J 14 JILI 1972 80 23llm56 Mnluaacin 20240226 193931 1 9

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14 JILI (1972) 80
Residuary Power and Wealth Tax on Agricultural Property - A Note on Union of

India v. H.S. Dhillon
RESIDUARY POWER AND WEALTH TAX ON AGRICULTURAL PROPERTY - A NOTE ON Union

of India v. H.S. Dhillon
by
Alice Jacob*
THE MAJORITY judgment of the Supreme Court in Union of India v. H.S. Dhillon1 is
of major importance for Indian federalism as it determines the controversy about the
legislative relationship between the union and the states in the all-important area of
taxation of capital value of agricultural assets. The significance of the case lies in the
fact that the constitutional scheme gives a dominant role to the states in matters of
taxation of agricultural income and property,2 but in this case a taxation law of the
union on agricultural property was upheld.
The facts were: the Wealth Tax Act was originally enacted in 1957 by Parliament
and it imposed a tax on the capital value of net wealth on the relevant valuation date
of every individual, Hindu undivided family and company. The Act defined ‘net wealth’
to mean the amount by which the aggregate value of all the assets of the assessee is
in excess of the aggregate value of all the debts of the assessee on the valuation date.
Though the Act brought within its purview all movable and immovable assets, yet it
excluded agricultural land. However, the Act was amended by the Finance Act of 1969
to include agricultural land for purposes of wealth tax.
The validity of the amendment was challenged by Shri Dhillon, a landlord, in the
High Court of Punjab and Haryana mainly on two grounds : (i) that wealth tax on
agricultural land could be imposed under entry 49, list II by the states and not by the
union; and (ii) that even if that was not so Parliament had no competence to enact an
Act imposing wealth tax on agricultural land either under entry 86 of list I and/or
under its residuary powers. By a majority of four to one the High Court declared that
the Act, in so far as it included the capital value of agricultural land for the purpose of
computing net wealth, was beyond Parliament's legislative competence and ultra
vires.3
On appeal the Supreme Court, by a majority of four to three,4 upheld
Page: 81
the constitutionality of the Act. The main issues before the court were : (i) whether
the instant legislation fell under entry 49 of the state list or entry 86 of the union list5 ,
namely, the identification of the subject matter of the Act in order to specify the
legislative entries of the lists under which it would fall. If it did not fall under any of
these entries, then clearly Parliament had the residuary power to impose the tax in
question; (ii) assuming that the Act fell under entry 86, whether the words “exclusive
of agricultural land” in the entry constituted a positive prohibition on Parliament's
legislative competence to levy wealth tax on agricultural land so as to take it beyond
the residuary jurisdiction of Parliament.
Analysis of the subject matter of legislation in order to identify the sphere of

