PETITIONER: SETH BANARSI DAS ETC. Vs. RESPONDENT: WEALTH TAX OFFICER, SPECIAL CIRCLE MEERUT, ETC. DATE OF JUDGMENT: 08/12/1964 BENCH: GAJENDRAGADKAR, P.B. (CJ) BENCH: GAJENDRAGADKAR, P.B. (CJ) HIDAYATULLAH, M. SHAH, J.C. SIKRI, S.M. BACHAWAT, R.S. CITATION: 1965 AIR 1387 1965 SCR (2) 355 CITATOR INFO : RF 1967 SC1176 (9) R 1969 SC 59 (3) R 1972 SC1061 (99,171,174) R 1972 SC2119 (3) RF 1981 SC1269 (3) ACT: Wealth-tax Act, 1957 (No. 27 of 1957), s. 3-Hindu undivided families made chargeable to wealth tax-Section whether ultra vires-Constitution of India, Seventh Schedule, List 1, Entry 86. HEADNOTE: The appellants who were Hindu undivided families challenged the levy of wealth tax on them on the ground that s. 3 of the Wealth-tax Act, 1957, in so far as it brought to charge Hindu undivided families was ultra vires being beyond the terms of Entry 86 in List 1. Their writ petitions before the High Court having been rejected, but a certificate of fitness having been granted, they appealed to the Supreme Court. The contentions urged by the appellants were : (1) Hindu undivided families were not mentioned as possible assessees in Entry 86 and groups of individuals were not covered by the word 'individuals' used therein. (2) Individuals constituting a Hindu undivided family could not be subjected to the tax because the coparceners are a fluctuating body and their shares in the capital assets of the family are liable to increase or decrease and cannot be definitely predicated for the accounting year as a whole unless partition is made. (3) Entry 86 had to be read in a restrictive manner because unlike Entry 82 it specified the assessable entities, and by separately referring to companies it introduced a limitation on the denotation of the word 'individuals'. (4) In income-tax legislation a distinction had always been maintained between individuals and Hindu undivided families and the same must be deemed to have been observed in framing Entry 86. HELD : The impugned section was valid because Parliament was competent to legislate in respect of Hindu undivided families under Entry 86. (i)The word 'individuals' in Entry 86 takes in its sweep groups of individuals like Hindu undivided families. The Constitution-makers were fully aware that the Hindu citizens of the country normally form Hindu undivided families and if the object was to levy taxes on the capital value of assets it is inconceivable that the word 'individuals' was introduced in the Entry with the object of excluding from its scope such a large and extensive area which would be covered by Hindu undivided families. [364 B-C] Case-law referred to. Commissioner of Income-tax, Madhya Pradesh & Bhopal v. Sodra Devi; Damayanti Sahni v. Commissioner of Income-tax, 32 I.T.R. 615, relied on. (ii)Groups of individuals the capital value of whose assets would be subjected to the payment of wealth tax, would naturally be groups of individuals who form a unit and who own the said assets together. The fact that the rights of individuals constituting the group are liable to be decreased or increased does not make any difference when the question is whether the word 'individuals' is wide enough to include groups of individuals. [361 F-G] (iii)The Entries in the legislative Lists must be given the widest interpretation; they must not be read in a narrow and restricted sense. [359 D] 356 United Provinces v. Mst. Atiqa Begum and Ors., [1940] F.C.R. 110, relied on. There is nothing in the context of Entry 86 which can be said to introduce an element of restriction or limitation while interpreting the word 'individuals'. [360 A-E) It is true that Entry 82 is couched in wider terms than Entry 86. This is natural because what Entry 82 purports to do is to recognise the legislative competence of Parliament to levy taxes on income, the only limitation being that the income must be other than agricultural income. Since Entry 86 refers to taxes on the capital value of asset-,, the Constitution makers must have thought that it was necessary to specify whose assets should be subject to the taxes contemplated by the Entry. Each Entry has to be independently interpreted, and a restrictive interpretation of Entry 86 would not be justified because of the words of Entry 82. [360 D-E] Nor would a restrictive interpretation of the word 'individuals' be justified on the ground that companies had not been included within that term in the Entry. Since it was intended to tax the capital of companies it was thought desirable to specify companies as a matter of precaution along with individuals. [360 F] (iv) Legislative history showing that the taxing statutes drew a distinction between 'individuals' and Hindu undivided families cannot afford any material assistance in construing Entry 86. Occurring in an organic document like the Constitution the word 'individuals' need not necessarily receive the same construction as in taxing statutes. [362 F- G] Navinchandra Mafatlal v. The Commissioner of Income-tax, Bombay City, [1955]1 S.C.R. 829 and Navnitlal C. Javeri v. K. K. Sen, Appellate Assistant Commissioner of Income-tax, Bombay, [1965] 1 S.C.R. 909 referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 124 to 129
of 1964.
