Holding

The Wealth Tax Act, 1957 is a net‑wealth tax covered by Entry 86 of List I and its extension to Jammu & Kashmir is constitutionally valid.

Summary

The respondents filed writ petitions challenging the extension of the Wealth Tax Act, 1957 to the State of Jammu & Kashmir, arguing that the Act falls under Union List Entry 86, which does not apply to the State under Article 370, and that it should be placed under Entry 97, rendering the extension ultra vires. The High Court upheld the petitions, but the Union appealed. The Supreme Court examined the nature of the tax, the meaning of "capital value of assets" in Entry 86, and the constitutional scheme of legislative competence. It held that the Wealth Tax Act is a net‑wealth tax covered by Entry 86 of List I and that Parliament may validly extend it to Jammu & Kashmir. Consequently, the High Court’s decision was set aside and the appeals were allowed.

Issues considered

Whether the Wealth Tax Act, 1957 (excluding agricultural land) falls within Union List Entry 86 or Entry 97.
Whether the extension of the Wealth Tax Act to the State of Jammu & Kashmir under Section 1(2) is constitutionally valid in view of Article 370.
Whether the tax is a net‑wealth tax on individuals and entities or a tax on capital value of assets that would place it outside Parliament’s competence.

Legislation cited

Constitution (Application to Jammu & Kashmir) Order, 1954
Constitution of Indias. Article 246, s. Article 248, s. Article 370, s. Entry 49 (List II), s. Entry 86 (List I), s. Entry 97 (List I)
Finance Act, 1969s. 24
Wealth Tax Act, 1957s. 1(2), s. 2(e), s. 2(m), s. 3, s. 4, s. 5, s. 6, s. 7

Subjects

wealth taxconstitutional validityUnion ListEntry 86Entry 97Article 370net‑wealth taxlegislative competencetaxation law

Judgment

......
I COMMISSIONER OF WEALTH TAX
v.
DR. KARAN SINGH AND OTHERS ETC.
A

FEBRUARY 4, 1993

[LAUT MOHAN SHARMA, CJ., S.R. PANDIAN, S. MOHAN, B
B.P. JEEVAN REDDY AND S.P. BHARUCHA, JJ.]

-~
Wealth Tax Ac4 1957:

S. 1(2), 2, 3, 4, 5, 6, 7-Application of the Act (not including within its
purview agricultural /ands/assets) to State of Jammu and Kashmir-Held, the
c
.- Act as originally enacted is covered by Entry 86 of List I of Schedule VII to
the Constitution of India and its extension to the State of Jammu and
Kashmir is constitutional.

Wealth TtIJ<-Held, is a net wealth t~The tax is not upon the assets D
as such but is upon individuals, companies etc. with reference to 'Capital
value of the assets' held by them-The tax is an annual levy on total value of
all assets owned by Qll assessee after deductions of debts and liabilities.

Constitution of India, 1957:
E
- ';-
Atticle 246, Seventh Schedule, List I, Entry 86-Taxes on capital value
of assets exclusive of agricultural land, of individuals and companies-Held,
the tax contemplated by the Entry is a tax upon the net wealth and is a net
wealth tax and is a net wealth-t~et wealth of an assessee means 'What
all he owns minus what all he ows"-Wealth Tax Ac4 1957 as originally F
enacted is covered by Entry 86.
~~.-,
Interpretation of Statutes-

Taxing Act-Interpretation of.
G
Court judgmentJ--l'rinciples of interpretation-Explained.

The respondents filed writ petitions before the High Court challeng·
Ing the application or the Wealth Tax Act, 1957 to the State of Jammu and
Kashmir on the ground that· the Act was relatable only and exclusively to
Entry 97 of Ust I of Seventh Schedule to the Constitution of India and H
569
570 SUPREME COURT REPORTS [1993) 1 S.C.R.