legislative jurisdiction it would fall under
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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 decisions6 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 Office7 in which the
Supreme Court agreeing with the High Court decisions held that ‘individuals’ in entry
86 included Hindu undivided families. It may be pointed out that in this case the
question whether a tax on net wealth could be levied under entry 86 was not in issue.
It was assumed that Parliament enacted the Wealth Tax Act, 1957, in terms of entry
86, and this assumption found specific mention by Mr. Justice Shah (as he then was)
in the subsequent case of Sudhir Chandra Nawn v. Wealth Tax Officer8 In this case the
petitioner did not contend that the tax on net wealth was not leviable under entry 86.
The argument, inter alia, was that in so far as the expression ‘net wealth’ included non
-agricultural lands and buildings of an assessee, it invaded the field allotted to states
under entry 49. This contention led the court to examine the ambit of taxes under
entry 86 of list I and entry
Page: 82
49 of list II. In analyzing the nature of a tax under entry 86 the court stated that:
[I]t is not imposed on the components of the assets of the assessee: 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 asset,
but the general liability of the assessee to pay his debts and to discharge his lawful
obligations have to be taken into account.9
The court added that the tax under entry 49 of list II contemplates the levy of
tax on lands and buildings or both as units. It is normally not concerned with the
division of interest or ownership in the units of lands or buildings which are brought
to tax. Tax on lands and buildings is directly imposed on lands and buildings, and
bears a definite relation to it.10
Thus the concept of a tax under entry 86 and one under entry 49 was denned and it
was held that both cover different fields and there was no conflict between them. In
the subsequent decisions of Assistant Commissioner v. Buckingham and Carnatic Co.
Ltd.,11 and Sri Prithvi Cotton Mills Ltd. v. Broach Municipality12 which involved the
validity of state statutes, the above view was reiterated by the court. Therefore, in
none of the previous cases the issue squarely arose whether a tax on net wealth of
individuals (as distinguished from capital value of assets) could be levied under entry
86 and whether it could include agricultural assets.
Mr. Chief Justice Sikri in the instant case examined the question whether the
Wealth Tax Act fell within entry 86, list I and concluded that there was a difference
between net wealth tax and a tax that could be levied under entry 86. The difference
in his view was that in ascertaining the capital value of assets under entry 86, it was
not obligatory for Parliament to provide for deduction of debits, though he agreed that
aggregation of assets was necessary. Referring to authorities on the concept of
taxation on net wealth, he observed that the essential element in a true wealth tax
was to provide for reduction of general liabilities from the total assets of an individual.
Consequently, in pith and substance, the impugned law did not fall under entry 86 but
under entry 97 of list I (residuary entry). Further, the Chief Justice pertinently
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observed that assuming that the Wealth Tax Act, as originally enacted, came within
the purview of entry 86, the residuary clause could still be invoked to justify the
wealth tax on agricultural land:
[T]here is nothing in the Constitution to prevent Parliament from combiningits
powers under Entry 86, List I with its powers under
Page: 83
Entry 97, List I. There is no principle that we know of which debars Parliament from
relying on the powers under specified Entries 1 to 96, List I and supplement them with
the powers under Entry 97, List I and Article 248……13
Mr. Justice Mitter decided the appeal on the point that 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. He was of the view that capital value of assets did not mean the same
thing as net wealth as defined in the Wealth Tax Act. While examining the concept of
‘capital value of assets’, he pointed out that this expression was used in the English
Law of Rating and found its way in the Government of India Act, 1935, (entry 55, list
I) and in the Constitution (entry 86, list I). Agreeing with the meaning of the
expression under the Law of Rating, he concluded that it meant
the aggregate value of the assets which a willing purchaser would offer a willing
seller for the property in its condition at the time of the transaction.
In other words, it would mean the market value of the assets minus encumbrances
charged thereon but not any other liability. Similar were the judicial observations on
the meaning of the expression by the Bombay High Court in Sir Byramjee Jeejeebhoy
v. Province of Bombay14 and in Municipal Corporation v. Gordhanclas15 while examining
the constitutional validity of state statutes under the Government of India Act, 1935.
Consequently it may be stated that there is difference in the concept of tax on the
capital value of assets and tax on the net wealth. The ‘net wealth’ is arrived at after
deducting a person's general liabilities from the totality of his assets; whereas capital
value of one's assets is the market value of assets less the charges the assets are
subject to. Therefore, the Wealth Tax Act would not, in Mr. Justice Mitter's opinion,
come under entry 86 of list I. Further, he made a graphic analysis of the judicial
decisions on the subject to show that the courts had merely assumed that the
impugned legislation fell under entry 86 of list I and that no analysis of the nature of
the subject matter of legislation was made.
However, Mr. Justice Shelat on behalf of the minority maintained that the Supreme
Court had held in the previous cases that the Wealth Tax Act came within the purview
of entry 86 of list I and since the entry prohibited Parliament from legislating with
reference to agricultural land, Parliament had no competence to enact the impugned
legislation. Further he was of the view that the states could under entry 49 levy a tax
on the capital value of agricultural land. This view, it may be submitted, runs counter
to the established judicial opinion that any tax under entry 49 should consider land
Page: 84
and buildings as units of taxation and that no aggregation is possible. Further, the
states could levy tax only in respect of lands and buildings situate within their
territorial jurisdiction. Since a tax under entry 49 is directly upon lands and buildings,
it is difficult to conceive of states being competent to levy wealth tax on an
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individual's totality of assets including those lying outside the states.
Extent of union's residuary powers

