Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970 Equivalent citations: 1970 AIR 999, 1971 SCR (1) 195, AIR 1970 SUPREME COURT 999 Author: M. Hidayatullah Bench: M. Hidayatullah, J.C. Shah, A.N. Grover, A.N. Ray, I.D. Dua PETITIONER: SECOND GIFT TAX OFFICER, MANGALORE, ETC. Vs. RESPONDENT: D. H. NAZARETH ETC. DATE OF JUDGMENT: 02/04/1970 BENCH: HIDAYATULLAH, M. (CJ) BENCH: HIDAYATULLAH, M. (CJ) SHAH, J.C. GROVER, A.N. RAY, A.N. DUA, I.D. CITATION: 1970 AIR 999 1971 SCR (1) 195 1970 SCC (2) 267 CITATOR INFO : RF 1972 SC1061 (57,64,101,112) F 1985 SC1211 (41) R 1990 SC 85 (23) D 1990 SC1637 (36) ACT: Constitution of India, 1950, Art. 248, Schedule VII, Union List, Entry 97 and State List, Entries 18 and 49--Gift Tax Act (18 of 1958)--Enacted by Parliament under residuary power--Competence of Parliament. HEADNOTE: Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970  1 Gift tax was levied under the Gift Tax Act, 1958, on gifts, of coffee plantations, paddy and other agricultural lands and buildings, made by the respondents. The Gift Tax Act was enacted by Parliament but there is no entry in the Union or Concurrent Lists mentioning such a tax. The High Court held that Parliament was not competent to enact a law impos- ing a gift tax on lands and buildings, because, entries 18 and 49 of the State List reserved the power to State Legislatures. On appeal to this Court. HELD : The Constitution divides the topics of legislation into three broad categories : (a) entRies enabling laws to be made, (b) entries enabling taxes to be imposed, and (c) entries enabling fees and stamp duties to be collected. The taxes are separately mentioned and contain the whole of the power of taxation, except entry 97 of the Union List under which, Parliament ha,-, exclusive power to make a law in respect of any matter not enumerated in the Concurrent or State Lists and the power includes the power of making a law imposing a tax not mentioned in either of the Lists. [199 G- H] Entry 18 of the State List dealing with 'land', though very wide, does not therefore confer any power of taxation and cannot authorise a tax not expressly mentioned.[199 H] Entry 49 of the State List contemplates a tax directly levied bY reason of the general ownership of lands and buildings. But the pith and substance of the Gift Tax Act,is to place the tax on the gift of property which may include land, and buildings. It is not a tax imposed directly upon lands and buildings but is a tax upon the value of the total gifts made in a year which is above the exempted limit. The lands and buildings are valued only as a measure of the value of the gift and what is taxed is the gift. A gift tax is thus not a tax on lands and buildings as such but is a levy upon a particular use, namely, the transmission of title by gift. [200 A-E] There being no other entry in the State List which might cover a gift tax, the residuary powers of Parliament under Art. 248, and entry 97 of the Union List, could be exercised by Parliament to enact the law. [200 E-F] Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta & Ors. (1968) 69 I.T.R. 897 (S.C.) followed. S. Dhandapani v. Addl. Gift Tax Officer, Cuddalore, (1963) 49 I.T.R. 712, Shyam Sunder v. Gift Tax Officer, A.I.R. 1967 All. 19, Jupadi Sesharatnam v. Gift Tax officer, Palacole, (1960) 38 I.T.R. 93 and Joseph v. Gift Tax, Officer, (1964) 45 I.T.R. 66, approved. 196 JUDGMENT: Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970  2 CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 664 to 669 of 1967. Appeals from the judgment and order dated March 22, 1962, July 23, 1962, July 24, 1962, July 12, 1963 and August 14, 1963 in Writ Petitions Nos. 1077 of 1959, 19 and 739 of 1960, 157 of 1961, 970 of 1962 and 594 of 1963. Jagadish Swarup, Solicitor-General, S. K. Aiyar and R. N. Sachthey, for the appellants (in all the appeals). S. V. Gupte, A. K. Varma, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondent. (in C. A. Nos. 664 and 668 of 1967). O. P. Rana, for the intervener for the State of U.P. M. R. K. Pillai, for the intervener for the State of Kerala. B. Sen, Santosh Chatterjee and G. S. Chatterjee for Sukumar Bose, for the State of West Bengal. S. Govind Swaminathan, Advocate-General, Tamil Nadu, A. V. Rangam and M. Subramaniam, for the State of Tamil Nadu. Lal Narayan Sinha, Advocate-General, Bihar, D. P. Singh nad V. J. Francis, for the intervener for the State of Bihar. K. A. Chitaley, Advocate-General, State of Madhya Pradesh, M.N. Shroff and I. N. Shroff, for the intervener for the State of Madhya Pradesh. E. S. Venkataramiah, Advocate-General, Mysore and S. P. Nayar, for the intervener for the State of Mysore. J. C. Medhi, Advocate-General, Assam and Naunit Lal, for the intervener for the State of Assam. The Judgment of the Court was delivered by Hidayatullah, C.J. These six appeals by certificate under Art. 132(1) of the Constitution are filed against the decision of the High Court of Mysore, declaring that Parliament had no power to legislate with