A since the said entry bad no application to the State of Jammu & Kashmir,
the application of the Act to the said State was incompetent. The High
Conrt allowed the 1!'fit petitions. The revenue filed the appeals by special
leave.
.•
The assessee-respondents contended tlmt the question as to the
I B Entry to which the Wealth Tax Act is relatable was concluded by the
decision or a seven Judge Bench or this Court* which laid down that the
Act is covered by Entry 97. On mertts it was contended that the expression
"capital value of the assets' in Entry 86 did uot signify the same thing as *-
net weaith as defined In the Wealth Tax Act, and that for calculating the
c 'capital value or assets' only the. incnmbrances charged on the assets
could be deducted froru the market value orthe assets and not the general
liabilities or the individnal owning the assets, which were to be taken into
account ror the purpose or the Wealth Tax and that, as such, the Act was
relatable to Entry 97 and not to Entry 86 or Ust I.

D
The revenue contended that the Act, so rar as it applied to non-
agricultural assets, was relatable to Entry 86 and not to Entry 97 or Ust
I and, since the Act as applied to Jammu and Kashmir did not take In
agricultural lands/assets, section 1(2) of the Act extending the application
of the Act to the State of Jammu & Kashmir could not be said to be ultra
E vires the powers or Parliament; that this Court in Dhillon 's case* did not
finally determine which Entry covered the Wealth Tax Act as originally
i-
enacted as the Issue did not arise for decision in that case, and the
controversy was confined to the validity of section 24 of the Finance Act,
1969, amending the provisions of the Wealth Tax Act, 1957.
F
Allowing ~ appeals, this Court,

HELD: 1.1 The Wealth Tax Act, 1957, was covered by Entry 86 or
...---
List I or the Constltntion, and its extension to the State of Jammu and
Kashmir was perfectly constitutional, The High Court was not right in
G holding otherwise. [5930)

Bllllri Das v. Wealth Tax Officer, 56 l.T.R. 224; Sudhir Chandra
Nawan v. Wealth Tax Officer, 69 l.T.R.. 897 and Assistant Commissioner of
Urban Land Tin; Madras v. Buckingham and Camatic Co. Ltd., 75 LT.R.
H 603, .relied on.
COMMISSIONER v. DR. KARAN SING~ 571

Karan Bahadur Chowakkaram Kaloth Mammad Keyi v. Wealth Tiu A
Officer, 44 I.T.R. 277; Vysyaraju Badri Narayanamurthy v. Commissioner of
Income Tax, Bihar and Orissa, 56 ITR 298 and Sri Krishna Rao L. Balekai
v. Third Wealth Tax Officer, City Circle I, Bangalore, 48 l.T.R. 472, refen-ed
to as approved.

*Union of India v. H.S. Dhillon, (1972) 2 SCR 33, explained and B
distinguished.

-~ V. Padmanabha v. Dy. Tahsildar, Chittur, AIR 1963 (Kenda) 155;
M.B. Thakar v. S.P. Pande, A.I.R. 1964 (Bom.) 170 and Income Tax Officer,
Alleppey v. M.C. Poonnoose and others, (1970) 1 SCR 678, cited.. C
1.2 The Wealth Tax Act, 1957 (which was extended to J &K) is a •net
wealth tax' Act imposed upon the individuals, groups of individuals like
H.U.F. and companies. The tax is not upon a~sets as such but is upon the
individuals, groups of individuals and companies with reference to the
'capital· value of the assets' held by thein~ [590GH, 591A) D
Assistant Commissioner of Urban Land Tax v. Buckingham Camatic
Co. Ltd., 75 ITR 603 and Sudhir Chandra Nawn v. Wealth Tax Officer, 69
l.T.R. 897, relied OD.

Sir Byramjee Jeejeebhoy v. Province of Bombay and Others, 1940 E
(Bombay) 65; Municipal Corporation, Ahmedabad v. Gordhandas, 1954
(Bombay) 188 and New Manek Chowk Mills v. Municipal Corporation,
(1967) 2 SCR 679, relied on.

