The constitutionality of the Wealth Tax Act as originally enacted was challenged in several

cases before the High Courts and the Supreme Court. A perusal of the High Court
decisions reveals that the main question raised therein was whether it was competent for
Parliament to enact a law which would levy a tax on Hindu undivided families when entry
86 referred to the imposition of tax on 'individuals' and 'companies' only. In other words,
the issue had been whether the word 'individuals' comprehended Hindu undivided families
within its compass. The matter came to the Supreme Court for the first time in Banarasi
Dass v. Wealth Tax Officer(A.LR. 1965 S.C. 1387) in which the Supreme Court agreeing
with the High Court decisions held that 'individuals' in entry 86 included Hindu undivided
families.

The subject matter of Wealth Tax Act including or excluding agricultural land was not
covered by entry 86 of list I but by entry 97. Article 248 read with entry 97 of list I confer
residuary powers of legislation and taxation on Parliament. The scope of Parliament's
residuary powers had been the subject of judicial interpretation in earlier cases. in the
Dillhon case the question was whether a topic of legislation mentioned by way of
exclusion in an entry in the union list would fall within the compass of residuary powers of
Parliament. The respondents had argued that the words 'exclusive of agricultural land' were
words of prohibition and prohibited Parliament from including capital value of agricultural
land in any law levying tax on capital value of assets. A matter specifically excluded in the
union list could not fall within the words 'any other matter' in entry 97 of the same list. Mr.
Chief Justice Sikri and Mr. Justice Mitter refused to give such a restricted interpretation to
the scope of the residuary power. Mr. Chief Justice Sikri opined that the Constitution
makers had not withheld certain legislative powers from the legislative competence of the
legislatures in India either legislating singly or concurrently. He held that the words 'any
other matter' in entry 97 of list I referred to matters contained in each of entries I to 96 and
thus gave additional powers. The test to determine the scope of residuary powers was to
examine whether the matter sought to be legislated on was included in list II or in list III.
No question had to be asked in respect of list I. If it did not fall within list II or list III, then
it followed that Parliament had requisite legislative competence.