Appeals from the judgment and decree dated March 23, 1961 of
the Allahabad High Court in Civil Misc. Writs Nos. 2127,
2128 and 2980 to 2983 of 1959.
N. C. Chatterjee and J. B. Agarwala, for the appellants
(in
C. A. Nos. 124 and 125 of 1964).
A. V. Viswanatha Sastri and J. P. Goyal, for the appellant
(in C.A. No. 126/1964).
J. P. Goyal, for the appellants (in C. A. Nos. 127 to 129
of 1964).
S. V. Gupte, Solicitor-General, R, Ganapathy Iyer, R. H.
Dhebar and B. R. G. K. Achar, for the respondents (in all
the appeals)
The Judgment of the Court was delivered by
Gajendragadkar, C. J. The common question of law which this
group of six appeals raises for our decision is whether
section 3 of the Wealth-Tax Act, 1957 (No. 27 of 1957)
(hereinafter called ‘the Act) in so far as it purports to
levy a charge of wealth tax in respect of the net wealth of
a Hindu undivided family at the
357
specified rate, is valid. The respective appellants in
these appeals who constitute Hindu undivided families were
charged under s. 3 and they challenged the validity of the
said charge on the ground that the said section was ultra
vires. The writ petitions filed by these appellants were
heard by a Special Bench of the Allahabad High Court
consisting of Gurtu, Upadhya, and Jagdish Sahai, JJ. Gurtu
and Jagdish Sahai, JJ. have rejected the appellants’ conten-
tion and have upheld the validity of the impugned provision.
According to Jagdish Sahai, J., the impugned section is
intra vires, because Parliament had legislative competence
to enact the said provision under Entry 86 in List 1 of the
Seventh Schedule to the Constitution. Gurtu, J. who agreed
with the said conclusion, however sustained the impugned
provision under Entry 97 in List 1 read with Art. 248 of the
Constitution. Upadhya, J. held that neither of the said
provisions conferred legislative competence on Parliament to
enact the impugned provision, and so, he came to the
conclusion that, the said provision was ultra vires and the
charge levied against the appellants was, therefore,
invalid. In accordance with the majority decision, the writ
petitions filed by the respective appellants were dismissed.
The appellants then applied for and obtained certificates
from the said High Court, and it is with the certificates
issued in their favour that they have come to this Court in
appeal.
The Act was passed in 1957 to provide for the levy of wealth
tax. Section 3 of the Act provides that subject to the
other provisions contained in this Act, there shall be
charged for every financial year commencing on and from the
first day of April, 1957, a tax (hereinafter referred to as
wealth-tax) in respect of the net wealth on the
corresponding valuation date of every individual, Hindu
undivided family and company at the rate or rates specified
in the Schedule. The three Constitutional provisions
relevant to the decision of the point raised before us in
these appeals may now be set out.
Entry 86 in List 1 deals with taxes on the capital value of
the assets, exclusive of agricultural land, of individuals
and companies; taxes on the capital of companies. Entry 97
in the said List refers to any other matter not enumerated
in List II or List III including any tax not mentioned in
either of those Lists. Article 248 -reads thus :-
“(1) Parliament has exclusive power to make
any law with respect to any matter not
enumerated in the Concurrent List or State
List.
358
.lm15
(2)Such power shall include the power of making any law
imposing a tax not mentioned in either of those Lists”.
