friend Mr. Gupta in the course of his speech. He said: "The test is there. The residuary power is vested in the Centre. I am taking my Friend Mr. Gupta quite seriously, because he appears to be a careful student who has called out this particular point from some text book on federalism. I would like to tell honourable Members that it is not a very important matter in assessing whether a particular Constitution is based on a federal system from the point of view whether the residuary power is vested in the States or in the Central Government. Mr. K. C. Wheare who has written recently a book on Federalism has dealt with thisif you ask me why we have really kept the residuary power with the Centre and whether it means anything at all, I will say that it is because we have gone to much absolute length to enumerate the powers of the Centre and of the States and also the powers that are to be exercised by both of them in the concurrent field. In fact, to quote Professor Wheare again, who has made a superficial survey of the Government of India Act, the best point in the Government of India Act is the complete and exhaustive enumeration of powers of Schedule VII.To my mind there seems to be the possibility of one power that has not been enumerated, which might be exercised in the future by means of the use of the residuary power, namely the capital levy on agricultural land. This power has not been assigned either to the Centre or to the Units. It may be that following the scheme of Estate Duty and succession duty on urban and agricultural property, even if the Centre has to take over this power under the residuary power after some time. It would assign the proceeds of this levy to the provinces, because all things that are supposed to be associated with agriculture are assigned to the provinces.(emphasis supplied) I think the vesting of the residuary power is only a matter of academic significance today. To say that because residuary power is vested in the Centre and not in the provinces this is not a Federation would not be correct".The above speech of Mr. T. T. Krishnamachari shows that the members were aware that certain known taxes had not been included specifically in the three lists.38. It is, therefore, difficult to escape from the conclusion that in India there is no field of legislation which has not been allotted either to Parliament or to the Stateis true that there are some limitations in Part III of the Constitution on the legislatures in India but they are of a different character. They have nothing to do with legislative competence. If this is the true scope of residuary powers of Parliament, then we are unable to see why we should not, when dealing with a Central Act, enquire whether it is legislation in respect of any matter in List II for this is the only field regarding which there is a prohibition against Parliament. If a Central Act does not enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of List I or List III a Central Act would rightly fit in.40. It was accepted that this test had been applied in Canada, but it was argued that the Canadian Constitution is completely different from the Indian Constitution. It is true that the wording of Ss. 91 and 92 of the Canadian Constitution is different and the Judicial Committee has interpreted these sections differently at different periods, but whatever the interpretation, it has always held that the lists are exhaustive. The scheme of distribution of Legislative powers between the Dominion and the Provinces is essentially the same as under our Constitution. In this matter it is best to quote the words of the Judicial Committee or some learned authors rather than interpret Ss. 91 and 92 ourselves.It is quite true, as Mr. Palkiwala points out, that one way of reading Ss. 91 and 92 of the Canadian Constitution is that S.91 gives general powers and then gives certain specific powers by way of illustration, and that apparently was the interpretation placed on the Act by the Privy Council before 1896 AC 348. But whatever the interpretation, the same test was applied by the Privy Council before 1896 in Russel v. The Queen, (1882) 7 AC 829   and after this case.48. The learned counsel referred to five cases of this court and the Federal Court to show that the Canadian cases should not be relied on as the Canadian Constitution was different. It is true that the Canadian Constitution is different in many respects and for some purposes it would be misleading to rely on the Canadian cases. In Chhotabhai Jethabhai Patel v. Union of India, (1962) Supp 2 SCR 1 = (AIR 1962 SC 1006  ) the question was the interpretation of Entry 84 List I (Duties of excise on tobacco....) and entry 60 List II (Taxes on professions, trades, calling and employments). This Court held that the Canadian cases which were cited before it did not afford any assistance because in Canada analogous problems are always concerned with questions of direct and indirect taxation. We agree that in the interpretation of entry 84 (duties of excise...) it would be misleading to rely on cases dealing with direct and indirect taxation.Be that as it may, we are unable to see how the adoption of this mode of enquiry will destroy the federal structure of our Constitution. The State Legislatures have full legislative authority to pass laws in respect of entries in List II, and subject to legislation by Parliament on matters in List III.59. It was also said that if this was the intention of the Constitution makers they need not have