Case: Commissioner of Wealth Tax Vs. Dr. Karan Singh &amp; Others

held by them. As explained in Assistant Commissioner of Urban Land Tax v. Buckingham Carnatic Co. Ltd. ... It is not a tax directly on the capital value of the assets of individuals and companies on the valuation date... The tax under Entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth, not only the encumbrances specifically charged against any item of assets but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. * This was also the view expressed in Nawn 27. The language of Entry 86 also clearly indicates that the tax is upon the individuals and not directly upon the assets or upon their value. The wealth tax is determined with reference to the capital value of the assets minus the debts and other deductions mentioned in the Act. We cannot accept the argument that since the tax is contemplated to be levied upon the capital value of the assets of an individual, the exclusion of his debts and other liabilities changes the nature and character of the tax. Indeed, the learned counsel for the respondents could not suggest any enactment relatable to Entry 86 except the Wealth Tax Act 28. It is argued for the respondents that capital value of the assets on a true interpretation can only mean market value of the assets minus any encumbrances charged upon the assets themselves. The expression does not take in, it is submitted, general liabilities of the person owning them. This argument, in our opinion, ignores the basic nature of the tax contemplated by Entry 86. It is a tax upon the net wealth of an individual. It is a net-wealth tax. Net wealth of an individual necessarily means what all he owns minus what all he owes - and this is what the Act purports to tax 29. Mr. Sorabjee relied upon the decisions of the Bombay High Court in Sir Byramjee Jeejeebhoy v. Province of Bombay and Municipal Corporation, Ahmedabad v. Gordhandas 1954 AIR(Bom) 188, 194 : 55 Bom LR 1028 : ILR 1954 Bom 41 ). In the first case, the question was whether the Bombay Finance Act, 1932 which levied tax upon urban immovable property was outside the competence of the Bombay Legislature on the ground that the tax levied was one in the nature of Income Tax Act relatable to Entry 54 of the Federal List in VII Schedule to the Government of India Act, 1935. All the three Judges constituting the Full Bench repelled the said argument. In the course of their discussion they also referred to Entry 55 of the Federal List; but that aspect did not arise in that case and, therefore, any passing observation made with respect to the content of the said entry cannot be of any assistance to us in this case. Similarly, in Gordhandas 1954 AIR(Bom) 188, 194 : 55 Bom LR 1028 : ILR 1954 Bom 41 ) the question was with respect to the power of the Bombay Municipal Corporation to levy tax on land. The petitioners contentions were that the said tax falls outside Entry 42 of List II of VII Schedule to the 1935 Act (corresponding to Entry 49 of List II of our Constitution) and that the tax on land imposed by the said Act is really in the nature of tax contemplated by Entry 55 of the Federal List. Reliance was placed upon the decision in Byramjee case. The said argument was dealt with by Gajendragadkar, J. (as he then was) in the following words I have dealt with this question on the assumption that Entry 55 in List I confers jurisdiction on the Central Legislature to levy a tax on the capital value, not only of all the assets, but of even a part of the assets. In Byramjee case a Full Bench of this Court had to consider the construction of Entry 54 in List I as against Entry 42 in List II. Incidentally an argument was urged before the Full Bench even as to Entry 55 in List I. Chief Justice Beaumont said that it was unnecessary to consider the argument based on Entry 55; but, nevertheless, he observed that an analysis of the language employed in Entries 54 and 55 respectively affords scope for the argument that the assets mentioned in Entry 55 must mean the totality of the assets. According to Mr. Justice Broomfield, the meaning of the expression capital value of the assets in Entry 55 was by no means clear. He, however, added that it may be that what was intended was a tax on the total value of the assets in the nature of a capital levy. Mr. Justice Kania, on the other hand, expressed his clear opinion that under Entry 55 the tax should be on the total capital assets and not on individual portions of a persons capital. * It was held that the said earlier decision in no manner supported the assessees contention 30. Lastly, reference was made to the decision of this Court in New Manek Chowk Spng. & Wvg. Mills Co. Ltd. v. Municipal Corporation. In that case, it was held by this Court that Entry 49 in List II of VII Schedule permits levy of tax on lands and buildings but not on machinery installed on land or in the building. It was held that Rule 7(2) of the Rules framed under Bombay Provincial Municipal Corporation Act, 1949 which provided that all plant and machinery contained or situated in any building or land shall be deemed to form part of such building or land was held to be beyond the legislative competence of the State. We are unable to see how the principle of this decision is of any assistance to the respondents herein 31.