The second issue considered by the court was the extent of union's residuary
powers. The division of legislative powers between the union and state legislatures is
enshrined in article 246 of the Constitution. It distributes the subject matter of
legislation in three lists enumerated in the seventh schedule to the Constitution and
specifies the legislative body competent to deal with any such subject matter. The
three lists are elaborately worded and the framers of the Constitution have attempted
to make the entries in one list exclusive of those in the other lists. However, due to
“the imperfections of human expression and the fallibility of legal draftsmanship”16
some conflict or overlapping between entries in the different lists is inevitable. To deal
with such contingencies, the Constitution in article 246 has provided a scheme of
priority of the union list (list I) over the state and concurrent lists (lists II and III).17
Further, the Constitution makers in article 248 provided for residuary powers of
legislation to Parliament. This article reads:
(1) Parliament has exclusive power to make any law with respect to any matter not
enumerated in the Concurrent List or State List.
(2) Such power shall include the power of making any law imposing a tax not
mentioned in either of those Lists.
The union list also contains a residuary entry, entry 97 on the following lines:
Any other matter not enumerated in List II or List III including any tax not
mentioned in either of those Lists.
Article 248 read with entry 97 of list I confers 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 Jaora Sugar Mills v. State of M.P.,18
Hari Krishna v. Union of India19 and in Second G.T.O. Mangalore v. D.H. Nazareth,20 the
Supreme Court
Page: 85
had unequivocally held that where the subject matter of legislation did not fall within
the state list, concurrent list and the enumerated entries in the union list, it was
covered by the residuary jurisdiction of Parliament.
Thus in all these decisions residuary power was availed of when the subject matters
of legislation were not enumerated in the three lists. However, in the Dhillon 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
Wealth Tax Act, 1957, as amended in 1969, was seemingly enacted under entry 86 of
list I. 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 resticted
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
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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. In the words of the Chief Justice:
If the argument of the respondent is accepted, Article 248 would have to be
redrafted as follows : ‘Parliament has exclusive power to make any law with respect
to any matter not mentioned in the Concurrent List or State List, provided it has not
been mentioned by way of exclusion in any entry in List I.21
Similar were the observations of Mr. Justice Mitter:
Under the express words of clause (1) of Article 248, one has only to consider
whether the subject matter of legislation is comprised in List II or List III; it if is
not, Parliament is competent to legislate on it irrespective of the inclusion of a
kindred subject in List I or the specified limits of such subject in this List….
Although read by itself Entry 97 may seem to suggest that the expression ‘any
other matter’ has reference to the other entries in List I, Article 248(1) makes it
clear beyond doubt that such matters are those which are not covered by entries in
List II or List III.22
Page: 86
Mr. Justice Shelat, however, on behalf of the minority disagreed with the view that
Parliament's power to make law with regard to the capital value of agricultural land
was to be found in the residuary powers. He was of the view that the purpose of
residuary power was to enable legislation only on matters unforeseen or not
contemplated at the time of framing of the legislative lists. The scheme of division of
legislative powers between the union and the states revealed a calculated policy on
the part of Constitution makers to confer powers on the states in respect of
agricultural properties and the power conferred on Parliament under entry 86 was
restricted in scope by the words ‘exclusive of agricultural land’. Consequently the
power that was restricted under one entry in the union list could not be granted to
Parliament under the residuary entry. Otherwise it would amount to nullifying the
exclusion which could not legitimately be attributed to the framers. The minority
judges were clearly of the opinion that residuary power could be resorted to only in
respect of a field of legislation not found in any one of the three lists. In the words of
Mr. Justice Shelat:
Once a topic or a field of legislation is enumerated and dealt with in any one of
the entries in one of the Lists, whether the topic is in its entirety or restricted, there
is no question of the residuary provision being resorted to on the ground that it
operates on the remainder. Such a construction would either nullify the intention to
confer power only on the partial field of the topic of legislation in question or set at
naught the delicate system of distribution of power effected through the three
elaborately worded Lists.23
Since this was a case involving the determination of limits of the union and state
legislative powers under the Constitution of India, Mr. Chief Justice Sikri as well as Mr.
Justice Shelat expressed views on the applicability of the rules of interpretation of the
Canadian Constitution (the British North America Act, 1867) to the distribution of
legislative powers under the Indian Constitution. The Chief Justice pointed out that the
scheme of distribution of legislative power between the dominion and the provinces in
Canada was essentially the same as under Indian Constitution and the tests evolved in
-----------------------------------------------------------------------------------------------------------------------------------------------------------
Canada could appropriately be applied in India also. The test was that if the central
lawwas challenged as being beyond the jurisdiction of Parliament, it was sufficient to
inquire if it was a law with respect to matters or taxes enumerated in list II or list III.
If it was not, no further question arose, which meant that in that case Parliament
would have full power to legislate on such subjects. By this method of enquiry, he was
not depriving the states of their legitimate sphere of jurisdiction. The states had full
competence in respect of entries in list II, and subject to legislation by Parliament on
matters in list III. On the other hand Mr. Justice Shelat felt that there was no
similarity either in the content or the scheme of distribution of
Page: 87
the Canadian Constitution and the Constitution of India. Mr. Justice Mitter, though was
of the view that the scheme of distribution of legislative powers in the Constitution of
India had a ‘close parallel’ to that in the Canadian Constitution, did not discuss the
points of similarity to arrive at the decision in the instant case.
Both the Chief Justice as well as Mr. Justice Shelat relied on the Constituent
Assembly Debates to prove their point as regards the scope of Parliament's residuary
powers. Reference was also made to the reports of the Union Powers Committee and
the Expert Committee on Financial Provisions.
General observations
The majority view on the scope of residuary powers of Parliament, it may be
submitted, is in consonance with the plain language of the provisions of the
Constitution and the intent of the framers of the Constitution, and typifies the broad
and liberal interpretation of provisions concerning distribution of legislative powers in
favour of the centre. The Constitution of India has established a highly specialized kind
of federalism that both in its executive and legislative terms, it is deliberately
weighted in favour of Parliament and central government and in particular it reveals a
scheme of legislative jurisdiction in which Parliament is to play the dominant part.
Apart from this fact, there is a greater logical consistency in the opinions of the Chief
Justice and Mr. Justice Mitter than in the opinion of Mr. Justice Shelat. The text of
article 248 is explicit in language in that ‘any matter not enumerated in the
Concurrent List or State List’ will come under the residuary jurisdiction of Parliament
indicating thereby that even if a matter is excluded by enumeration in list I, it will
come under the residuary power. On the other hand, the minority emphaiszed the
word ‘other’ in the words ‘any other matter’ to mean that the residuary power could be
invoked only in any matter other than those specified (whether by exclusion or
inclusion) in list I, and matters not enumerated in the concurrent list or state list.
Moreover, the words ‘any other matter’ in entry 97 of list I cannot but have the same
meaning as attributed to similar words in article 248. It has been repeatedly held that
legislative entries do not confer powers, they merely demarcate the fields of
competence.24 The substantive powers of legislation are to be found in the article
itself. The plain meaning of article 248 gets added support in the intent of the framers
of the Constitu-
Page: 88
tion. The debates in the Constituent Assembly on the scope of residuary powers
reinforce the majority's construction of article 248. Replying to members on the
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necessity of having an entry on the pattern of entry 97 of list I, Dr. B.R. Ambedkar
said that the purpose of entry 91 of the Draft Constitution (which corresponds to entry
97) was to define the scope of list I which would have been served either by the
present entry or by adding an entry such as ‘anything not included in List II or III
shall be deemed to fall in List I’. The elaborate enumeration of entries in the union list,
he added, was only with a view to particularise the residuary powers in order to allay
the fears of the provinces about the scope of union powers.25
Further, it cannot be the intention of the Constitution makers to create a vacuum in

