TMI Blog1983 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than ........ The expression assets " is defined in s. 2(e) as inclusive of property of every description, movable or immovable, but does not include agricultural land and growing crops, grass or standing trees on such land or any building owned or occupied by a cultivator of, or receiver of rent or revenue out of agricultural land. The definition of the expression " assets " has been so circumscribed in relation to the State of Jammu and Kashmir but in respect of other States the definition is of wider amplitude and includes agricultural land, growing crops, grass or standing trees on such land and any building owned or occupied by cultivator of, or receiver of rent or revenue out of agricultural land. The constitutional provisions having bearing on the determination of the question before us may now be set out. Articles 246 and 248 of the Constitution which govern the division of legislative powers between Union and States, apply to the State of Jammu and Kashmir in a modified form. Article 246, as applicable to the State, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equentially if the impugned legislation falls within any entry in List I and List III as applicable to the State, it would be constitutionally valid. On the other hand, if it does not fall within the domain of those lists, it will be beyond the legislative competence of Parliament. Before us, the Union has sought to sustain the validity of the impugned Act under entry 86 of List I. For the petitioners, however, it has been contended that the subject-matter of the impugned Act falls within the residuary powers of legislation enjoyed by the State Legislature and not under entry 86 of List I. It has been maintained that entry 86 of List I is not strictly concerned with taxes on net wealth. The submission is that there is a real distinction between a true net wealth and the tax which can be levied under entry 86 of List I and that while legislating in respect of the said entry, it is not incumbent on Parliament to provide for deduction of debts in ascertaining the capital value of the assets. In this connection, reliance has been placed on the judgment of the Supreme Court in Union of India v. Harbhajan Singh Dhillon [1972] 83 ITR 582. In the case of H. S. Dhillon the legislative com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrasted with entry 49, List II. Be that as it may, we are clearly of the opinion that no part of the impugned legislation falls within entry 86, List I." His Lordship Mitter J. delivered a separate but concurring judgment and, inter alia, observed as follows (p. 677): "The subject-matter of wealth-tax including or excluding agricultural lands, etc., is not covered by entry 86 of List I, read with article 246 of the Constitution, but by entry 97 of List 1, read with article 248. Although read by itself entry 97 may seem to suggest that the expression`any other matter' has reference to 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. The Constitution has not denied to the Union power to levy wealth-tax inclusive of agricultural land as was contended for on behalf of the respondents. The residuary field of legislation no longer lies barren or unproductive. It has already yielded fruitful sources of taxation like the Gift-tax Act, the Expenditure-tax Act and borrowings as under the Scheme of Annuity Deposits." It necessarily follows that W.T. Act, 1957, is referable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lands and buildings. It is a tax imposed on the capital value of the assets of individuals and companies, on the valuation date. The tax 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. In certain exceptional cases, where a person owes no debts and is under no enforceable obligation to discharge any liability out of his assets, it may be possible to break up the tax which is leviable on the total assets into components and attribute a component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under entry 49, List II. But the legislative authority of Parliament is not determined by visualizing the possibility of exceptional cases of taxes under two different heads operating si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mponents and attribute component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under entry 49, List II. But in a normal case a tax on capital value of assets bears no definable relation to lands and buildings which may or may not form a component of the total assets of the assessee. But entry 49 of List 11 contemplates levy of tax on lands and buildings or both as units. It is 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. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of power under entry 86, List I, tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under entry 49, List II, the State Legislature may adopt for determining the incidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities as may exist. The incidence of the tax is not on lands and buildings as units of taxation but on the net assets of which lands and buildings are only some of the components. This is not the case under entry 49 (List II) where the tax can be laid directly on lands and buildings as units of taxation. Therefore, a tax on lands and buildings is fully within the competence of the Legislature and it is open to it to authorise the municipality to levy the same tax indicating the mode of levy. This the Legislature has done by indicating the different modes which may be adopted in making the levy, one such mode being a percentage of the capital value." In D. G. Gouse and Co. v. State of Kerala, AIR 1980 SC 271, the vires of the Kerala Building Tax Act, 1975, was challenged on the ground that the subject-matter of the tax being a tax on buildings, it was a tax on the capital value of the assets of an individual or company and fell within the scope of entry 86 of List I and not under entry 49 of List II, so that it was beyond the legislative competence of the State Legislature. The court repelled the contention and upheld the validity of the Act, observing (p. 275) : " Chapter I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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