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]As mentioned earlier, the challenge in Dhillon case was limited to Section 24 of the Finance Act, 1969 insofar it amended the relevant provisions of the Wealth Tax Act, 1957. Initially the value of agricultural land was exempt from the charge of wealth tax. The exemption was withdrawn by this amendment. This was challenged as ultra vires by the assessee H. S. Dhillon and the High Court agreed with him. The judgment was appealed against by the Union of India. Mr. Setalvad, appearing in support of the appeal, contended that the impugned Act was not a law with respect to any Entry (including Entry 49) in List II and if this was so it must necessarily fall within the legislative competence of Parliament. He reminded the Court that the Parliament was competent to legislate with respect to Entry 86 read with Entry 97 or Entry 97 by itself read with Article 248 of the Constitution. The argument was being addressed, pointedly with reference to the impugned Act i.e., the Finance Act, 1969. Mr. Setalvad urged that the proper way of testing the validity of a parliamentary statute in our Constitution was first to see whether the parliamentary legislature was with respect to a matter or tax mentioned in List II; if it was not, no other question would arise. This approach was taken note of by the judgment of Sikri, C.J. in the last paragraph of page 45 and second paragraph at page 46 of the Supreme Court Reports. (SCC p. 787, paras 8 and 10). The judgment read as a whole including the passage, which has been relied upon by Mr. Sorabjee, in our view leads to the irresistible conclusion that Sikri, C.J. accepted the line suggested by Mr. Setalvad and, therefore, it did not remain necessary for the learned Chief Justice to express a final opinion as to the particular Entry covering the Wealth Tax ActIn his learned judgment, Sikri, C.J. considered the constitutional scheme specially with reference to Articles 246, 248, 250 and 253 and Section 104 of the Government of India Act, 1935. While considering the Constituent Assembly Debates and other relevant documents dealing with the process which ultimately led to the making of the Constitution as it was finally adopted the following interpretation of Dr. B. R. Ambedkar was specially referred toAnything not included in List II or III shall be deemed to fall in List IBesides, constitutions of several foreign countries as also many decisions were discussed and the conclusion reached in the following words at page 72-G of the Reports : (SCC p. 807, para 82)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. *It was only after arriving at the conclusion finally that the question whether the impugned Act (we will prefer to call it as the Finance Act, 1969) fell within Entry 86 List I, read with Entry 97 List I, or Entry 97 List I alone, was adverted to; and while so doing the fact that it was necessary to decide this issue was taken note of. Mr. Sorabjee is right that the observations in this part of the judgment from p. 73-G to p. 74-E (SCC pp. 807-08, paras 83 to 86) were made in view of the judgment of Shelat, J. on Entry 86, and these observations were critical of the minority view on Entry 86, but the respondents before us are failing to appreciate that a critical comment made on a certain statement does not, in absence of an expression to that effect, necessarily lead to the inference that the converse is true. It may mean that the statement requires further consideration or that the grounds given in support of the statement are fallacious or inadequate or that the matter requires a fuller examination and until that is done, the assumed correctness of the statement cannot be accepted.The basic rules of interpreting Court judgments are the same as those of construing other documents. The only difference is that the judges are presumed to know the tendency of parties concerned to interpret the language in the judgments differently to suit their purposes and the consequent importance that the words have to be chosen very carefully so as not to give room for controversy. The principle is that if the language in a judgment is plain and unambiguous and can be reasonably interpreted in only one way it has to be understood in that sense, and any involved principle of artificial construction has to be avoided. Further, if there be any doubt about the decision, the entire judgment has to be considered, and a stray sentence or a casual remark cannot be treated as a decision. Examined in this light, the judgment of learned Chief Justice indicates that the main question agitating him mind was - if levy of wealth tax on agricultural land is not within the purview of List II, if it is not warranted by any Entry in List III and if it is also not within the purview of Entry 86 of List I, then which is the authority competent to levy it ? Evidently, there cannot be a subject-matter or tax, which no legislature under the Constitution can levy. Accordingly, he held, the said tax is warranted by Entry 97 of List I read with Article 248. The question, whether the Wealth Tax Act (without reference to the impugned Finance Act, 1969) falls within Entry 86 did not arise for consideration and was not answered but left undetermined, by the learned Chief Justice, though Mitter, J., did certainly express himself on it. A reference to other parts of the very passage relied upon by Mr. Sorabjee as indicated below, will be helpfulAt the cost of repetition we would like to point out that the impugned Act was the 1969 Amendment Act. The distinction between the Amendment Act and the original Wealth Tax Act was always present in the mind of the learned Chief Justice as is clear from the very next sentence, which reads thusWe 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 fell