the Constitution of a sovereign democratic republic in certain matters as those in
which neither the union nor the states will have power to legislate. The majority
having held that the Wealth Tax Act could not legally come within the jurisdiction of
the states under entry 49 of state list, reasoned to avoid the possible occurrence of a
‘power vacuum’ for the union and state legislatures over the subject matter of wealth
tax on agricultural assets. Every field of legislation is to be found either with
Parliament or state legislatures.
Apart from the matter of dialectics, the majority judgments reflect the court's
awareness of the political, economic and social connotations of the issues involved.
The majority judges rightly felt that the legislative issues which called for the exercise
of Parliament's legislative powers were not based on mere artificial presuppositions but
on the existence of facts and circumstances which gave rise to pressure for legislation.
The main objective of wealth tax legislation is to gradually eliminate large fortunes and
the current degree of inequality of wealth distribution. The reluctance of the states to
tax the agriculture sector due to political reasons induced Parliament to embark upon
the programme of levying wealth tax on agricultural assets and this bold experiment
needed judicial reinforcement which the majority gave by this decision. The immediate
effect of the decision is to provide a fruitful source of revenue to the union exchequer
and the ultimate one is to reduce inequality of wealth to some extent in the rural
areas.
The very nature of judicial review of legislation as applied to the general terms of a
constitution tends to confer a wide discretion on the courts and it is to be exercised to
expand the connotation of words to make them encompass developments unforeseen
by its authors. This is the inherent problem in all constitutional interpretation, that of
ascribing new application to old words to fit the constitution to the changing
conditions of social life. A court interpreting the constitution establishes community
policies in the broader sense. Often the problems faced by the judges in a
constitutional case are questions of policy relating to political, economic and social
issues. Consequently they must necessarily step on political,
Page: 89
economic and social issues of the day. The solution of such problems requires an
attitude on the part of judges not just to rely on the text of the constitution but also
on other extra-legal materials to give meaning to the text. This should be the
approach in matters of constitutional litigation because constitution should be kept
fluid through constitutional interpretation. After all, constitutions which are the
yardstick or grundnorm for other legislation should not be interpreted “in vacuo but as
living instruments of government”.26
———
* LL.M., J.S.D. (Yale) Research Professor, Indian Law Institute.
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1 (1971) 2 SCC 779.

