Judgment Case ID: 2822

Judgment:
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	 section K. Aiyar and R. N. Sachthey	 for the appellants (in all the appeals). section 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. section Chatterjee for Sukumar Bose	 for the State of West Bengal. section 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. section Venkataramiah	 Advocate General	 Mysore and section 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 article 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	 197 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 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 article 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 article 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. 198 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 vs section 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 article 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 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. 199 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 section Dhandapani vs Addl. Gift Tax Officer	 Cuddalore(1) (Madras High Court); Shyam Sunder vs Gift Tax Officer(2) (disapproved on another point in the Supreme Court). A contrary view was earlier also expressed in Jupadi Sesharatnam vs Gift Tax Officer	 Palacole(3) (Andhra Pradesh High Court) and Joseph vs 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 vs 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) (3) (5) (2) A.I.R. 1967 All. 19. (4) 200 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 article 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.

Summary:
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 article 248	 and entry 97 of the Union List	 could be exercised by Parliament to enact the law. [200 E F] Sudhir Chandra Nawn vs Wealth Tax Officer	 Calcutta & Ors. followed. section Dhandapani vs Addl. Gift Tax Officer	 Cuddalore	 	 Shyam Sunder vs Gift Tax Officer	 A.I.R. 1967 All. 19	 Jupadi Sesharatnam vs Gift Tax officer	 Palacole	 and Joseph vs Gift Tax	 Officer	 	 approved.