respect to taxes on gift of lands and buildings. The High Court passed a detailed judgment on two of the petitions by which the competence of Parliament was challenged and followed its own decision in the other four cases. It is not necessary to give the facts of the six petitions in the High Court. As illustrative of the facts involved we may mention on W.P. No. 1077 of 1959. In that case a certain D. H. Nazareth, owner of a coffee plantation, made a gift by registered deed, January 22, 1958, of a coffee plantation and other properties in favour of his four sons. The market value of the property was Rs. 3,74,080 and the coffee plantation accounted for Rs. 3,24,700. Gift tax of Rs. 35,612/- was demanded. If the coffee _plantation was left out of consideration the tax was liable to be reduced by Rs. 3,4,036. The authority to charge gift tax on the gift of the coffee plantation was challenged and the right of Parliament to impose a gift tax on lands and buildings questioned. In some of the other cases agricultural or paddy lands or buildings were the subjects of gifts and they were similarly taxed and the tax questioned. The High Court held that, entry 49 of the State List read with entry 18 of the same list reserved the power to tax lands and buildings to the Legislature of the States and Parliament could not, therefore, use the residuary power conferred by entry 97 of the Union list. This decision is challenged before us. The Gift Tax Act was passed in 1958 and subjected gifts made in the year ending March 31, 1958 to tax. The Act contained the usual exempted limits and other exemptions. We need not concern ourselves with them here. We are only concerned with the validity of parliamentary legislation Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970  3 imposing gift tax at all. To consider the objection to the Gift Tax Act which was sus- tained by the High Court a few general principles may be borne in mind. Under Art. 245 Parliament makes laws for the whole or any part of the territory of India and the Legislatures of the States for the whole or part of their respective States. The subject matter of laws are set out in three lists in the Seventh Schedule. List I (usually referred to as the Union List) enumerates topics of legislation in respect to which Parliament has exclusive power to make laws and List II (usually referred to as the State List) enumerates topics of legislation in respect to which the State Legislatures have exclusive power to make laws. List III (usually referred to as the Concurrent List) contains topics in respect to which both Parliament and Legislature of a State have power to make laws. Inconsistency between laws made by Parliament and those made by the Legislatures of the State, both acting under the Concurrent List, is resolved by making Parliamentary law to prevail over the law made by the State Legislature. So long as the Parliamentary law continues, the State law remains inoperative but becomes operative once the Parliamentary law, throwing it into shadow, is removed. Then there is the declaration in Art. 248 of the residuary powers of legislation. Parliament has exclusive power to make any law in respect to any matter not enumerated in the Concurrent List or State List and this power includes the power of mak- ing any law imposing a tax not mentioned in either of those lists. For this purpose, and to avoid any doubts, an entry has also been included in the Union List to the following effect: "97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists". It will, therefore, be seen that the sovereignty of Parliament and the Legislatures is a sovereignty of enumerated entries, but within the ambit of an entry, the exercise of power is as plenary as any legislature can possess, subject, of course, to the limitations arising from the Fundamental Rights. The entries themselves do not follow any logical classification or dichotomy. As was said in State of Rajasthan v. S. Chawla and another(1) the entries in the list must be regarded as enumeratio simplex of broad categories. Since they are likely to overlap occasionally, it is usual to examine the pith and substance of legislation with a view to determining to which entry they can be substantially related, a slight connection with another entry in another list notwithstanding. Therefore, to find out whether a piece of legislation falls within any entry its true nature and character must be in respect to that particular entry. The entries must of course receive a large and liberal interpretation because the few words of the entry are intended to confer vast and plenary _powers. If, however, no entry in any of the three lists covers it, then it must be regarded as a matter not enumerated in any of the three lists. Then it belongs exclusively to Parliament under entry 97 of the Union List as a topic of legislation. The Gift Tax Act was enacted by Parliament and it is admit- ted that no entry in the Union List or the Concurrent List mentions such a tax. Therefore, Parliament