within Entry 86 List I and on that assumption this entry was analysed and contrasted with Entry 49 List II. *Mr. Sorabjee laid great emphasis on the above sentences and urged that an inference should be drawn therefrom about the majority view holding that Entry 86 was not attracted. We do not agree with him. In his judgment Shelat, J. had referred to several decisions in favour of holding Entry 86 applicable and the last sentence quoted above, was only a comment on that part of the judgment. Besides, there is further indication given in the very next sentence, which, in our view, reiterates the conclusion already reached and recorded at page 72-G (quoted above) and that is in the following words : (SCC p. 807, para 82)Be that as it may, we are clearly of the opinion that no part of the impugned legislation falls within Entry 86 List IIn the next paragraph the permissibility of the Parliament combining its powers under Entry 86 with its powers under Entry 97 was considered and answered in the affirmative. This was apparently the conclusion made at page 72-G (SCC p. 807, para 82) (quoted above) that the legislation should be held to be valid under Entry 86 List I, read with Entry 97 List IWe, therefore, hold that the issue, whether the Wealth Tax Act, 1957 falls in Entry 86 or not, was not finally decided in the judgment of Sikri, C.J., and was left open for future when such an occasion arose. While so doing certain observations critical to the views of Shelat, J. were expressed but merely on account of this, Dhillon judgment cannot be treated to be a binding precedent preventing this Bench from considering the main issue on meritsThe position, therefore, is that the issue as to whether the Wealth Tax Act, 1957 (without amendment Act, 1969, as it has been conceded on behalf of the appellant to be inapplicable to the State of Jammu and Kashmir), extends to the State of Jammu and Kashmir or not, is, as mentioned earlier, dependent on the question whether the Act falls under Entry 86, List I quoted in paragraph 3 above or not. The residuary power in the case of Jammu and Kashmir is with the State and the cases relied upon by the parties are of no helpThe argument of Mr. Sorabjee is that the expression capital value of assets in Entry 86 does not signify the same thing as net wealth as defined in Wealth Tax Act. For calculating the capital value of assets only the encumbrances which are charged on the assets, can be deducted from the market value of the assets, and not the general liabilities of the individual owning the assets, which are to be taken into account for the purpose of wealth tax. Adopting the observations of H. J. Kania, J. (as he then was) in Sir Byramjee Jeejeebhoy v. Province of Bombay it was asserted that under Entry 86, the tax should be on the total capital assets and not on individual portions of a persons capital. In Sir Byramjee case the relevant entry was Entry 55 in List I of the Government of India Act, 1935, similar to the present Entry 86. The learned counsel pointed out that Bombay decision was approved by the Federal Court in Ralla Ram v. Province of East Punjab. Reference was also made to the judgment in Municipal Commr., Municipal Corpn. of the City of Ahmedabad v. Gordhandas Hargovandas 1954 AIR(Bom) 188, 194 : 55 Bom LR 1028 : ILR 1954 Bom 41 ). In support of his stand that Wealth Tax Act is covered by Entry 86 Dr. Gauri Shankar took us through the background in which the Wealth Tax Act was enacted. He placed before us the legislative practice in other countries also as reported by OECD Committee on Fiscal Affairs and the discussion by Kaldor in his book Indian Tax Reforms. Dealing with the deductions which are allowed under the Wealth Tax Act for liabilities and debts, the learned counsel proceeded to say that that is methodology of levy of this form of capital taxation adopted internationallyn the next paragraph of the Report, the enquiry of allowing debts not related to the acquisition of assets is also discussed. The learned counsel summed up by saying that the substance of the practice adopted in other countries and the economic concept underlying the theory of equi-marginal sacrifice, which is called the ability to pay, is that there will be no true measure of a persons net worth unless from the gross aggregate capital value, deductions are given for liabilities and debts, and that is the rationale of Entry 86 as also that of the Wealth Tax ActWe must, therefore, ascertain the correct nature of the tax under the Wealth Tax Act and the scope of Entry 86 by reference to the expressions capital value and assets. It is firmly established that in construing the language of constitutional enactments conferring legislative power the most liberal construction should be put upon the words so that the same have effect in their widest amplitude. (See Navinchandra Mafatlal v. CIT. In Sri Ram Ram Narain Medhi v. State of Bombay his Court followed the approach indicated by the Privy Council in British Coal Corporation v. The King ( 1935 AC 500, 518 : 104 LJPC 58 : 1935 AIR(PC) 158)t is also settled that for finding out the true nature and character of a taxing Act, the charging section has to be construed with the help of other relevant provisions. In the case of the Wealth Tax Act Sections 3 to 7 read with Sections 2(e) and 2(m) have to be examined. Section 3 levies an annual tax in respect of the net wealth on the valuation date on every individual etc. at the rate specified in the schedule. Section 7 mandates that the value for the purpose of charge shall be the value