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Indian Case Summary

Union Of India vs H. S. Dhillon on 21 October, 1971 – Case Summary

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In the case of Union of India vs H. S. Dhillon on 21 October, 1971, the Supreme Court of India was faced with a critical question regarding the legislative competence of Parliament to impose a tax on agricultural land under the Wealth Tax Act, 1957, as amended by Section 24 of the Finance Act, 1969. The case was presided over by a bench consisting of S.M. Sikri (CJ), J.M. Shelat, A.N. Ray, I.D. Dua, G.K. Mitter, Subimal Chandra Roy, and D.G. Palekar.

The crux of the case revolved around the interpretation of the Constitution of India, 1950, specifically Articles 246 and 248, and entries 86 and 97 of List I, and entry 49 of List II in the Seventh Schedule. The question was whether the imposition of a tax on the capital value of the net wealth of an assessee, which included agricultural land, was within the legislative competence of Parliament.

The High Court had previously held that the amendment to the Wealth Tax Act, which included agricultural land in the assessee’s assets for the purpose of computing his net wealth, was beyond the legislative competence of Parliament. The Supreme Court, however, overturned this decision.

The majority opinion, delivered by S. M. Sikri, C.J., S. C. Roy, D. G. Palekar, and G. K. Mitter, JJ., held that the amendment was valid. They opined that the Wealth Tax Act, as amended, did not fall under entry 49, List II, which deals with ‘taxes on lands and buildings’. Instead, they held that the Act was within the ambit of entry 97, List I, and Article 248, which deal with the residuary powers of Parliament. They reasoned that the tax imposed by the Wealth Tax Act was not a tax on property but a personal tax, and thus did not fall within the scope of entry 49, List II.

The court also dismissed the argument that the exclusion of agricultural land from entry 86, List I, was intended to take it out of the ambit of entry 97, List I, and Article 248. They held that the words ‘exclusive of agricultural land’ in entry 86, List I, were not words of prohibition but of exclusion, and did not prevent Parliament from imposing a tax on the capital value of agricultural land under its residuary powers.

The court further held that Parliament could combine its powers under entry 86, List I, with its powers under entry 97, List I, and that there was no principle which debars Parliament from relying on the powers under the specified entries 1 to 96, List I, and supplement them with the powers under entry 97, List I, and Article 248.

In a separate opinion, Mitter, J., agreed with the majority that the Wealth Tax Act, including or excluding agricultural land, did not fall under entry 86, List I, but under entry 97, List I, read with Article 248. He further opined that the concept of tax on net wealth, which includes not only the value of the assets but also excludes the general liabilities, was not covered by any entry in List I or List II or List III and thus fell within the residuary powers of Parliament under Article 248.

In conclusion, the Supreme Court held that the amendment to the Wealth Tax Act, 1957, which included agricultural land in the computation of net wealth, was within the legislative competence of Parliament. This landmark judgment clarified the scope of Parliament’s residuary powers and its ability to impose taxes not specifically mentioned in the Constitution.