purported to use its powers derived from entry 97 of the Union List read with Art. 248 of the Constitution. This power admittedly could not be invoked if the subject of taxes on gifts could be said to be comprehended in any entry in the Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970  4 State List. The High Court has accepted the contention of the tax-payers that it is so comprehended in entries 18 and 49 of the State List. Those entries read 18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization." "49. Taxes on lands and buildings." The argument is that by entry 18, 'land' of all description is made subject to legislation in the States and by entry 49 taxes of (1) [1959] Supp. 1 S.C.R. 904. whatever description on lands in that large sense and buildings generally fall also in the jurisdiction of the State. Reference is made to entries 45, 46, 47 and 48 of the State List in which certain taxes are to be imposed on land and agricultural land or income from agriculture exclusively by the States in contrast with entries 82, 86, 87 and 88 where the taxes are imposed on properties other than agricultural land or income from agriculture. It is submitted, therefore, that the general scheme of division of taxing and other entries by which land particularly agricultural land and income therefrom is reserved for the States shows that taxes on lands and buildings read liberally must also cover taxes in respect of gifts of land particularly agricultural land and buildings. If the entry so read can be reasonably said to include the tax, then there can be no question of recourse to the residuary powers of Parliament. The matter is not res integra and however attractive the argument, it cannot be accepted. Many High Courts in India have considered this matter before the Supreme Court decided it. The Mysore view was not followed in S. Dhandapani v. Addl. Gift Tax Officer, Cuddalore(1) (Madras High Court); Shyam Sunder v. Gift Tax Officer(2) (disapproved on another point in the Supreme Court). A contrary view was earlier also expressed in Jupadi Sesharatnam v. Gift Tax Officer, Palacole(3) (Andhra Pradesh High Court) and Joseph v. Gift Tax Officer (4) (Kerala High Court). In fact the judgment under appeal stands alone. The subject of entry 49 of the State List in relation to imposition of Wealth Tax came up for consideration in Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta & ors.(5) and the view of the High Court on the construction of this entry was affirmed. Although the judgment' under appeal was not referred to expressly the result is that it must be taken to be impliedly overruled. In view of the decision of this Court it is not necessary to deal with the matter except briefly. The Constitution divides the topics of legislation into three broad categories : (a) entries enabling laws to be made, (b) entries enabling taxes to be imposed, and (c) entries enabling fees and stamp duties to be collected. It is not intended that every entry gives a right to levy a tax. The taxes are separately mentioned and in fact contain the whole of the power of taxation. Unless a tax is specifically mentioned it cannot be imposed except by Parliament in the exercise of its residuary powers already mentioned. Therefore, entry 18 of the State List does not confer additional power (1) (1963) 49 I.T.R. 712. Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970  5 (3) (1960) 38 I.L.R. 93. (5) (1968) 69 I.T.R. 897 (S.C). (2) A.I.R. 1967 All. 19. (4) (1964) 45 I.L.R. 66. of taxation. At the most fees can be levied in respect of the items mentioned in that entry, vide entry 66 of the same list. 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. 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. 248 and entry 97 of the Union List. The pith and 'substance of Gift Tax Act is to place the tax on the gift of property which may include land and buildings. It is not a tax imposed directly upon lands and buildings but is a tax upon the value of the total gifts made, in a year which is above the exempted limit. There is no tax upon lands or buildings as units of taxation. Indeed the lands and buildings are valued to find out the total amount of the gift and what is taxed is the gift. The value of the lands and buildings is only the measure of the value of the gift. A gift-tax is thus not a tax on lands and buildings as such (which is a tax resting upon general ownership of lands and buildings) but is a levy upon a particular use, which is transmission of title by gift. The two are not the same thing and the incidence of the tax is not the same. 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. There being no other entry which covers a gift tax, the residuary powers of Parliament could be exercised to enact a law. The appeals must, therefore, be allowed but there shall be no order about costs throughout. The appeal 666/67 however abates as the sole respondent died. V.P.S. Appeals allowed. Second Gift Tax Officer, Mangalore, Etc vs D. H. Nazareth Etc on 2 April, 1970  6