estimated to be the price which in the opinion of the assessing officer it would fetch if sold in the open market on the valuation date. The expression net wealth is defined in Section 2(m) as the amount by which the aggregate value computed in accordance with the prescribed provisions, is in excess of the aggregate value of all the debts owned by the assessee. Thus it appears that the tax is an annual levy on the total value of all assets owned by an assessee excluding exempted properties. Such value is the price which the property would fetch if sold in the market; in other words its capital value. From the capital value, certain liabilities and debts are to be deducted to arrive at the net wealth. The base of the tax is capital value and net wealth assessable is capital value after deductions of debts and liabilitiesAccording to the learned Chief Justice it is not incumbent on Parliament to provide for deduction of debts in ascertaining the capital value of the assets. But, having said so, the learned Chief Justice does not proceed further and say that such deduction, if provided, changes the character of tax from a tax on capital value to something else. Indeed, on principle, such a statement could not have been made or supported. The learned Chief Justice repeatedly stated that the Parliament or the legislature need not provide for such deductions, but without carrying the thought to its logical conclusion, concluded that the whole of the impugned Act (which as pointed out hereinbefore means the Act 24 of 1969 amending the Wealth Tax Act) clearly falls within Entry 97 of List I. We have already indicated in paragraph 16 earlier that the expression the whole of the impugned Act; did not refer to the wealth tax as originally enacted. We are, therefore, of the opinion that the Wealth Tax Act (as originally enacted and extended to J&K) is a net-wealth tax Act imposed upon the individuals, group of individuals like HUF and companies. The Tax is not upon the assets as such but is upon the individual and companies with reference to the capital value of the assets held by them. As explained in Assistant Commissioner of Urban Land Tax v. Buckingham Carnatic Co. LtdThe language of Entry 86 also clearly indicates that the tax is upon the individuals and not directly upon the assets or upon their value. The wealth tax is determined with reference to the capital value of the assets minus the debts and other deductions mentioned in the Act. We cannot accept the argument that since the tax is contemplated to be levied upon the capital value of the assets of an individual, the exclusion of his debts and other liabilities changes the nature and character of the tax. Indeed, the learned counsel for the respondents could not suggest any enactment relatable to Entry 86 except the Wealth Tax ActIt is argued for the respondents that capital value of the assets on a true interpretation can only mean market value of the assets minus any encumbrances charged upon the assets themselves. The expression does not take in, it is submitted, general liabilities of the person owning them. This argument, in our opinion, ignores the basic nature of the tax contemplated by Entry 86. It is a tax upon the net wealth of an individual. It is a net-wealth tax. Net wealth of an individual necessarily means what all he owns minus what all he owes - and this is what the Act purports to taxMr. Sorabjee relied upon the decisions of the Bombay High Court in Sir Byramjee Jeejeebhoy v. Province of Bombay and Municipal Corporation, Ahmedabad v. Gordhandas 1954 AIR(Bom) 188, 194 : 55 Bom LR 1028 : ILR 1954 Bom 41 ). In the first case, the question was whether the Bombay Finance Act, 1932 which levied tax upon urban immovable property was outside the competence of the Bombay Legislature on the ground that the tax levied was one in the nature of Income Tax Act relatable to Entry 54 of the Federal List in VII Schedule to the Government of India Act, 1935. All the three Judges constituting the Full Bench repelled the said argument. In the course of their discussion they also referred to Entry 55 of the Federal List; but that aspect did not arise in that case and, therefore, any passing observation made with respect to the content of the said entry cannot be of any assistance to us in this case. Similarly, in Gordhandas 1954 AIR(Bom) 188, 194 : 55 Bom LR 1028 : ILR 1954 Bom 41 ) the question was with respect to the power of the Bombay Municipal Corporation to levy tax on land. The petitioners contentions were that the said tax falls outside Entry 42 of List II of VII Schedule to the 1935 Act (corresponding to Entry 49 of List II of our Constitution) and that the tax on land imposed by the said Act is really in the nature of tax contemplated by Entry 55 of the Federal List. Reliance was placed upon the decision in Byramjee caseLastly, reference was made to the decision of this Court in New Manek Chowk Spng. & Wvg. Mills Co. Ltd. v. Municipal Corporation. In that case, it was held by this Court that Entry 49 in List II of VII Schedule permits levy of tax on lands and buildings but not on machinery installed on land or in the building. It was held that Rule 7(2) of the Rules framed under Bombay Provincial Municipal Corporation Act, 1949 which provided that all plant and machinery contained or situated in any building or land shall be deemed to form part of such building or land was held to be beyond the legislative competence of the State. We are unable to see how the principle of this decision is of any assistance to the respondents herein