The appellants contend that the word “individuals” used in
Entry 86 cannot take in Hindu undivided families. The taxes
which Parliament is empowered to levy under this Entry can
be levied only on individuals and not on groups of
individuals, and on companies. A Hindu undivided family
consists of different coparceners who are, no doubt,
individuals, but inasmuch as the impugned provision purports
to levy wealth tax on the capital value of the assets of the
Hindu undivided families as such, the tax is not levied on
individuals, but on groups of individuals, and, therefore,
is outside the scope of Entry 86. The appellants further
urge that if the Hindu undivided families are outside the
scope of Entry 86, they cannot be subjected to the levy of
wealth tax under Entry 97, because Entry 97 refers to
matters other than those specified in Entries 1 to 96 in
List 1 as well as those enumerated in Lists II and III.
Since wealth tax is a matter which is specifically
enumerated in Entry 86 of List 1, Entry 97 cannot be held to
take in the said tax in respect of Hindu undivided families.
In regard to Art. 248, the appellants’ argument is that the
said article must be read together with Entry 97 in List 1.
and if wealth tax in respect of the capital value of the
assets of Hindu undivided families is outside both Entry 86
and Entry 97, the residuary power of legislation conferred
on Parliament by Art. 248 cannot be invoked in respect of
the tax imposed on the capital value of the assets of Hindu
undivided families by the impugned provision. That is how
the validity of the impugned provision has been challenged
before us.
On the other hand, the respondent, the Wealth Tax Officer,
seeks to sustain the validity of the impugned provision
primarily under Entry 86 in List 1. It is contended on his
behalf that the word “individuals” used in Entry 86 is wide
enough to take within its sweep groups of individuals and as
such, Hindu undivided families fall within the scope of the
area covered by Entry 86. In the alternative, it is argued
that Entry 97 which is a residuary entry, would take in all
matters not enumerated in List II or List III including any
tax not mentioned in either of those Lists. According to
the respondent, the word “matter” mentioned in Entry 97
cannot take in taxes specified in Entry 86, but it refers to
the subject-matter in respect of which Parliament seeks to
make a law under Entry 97. The subject-matter of the tax
imposed by
359
the impugned provision is the capital value of the assets of
a Hindu undivided family and if that is held not included in
Entry 86, it would fall within the scope of Entry 97,
because it satisfies the requirement specified by the said
Entry, namely, that the said matter should not have been
enumerated in List 11 or List 111. In regard to Art. 248,
the respondent’s case is that this article prescribes the
residuary power of legislation conferred on Parliament and
must be read independently of the Lists. In other words,
even if the impugned provision cannot be sustained by
reference to Entry 86 or Entry 97 in List 1, the power of
Parliament to levy the tax imposed by the impugned provision
can, nevertheless, be claimed under the provisions of Art.
248. That, in its broad outlines, is the nature of the
controversy between the parties in the present appeals.
Logically, the first question to consider is whether the
impugned provision can be referred to Entry 86 or not. In
construing the word “individuals” used in the said Entry, it
is necessary to remember that the relevant words used in the
Entries of the Seventh Schedule must receive the widest
interpretation. As Gwyer, C.J., has observed in The United
Provinces v. Mst. Atiqa Begum and Others(1), “none of the
items in the Lists is to be read in a narrow or restricted
sense, and that each general word should be held to extend
to all ancillary or subsidiary matters which can fairly and
reasonably be said to be comprehended in it. I deprecate any
attempt to enumerate in advance all the matters which are to
be included under any of the more general descriptions; it
will be sufficient and much wiser to determine each case as
and when it comes before the Court”.
Another rule of construction which is also well-established
is that it may not be reasonable to import any limitation in
interpreting a particular Entry in the lists by comparing
the said Entry or contrasting it with any other Entry in
that very List. While the Court is determining the scope of
the area covered by a particular Entry, the Court must
interpret the relevant words in the Entry in a natural way
and give the said words the widest interpretation. What the
Entries purport to do is to describe the area of legislative
competence of the different legislative bodies, and so, it
would be unreasonable to approach the task of interpretation
in a narrow or restrictive manner.