formulated List I at all. This is the point which was taken by Sardar Hukam Singh and others in the debates referred to above and was answered by Dr. Ambedkar. But apart from what has been stated by Dr. Ambedkar in his speech extracted above there is some merit and legal effect in having included specific items in List I for when there are three lists it is easier to construe List II in the light of Lists I and II. If there had been no List I, many items in List II would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it may, we have the three lists and a residuary power and therefore it seems to us that in this context; if a Central Act is, challenged, as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further questionthis matter we have three decisions of this Court and although these decisions were challenged we are of the opinion that they interpreted Entry 49 List II correctly.The requisites of a tax under entry 49, List II may be summarisedIt must be a tax on units, that is lands and buildings separately as units.(2) The tax cannot be a tax on totality, i.e. it is not a composite tax on the value of all lands and buildings.(3) The tax is not concerned with the division of interest in the building or land. In other words, it is not concerned whether one person owns or occupies it or two or more persons own or occupy it.In short, the tax under entry 49 List II is not a personal tax but a tax on property.67. It seems to us that this Court definitely held and we agree with the conclusion that the nature of the Wealth Tax imposed under the Wealth Tax Act, as originally stood, was different from that of a tax under entry 49, List II, and it did not fall under this entry.68. The distinction between a net wealth tax and tax on property is clearly brought out in the following extracts, and supports the conclusion arrived at by this Court.69. Readings on Taxation in Developing Countries by Fird and Oldman elucidates the concept of Wealth Tax as follows, at pageterm net wealth tax is usually defined as a tax annually imposed on the net value of all assets less liabilities of particular tax-payers - especially individuals. This definition distinguishes the net wealth tax from other types of taxation of net wealth, such as death duties and a capital levy; the former are imposed only at infrequent intervals - once a generation - while the latter is a one-time charge, usually with the primary purpose of redeeming a war-time national debt. The net wealth tax is really intended to tax the annual yields of capital rather than the principal itself as do death duties or a capital levy, even though it is levied on the value of the principal. Since it taxes net wealth, it also differs from property taxes imposed on the gross value of property - primarily real property - in a number of countries. The net wealth tax gives consideration to the taxpayers taxable capacity through the deduction of all outstanding liabilities and personal exemptions as well as through other devices, while the property tax generally does not take these factors into account. The net wealth tax is therefore deemed to be imposed on the person of the taxpayer, while the property tax often deemed to be imposed on an object - the property itself".In Harvard Law School World Tax Series - Taxation in Columbia - Net Wealth Tax is defined at page 451a general rule, all debts owed by taxpayers whether to residents or to non-residents, are deductible if their existence is established in conformity with the legal requirements. The usual test of deductibility, as applied by the Division of National Taxes, is whether or not there is an actual, enforceable legal obligation, the amount of which is fixed or computable as on 31 December of the tax year".According to Harvard Law School World Tax Series - Taxation in Sweden - this tax has been levied in Sweden since a long time. Now it is regulated by law enacted in 1947, "Taxable Wealth" has been defined at page 625 aswealth consists of the capital value of the taxpayers assets, as those are defined in the law, to the extent that this value exceeds the capital value of his debts.In Harvard Law School World Tax Series - Taxation in the Federal Republic of Germany - it is stated at page 152 that "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 Equalization of Burdens Law". It is further statedof the taxes on capital are deemed to be imposed on the person of the taxpayers while other are deemed to be imposed on an object. Examples of the former are the net worth tax and the capital levy under the Equalization 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 partnership association of the civil law, or other combination of persons without separate legal existence. Taxes of the first type give consideration to the taxpayers 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".