News By/Courtesy: Nikshetaa Jain | 22 May 2020 12:30pm IST


  • Facts of the case: Wealth Tax on agricultural land
  • High Court decision: The Wealth Tax is unconstitutional as it was beyond's Parliament's legislative competence
  • Supreme Court decision: The Wealth Tax is constitutional under the Entry 97 of List I

A landmark case in the field of residuary taxes is Union of India v H.S Dhillon. The facts of the case are that the Wealth Tax Act was enacted in 1957 by the Parliament which imposed a tax on the capital value of the net wealth of every individual, Hindu undivided family, and company. The tax was imposed on all movable and immovable assets excluding agricultural land. However, the Act was amended by the Finance Act, 1969 to include agricultural land for wealth tax. The validity of this tax was challenged by H.S Dhillon, a landlord, in the High Court of Punjab & Haryana on the following grounds: -
  1. Wealth Tax on agricultural land can be imposed under Entry 49 of List III by the State and not the Union.
  2. Even if the State cannot impose the tax, then to the Parliament had no competence to enact an Act imposing a wealth tax on agricultural land either under Entry 86 of List I or under its residuary powers. 
The High Court held that the Act was beyond the Parliament’s legislative competence and ultra vires. An appeal against the order of the High Court was made to the Supreme Court.
The Supreme Court held that that Wealth Tax on agricultural land does not fall within the scope of Entry 49 (Tax on Land & Buildings). Thus, the State cannot enact a law. The Amendment cannot come under Entry 86 as it had the words ‘exclusive of agricultural land’. The main question was whether the tax could be levied under the Centre’s residuary powers.
It was argued that the words ‘exclusive of agricultural land’ in Entry 86 prohibits the Parliament from imposing a wealth tax on agricultural land. If the Parliament is excluded explicitly under an entry to make a law on a subject, it could not do under its residuary powers. Another argument was that the Parliament could invoke its residuary powers only when the subject matter of the impugned legislation was not under any list. In this case, the subject of Wealth Tax was included in Entry 86 of List I and was thus, excluded from residuary powers. 
The minority view (3 judges) was that the residuary powers of the Centre mean the authority in respect of matters not enumerated in any of the three lists. As the subject of wealth tax has been dealt with Entry 86 of List I, it is therefore out of the residuary field. However, the majority view (4 judges) took an expansive approach to the residuary power of the Centre. These judges held that Article 248 was framed in the broadest possible terms. A matter not included in List II or List III falls within the residuary field of the Centre. No question needs to be asked as to whether the matter falls under List I or not. Thus, the Supreme Court held that the Wealth Tax was justified under Entry 97 of List I. 

Section Editor: Pushpit Singh | 22 May 2020 20:05pm IST

Tags : #residuary powers

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