(1) [1940] F. C. R. 110, 134
3Sup./65 – 7
360
The appellants no doubt contrast Entry 86 with Entry 82 and
contend that the said contrast brings out an element of
limitation or restriction which should be imported in
construing Entry 86. Entry 82 refers to taxes on income
other than agricultural income. The argument is that the
power to levy taxes on income is not conditioned by
reference to individuals or companies; it is an unlimited
extensive power. In contrast with this Entry, it is urged
that limitation is introduced by Entry 86, because it seeks
to confer power to levy taxes on the capital value of the
assets of individuals and companies. The assessees are
indicated by this Entry, and that that itself introduces an
element of limitation. ‘Me appellants attempt to place
their case alternatively by emphasising the fact that the
word “individuals” in the context cannot mean companies,
because companies are separately and distinctly mentioned;
that again, it is said, introduces an element of limitation
,on the denotation of the word “individuals”.
“Individuals’, therefore, must mean individuals and cannot
mean groups of individuals, that is the main contention
raised by the appellants. We are not impressed by this
argument. It is true that Entry 82 does not refer to the
assessees, and that is natural because what it purports to
do is to recognise the legislative competence of Parliament
to levy taxes on income, the only limitation being that the
income must be other than agricultural income. Since Entry
86 refers to taxes on the capital value of the assets, the
Constitution-makers must have thought that it was necessary
to specify whose assets should be subject to the taxes
contemplated by the Entry, and that explains why individuals
and companies are mentioned. Since companies are
specifically mentioned along with individuals, it may be
permissible to contend that companies in the context are not
included in the word “individuals”, or it may perhaps be
that since Entry 86 wanted to specify that the taxes
leviable under it have to be taxes on the capital of the
companies, it was thought desirable that companies should be
specified as a matter of precaution along with individuals.
However that may be, it is not easy to understand why the
word “individuals” cannot take in its sweep groups of
individuals like Hindu undivided families. The use of the
word “individuals” in the plural is not of any special
significance, because under S. 13 (2) of the General Clauses
Act, 1897 (No. 10 of 1897), words in the singular shall
include the plural, and vice versa.
The basic assumption on which the appellants’ argument rests
is that the Constitution-makers wanted to exclude the
capital value of the assets of Hindu undivided families from
taxes. That is why
361
their contention is that the impugned provision would not be
sustained either under Entry 86 or under Entry 97 of List 1
or even under Art. 248. It is difficult to accept this
argument. On the face of it, -it is impossible to assume
that while thinking of levying taxes on the capital value of
assets, Hindu undivided families could possible have been
intended to be left out. We can think of no rational
justification for making any such assumption. In this
connection, it is significant that on the appellants’ case,
the capital value of the assets of Hindu undivided families
would never become the subject-matter of wealth tax. Hindu
undivided families, it is urged, are groups of individuals
and, therefore, should be outside Entry 86 and individuals
who constitute such Hindu undivided families could not be
subjected to the levy of the tax, because the body of
coparceners who constitute such Hindu undivided families is
a fluctuating body and their shares in the capital assets of
their respective families are liable to increase or decrease
and cannot be definitely predicated for the accounting year
as a whole, unless partition is made. Prima facie, such a
position appears to be plainly inconsistent with the scheme
of Entry 86 and it cannot be upheld unless the word
“individuals” is reasonably incapable of including groups of
individuals.
It is true that when tax is levied on the capital value of
the, assets of Hindu undivided families, in a sense the
assets of individual coparceners are aggregated, and on the
aggregate value a tax is levied; but how the taxes should be
levied and at what rate, is a matter for the legislature to
decide; that consideration cannot enter into the discussion
of the legislative competence of Parliament to enact the
law. It is hardly necessary to emphasise that groups of
individuals, the capital value of whose assets would be
subjected to the payment of wealth tax, would naturally be
groups of individuals who form a unit and who own the said
assets together. The fact that the rights of the
individuals constituting] the group are liable to be
decreased or increased does not make any difference when we
are dealing with the question as to whether the word
“individuals” in wide enough to include groups of
individuals. We do not see anything in the context of Entry
86 which can be said to introduce an element of restriction
or limitation while interpreting the word “individuals”.
Ordinarily, individuals would be treated as such and the
capital value of their separate assets would be taxed; but
if individuals form groups and such groups own capital
assets, it is difficult to see why the power to levy taxes
on such capital assets should be held to be outside the
scope of Entry 86.