2 See the following entries in list II:
Entry 18; Land, that is lo sayt 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; (and improvement and
agricultural loans; colonization.
Entry 46 : Taxes on agricultural income.
Entry 47 : Duties in respect of succession to agricultural land.
Entry 48 : Estate duty in respect of agricultural land.
Entry 49 : Taxes on lands and buildings.

3 State v. Union of India (FB), AIR 1971 P&H 155.
4 Mr. Chief Justice Sikri delivered the majority judgement on behalf of himself, Mr. Justice S.C. Roy and Mr.
Justice Palekar. Mr. Justice Mitter delivered the concurring opinion. The dissenting opinion was written by Mr.
Justice Shelat on behalf Of himself, Mr. Justice A.N. Ray and Mr. Justice Dua.
5 The Constitution of India, seventh schedule, entry 49 of list II: Taxes on lands and buildings: entry 86 of list I:
Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on
the capital of companies.
6Sec Mahavir prasad Badridas v. Yagnik, Second Wealth Tax Officer, 37 J.T.R. 191; N.V. Subramanian v. Wealth
Tax Officer, 40 I.T.R. 567; P. Rcmabhadra Raju v. Union of India, 45 I.T.R. 118; C.K. Mammad Keyi v. Wealth
Tax Officer, 44 I.T.R. 277; Jugal Kishor v. Wealth Tax Officer, 44 I.T.R. 94; Sarjerao Appasaheb Shitole v.
Wealth Tax Officer, 52 I.T.R. 372; Raja Sir M.A. Muthiah Chettiar v. Wentth THY Officer, 53 I.T.R. 504.
7 AIR 1965 SC 1387.
8
AIR 1969 SC 59;
9
Id. at 61.
10 Ibid.
11 (1969) 2 SCC 55.
12 (1969) 2 SCC 283.
13 Supra note 1 at 808.

14 AIR 1940 Bom 65 (F.B.)
15 AIR 1954 Bom 188.
16
In re C.P. Motor Spirit Act, A.L.R. 1939 F.C.I, at 8, Governor General in Councils. Madras Province, AIR 1943
FC 11; Slate of Bombay v. F.N. Balsara, 1951 SCC 860 : AIR 1951 SC 318.
17 The Constitution of India, art. 246 (1), (2) and (3).
18 AIR 1966 SC 416.
19
AIR 1966 SC 619.
20 (1970) 1 SCC 749.
21
Supra note 1 at 792.
22 Id. at 844 and 859.
23 Id. at 823.
24See Mr. Justice Ramaswamy's observations in Harakchand v. Union of India, (1969) 2 SCC 166 : AIR 1970 SC
1453 at 1458:
Before constring these entries it is useful to notice some of the well settled rules of interpretation laid
down by the Federal Court and by this Court in the matter of construing the entries. The power to legislate is
-----------------------------------------------------------------------------------------------------------------------------------------------------------
given to the appropriate legislatures by Article 246 of the Constitution. The entries in the three Lists are only
legislative heads or fields of legislation; they demarcate the area over which the appropriate legislatures can
operate. See also Baldeo Singh v. Commr. of Income Tax, AIR 1961 SC 736; Balaji v. I.T.O., AIR 1962 SC
123.
25 9 C.A.D. 856-57.
26Vincent C. MacDonald, The Privy Council and the Canadian Constitution, 29 Can. Bar. Rev. 1021 at 1030
(1951); See generally McWhinney, Edward, Judicial Review (4th ed. 1969).
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rule/ regulation/ circular/ notification. All disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The
authenticity of this text must be verified from the original source.

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Page 1 Monday, February 26, 2024

Residuary Power and Wealth Tax on Agricultural Property - A Note on Union of

RESIDUARY POWER AND WEALTH TAX ON AGRICULTURAL PROPERTY - A NOTE ON Union

Analysis of the subject matter of legislation in order to identify the sphere of

[I]t is not imposed on the components of the assets of the assessee: it is

individual's totality of assets including those lying outside the states.

Extent of union's residuary powers

Further, it cannot be the intention of the Constitution makers to create a vacuum in

1 (1971) 2 SCC 779.

Entry 46 : Taxes on agricultural income.

Entry 47 : Duties in respect of succession to agricultural land.

Entry 48 : Estate duty in respect of agricultural land.

Entry 49 : Taxes on lands and buildings.

13 Supra note 1 at 808.

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