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 II. If that is so, then the legislation is valid either under entry 86, List I, read with entry 97, List I or entry 97 List I standing by itself.74. Although we have held that the impugned Act does not impose a tax mentioned in entry 49 List II, we would like to caution that in case the real effect of a Central Act, whether called a Wealth Tax Act or not, is to impose a tax mentioned in entry 49 List II the tax may be held as encroaching upon the domain of State legislatures.Although it is not necessary to decide the question whether the impugned Act falls within entry 86 List I read with entry 97 List I, or entry 97 List I alone, as some of our brethren are of the view that the original Wealth Tax Act fell under entry 86 List I, we might express our opinion on that point. It seems to us that there is a distinction between a true net wealth tax and a tax which can be levied under entry 86 List I. While legislating in respect of entry 86 List I it is not incumbent on Parliament to provide for deduction of debits in ascertaining the capital value of assets. Similarly, it is not incumbent on State Legislatures to provide for deduction of debits while legislating in respect of entry 49 List II. For example the State Legislature need not, while levying tax under entry 49 List II, provide for deduction of debits owed by the owner of the property. 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 debits. 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 on 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 debits in order to determine the capital value of assets of an individual or a company. Therefore, it seems to us that the whole of the impugned Act clearly falls within entry 97 List I. 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. Be that as it may, we are clearly of the opinion that no part of the impugned legislation falls within entry 86 List I.78. However, assuming that the Wealth Tax Act, as originally enacted, is held to be legislation under entry 86 List I, there is nothing in the Constitution to prevent Parliament from combining its powers under entry 86 List I with its powers under entry 97 List I. There is no principle that we know of which debars Parliament from relying on the powers under specified entries 1 to 96. List I and supplement them with the powers under entry 97 List I and Art 248, and for that matter powers under entries in the Concurrent List.It was contended that the case of residuary powers was different but we are unable to see any difference in principle. Residuary power is as much a power as the power conferred under Art. 246 of the Constitution in respect of a specified item.82. In in re the Regulation and Control of Aeronautics in Canada, 1932 AC 54   at p. 77 the Privy Council upheld the validity of a Parliamentary statute after supplementing the powers under the specified items in S.91 with the residuary powers. Itsum up, having regard (a) to the terms of S.132; (b) to the terms of the Convention which covers almost every conceivable matter relating to aerial navigation; and (c) to the fact that further legislative powers in relation to serial navigation reside in the Parliament of Canada by virtue of S.91, items 2, 5, and 7, it would appear that substantially the whole field of legislation in regard to aerial navigation belongs to the Dominion. There may be a small portion of the field which is not by virtue of specific words in the British North America Act vested in the Dominion; but neither is it vested by, specific words in the Provinces. As to that small portion it appears to the Board that it must necessarily belong to the Dominion under its power to make laws for the peace order and good government of Canada. Further their Lordships are influenced by the facts that the subject of aerial navigation and the fulfilment of Canadian obligations under S.132 are matters of national interest and importance; and that aerial navigation is a class of subject which has attained such dimensions as to affect the body politic of the Dominion.It is, therefore, difficult to escape from the conclusion that in India there is no field of legislation which has not been allotted either to Parliament or to the Statelegislatures. In Attorney-General for Ontario v. Attorney-General for Canada, 1947 AC 127   at p.150 Lord Jowitt, L.C., recalled the following words of Lord Loreburn, L.C., in Attorney-General for Ontario v. Attorney-General for Canada, 1912 AC 571   at p.581 and reiteratedthere can be no doubt that under this organic instrument the powers distributed between the Dominion on the one hand, and the provinces on the other hand, cover the whole area of self-government within the whole area of Canada. It would be subversive of the entire scheme and policy of the Act to assume that any point of internal self-Government was withheld from Canada".The last sentence applies much more to the Constitution of a sovereign democratic republic. Itis true that there are some limitations in Part III of the Constitution on the legislatures in India but they are of a different character. They have nothing to do with legislative competence. If this is the true scope of residuary powers of Parliament, then we are unable to see why we should not, when dealing with a Central Act, enquire whether it is legislation in respect of any matter in List II for this is the only field regarding which there is a prohibition against Parliament. If a Central Act does not enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of List I or List III a Central Act would rightly fit in.40. It was accepted that this test had been applied in Canada, but it was argued that the Canadian Constitution is completely different from the Indian Constitution. It is true that the wording of Ss. 91 and 92 of the Canadian Constitution is different and the Judicial Committee has interpreted these sections differently at different periods, but whatever the interpretation, it has always held that the lists are exhaustive. The scheme of distribution of Legislative powers between the Dominion and the Provinces is essentially the same as under our Constitution.