362
It is, however, urged that in interpreting the word “indivi-
duals”, it would be relevant to take into account the
legislative history of tax legislation. Section 3 of the
Indian Income-tax Act, 1922 (No. XI of 1922) is pressed
into service for the purpose of this argument. The said
section provides, inter alia, that where any Central Act
enacts that income-tax shall be charged for any year at any
rate, tax at that rate shall be charged for that year in
accordance with the provisions of this Act in respect of the
total income of the previous year of every individual, Hindu
undivided family, company or local authority, and of every
firm and other association of persons or the partners of the
firm or the members of the association individually. The
argument is that s. 3 recognises that the word “individual”
would not include Hindu undivided family, and so. Hindu
undivided family has been separately mentioned by it. It is
pointed out that this distinction between an individual and
a Hindu undivided family has been recognised even in the
earlier Income-tax Acts. Section 3(7) of Act 11 of 1886,
for instance, defines a ‘person’ as including a firm and a
Hindu undivided family; and S. 5 (i) (f) of the said Act
which provides for exceptions to the charging section 4,
refers to any income which a person enjoys as a member of a
company, or of a firm, or of a Hindu undivided family, when
the company, or the firm, or the family is liable to the
tax. Basing themselves on the distinction which is made by
the Income-tax Acts between an individual and a Hindu
undivided family, the appellants contend that the word
“individuals” should not be interpreted to include Hindu
undivided family.
Assuming that the legislative history in the matter of tax
legislation supports the distinction between individuals and
Hindu undivided families, we do not see how the said
consideration can have a material bearing on the
construction of the word “individuals” in Entry 86. The tax
legislation may, for convenience or other valid reasons,
have made a distinction between individuals and Hindu
undivided families; but it would not be legitimate to
suggest that the word “individuals” occurring in an organic
document like the Constitution must necessarily receive the
same construction. Take, for instance, the traditional
concept of income as recognised by the tax law. It has been
held by this Court in Navinchandra Mafatlal v. The
Commissioner of Income tax Bombay City(1), that the said
traditional concept of income cannot introduce consideration
of restriction or limitation in
(1) [1955] 1 S.C.R. 829,857.
363
interpreting the word “income” in Entry 54 in List 1 of the
Seventh Schedule to the Government of India Act, 1935, which
corresponds to Entry 82 in List 1 of the Seventh Schedule to
the Constitution. In that case, the validity of the tax
levied on capital gains was impeached on the ground that
capital gains cannot be regarded as income, and so, Entry 54
did not justify the levy of the tax on capital gains. In
rejecting this contention, this Court held that the word
“income” occurring in Entry 54 must receive the widest
interpretation and could, therefore, be interpreted to
include a capital gain. In holding that the word “income”
included capital gain, this Court observed that the said
conclusion was reached not because of any legislative
practice either in India or in the United States or in the
Commonwealth of Australia, but “because such was the normal
concept and connotation of the ordinary English word
‘income’. Its natural meaning embraces -my profit or gain
which is actually received”.
Similarly, in Navnitlal C. Javeri v. K. K. Sen, Appellate
Assistant Commissioner of Income-tax, Bombay(1), when this
Court had occasion to consider the validity of section
12(IB) read with s. 2 (6A) (e) of the Indian Income-tax Act,
1922 (No. 11 of 1922) as it stood in 1955; the question
which was raised for its decision was whether it was
competent to Parliament to treat a loan advanced to a
shareholder of a company as his income. In answering the
said question in favour of the impugned provision, this
Court observed that “though Parliament cannot choose to tax
as income an item which in no rational sense can be regarded
as a citizen’s income, it would, nevertheless be competent
to Parliament to levy a tax on a loan received by the
shareholder if it was satisfied that the said loan could
rationally be construed as his income. In considering this
question, however, it would be inappropriate to apply the
test traditionally prescribed by the Income-tax Act as
such”. Therefore we do not think that the legislative
history in the matter of the denotation of the word
“individuals” on which the appellants rely, can really
afford any material assistance in construing the word
“individuals” in Entry 86.
Reverting then to Entry 86, the question which we have to
ask ourselves is whether on a fair and reasonable
construction, the word “individuals” in the context of the
Entry can legitimately be narrowed down to individuals as
such and not to include groups of individuals. If the
object of making the Entry is to enable Parliament to levy
taxes on the capital value of the assets,
(1) [1965] 1 S.C.R. 909
364
how can it be said to be reasonable to introduce a
limitation on the denotation of the word “individuals” and
to say that taxes could not be levied on the capital value
of the assets which belong to groups of individuals. If the
individuals constitute themselves into a group and such
group owns capital assets, it is not easy. to understand why
the value of such assets should not be included within the
legislative field covered by Entry 86. The Constitution-
makers were fully aware that the Hindu citizens of this
country normally form Hindu undivided families and if the
object was to levy taxes on the capital value of the assets,
it is inconceivable that the word “individuals” was
introduced in the Entry with the object of excluding from
its scope such a large and extensive area which would be
covered by Hindu undivided families. We are, therefore,
satisfied that the impugned section is valid, because
Parliament was competent to legislate in respect of Hindu
undivided families under Entry 86.
This question has been considered by several High Courts and
the reported decisions show consensus in judicial opinion in
favour of the construction of Entry 86 which we have adopted
(vide Mahavirprasad Badridas v. M. S. Yagnik, Second Wealth-
tax Officer, C-11 Ward, Bombay(1) (Bombay High Court’s
decision); N. V. Subramanian v. Wealth Tax Officer, Eluru(2)
(Andhra Pradesh High Court’s decision-single Judge Bench);
P. Ramabhadra Raju v. Union of India (8) (Andhra Pradesh
High Court’s decision-Division Bench); Sarjerao Appasaheb
Shitole v. Wealth Tax Officer, A. Ward, Belgaum (4 ) (Mysore
High Court’s decision); and Rajah Sir, M. A. Muthiah
Chettiar v. Wealth Tax Officer, Special Investigation Circle
‘A’, Madras(5) ( Madras High Court’s decision). We ought to
add that these reported decisions show that the validity of
the impugned provision was challenged before the High Courts
on the ground that the Hindu undivided family is an
association and as such, the capital value of its assets
could not be taxed under Entry 86. That naturally raised
the question about the true legal character and status of
Hindu undivided family, and the contention that they were
associations has been rejected. Since that argument has not
been pressed before us, we have not thought it necessary to
consider it.
Before we part with these appeals, we may refer to an
earlier decision of this Court in which the word
“individual” fell to be considered. In Commissioner of
Income-tax, Madhya Pradesh &
(1) 37 I.T.R. 191
(3) 45 I.T.R. II 8 (5) 53 I.T.R. 504.
(2) 40 I.T.R. 567.
(4) 52 I.T.R. 372.
365
Bhopal v. Sodra Devi; Damayanti Sahni v. Commissioner of
Income-tax,(1) the question which arose for the decision of
this Court had relation to the construction of s. 16(3) of
the Indian Income-tax- Act, 1922. That sub-section provides
that in computing the total income of any individual for the
purpose of assessment, there shall be included the items
specified in clauses (a) and (b). What is the denotation of
the word “individual” was one of the points which had to be
considered in that case. According to the majority
decision, though the word “individual” is narrower than the
word “Assessee”, it does not mean only a human being, but is
wide enough to include a group of persons forming a unit.
“It has been held”, observed Bhagwati, J. who spoke for the
majority, “that the word ‘individual’ includes a corporation
created by a statute, e.g., a university or a bar council,
or trustees of a baronetcy trust incorporated by a Baronetcy
Act. It would also include a minor or a person of unsound
mind”. We are referring to this case only for the purpose
of showing that the word “individual” was interpreted by
this Court as including a group of persons forming a unit.
Since we have come to the conclusion that Entry 86 covers
cases of Hindu undivided families, it follows that the
impugned provision is valid under the said Entry itself.
That being so, it is unnecessary to consider whether the
validity of the impugned provision can be sustained under
Entry 97 or under Art. 248 of the Constitution.
The result is, the appeals fail and are dismissed with
costs.
Appeals dismissed.
(1) 32 I.T.R. 615.
366