Ra/le Ram v. Province of East Punjab, AIR 1949 FC 81 and
Municipal Corporation v. Gordhandas, AIR 1954 (Bombay) 188 at 194, F
inapplicable.
·---1
OECD Committee on Fiscal Affairs, reponed in Indian Tax Reforms
by Kllldor, referred to.

1.3 lo view of ss. 2(e), 2(m) and 3 to 7 of the Wealth Tax Act, G
Wealth- tax is an annual levy on the total value of all assets owned by
an assessee excluding exempted properties. Such value is the price which
the property would fetch if sold in the market; in other words its capital
value. From .lbe capital value, certain liabilities and debts are to be
deducted to arrive at the net wealth. The basis of the tax Is capital value H
572 SUPREME COURT REPORTS
,
(1993] 1 S.C.R.

A and net wealth assessable is,capital value a!mr deductions of debts and
liabilities. [p.589AB]

1.4 The expression "capital value" of as,ets is not capable of any
prescribed definition but the tailes on capital, l!re the net worth tax, the
real property tax, and the capital le\')' under the Equalisation of Burdens
B law. [p.S89BC]

"Hatvard Law School World Tax Series: Taxation in the Federal
Republic of Germany, referred to •
.,
1.5 In construing the language of constitutional enactments confer-
c ring legislative power ~be most liberal construction should be put upon the
words so that the same have effect in their widest amplitude. The heads of
legislation should not be construed in a narrow and pedantic sense but
should be given a large and liberal interpretation. [p.588C-F]

D Navinchandra Ma/at/a/ v. The Commissioner of Income Tax, Bombay
City, [1955) 1 SCR 829, 836, 837;,Sri Ram Ram Narain Medhi v. The State
of Bombay, (1959) Suppl. 1 SCR 489 and British Coal Corporation v. The
King, (1935) Appeal cases p.500, referred to.

1.6 None of the items in the Legislative Lists of the Constitution is
E to be read in a narrow or restricted sense. Each general word should be
held to extend to all ancillary or subsidiary matters which can fairly and
reasonably be said to be comprehended in it. [p.577CD]

1.7 The tax contemplated by Entry 86 is a tax upon the net wealth or
an individual. It is a net wealth tax. Net wealth of an individual necessarily
F means "what all he owns minus what all be owes" - and this is what the Act
purports to tax. The language of Entry 86 clearly indicates that the tax is
upon the individuals and not directly upon the assets or upon their value.
It cannot be said that since the tax is contemplated to be levied upon the
capital value or the assets of an individual, the exclusion of his debts and
G other liabilities changes the nature and character of the tax. [p.5910-G]

2.1 The question whether the Wealth Tax Act, 1957 (without refer-
ence to the Finance Act, 1969) falls within Entry 86 did not arise for
consideration in Dhillon 's case* and the majority judgment cannot be
..
~.
understood to have recorded a concluded opinion on the issue, which was
H left open for future when such occasion arose. [pp.5828, 584G, 586G)
COMMISSIONER v. DR. KARAN SINGH 573

•Union of India v. H.S. Dhillon, [1972) 2 SCR 33, nplalned ud A
distinguished.

2.2 Every judgment must_ be read as applicable to tbe particular
facts proved or assumed and the generality or the expressions used must
lie read as quallrted by the particular facts of the case ud tlle Issues
raised therein. (p.581E) B
The State of Orissa v. Sudhansu Sekhar Misra and Ors., [1968) 2 SCR
154; Additional District Magistrate, Jabalpur v. Shivakant Shukla, [1976) 2
SCC 521 (p. 714 pr. 474); Sreenivasa General Traders and others v. State of
Andl1ra Pradesh and Others, (1983) 4 SCC 353 p. 379 pr. 30 and Rajput C
Ruda Maha and Others v. State of Gujarat, [1980) 2 SCR 353 (354~,
3560-E), referred to.

Guardians of Poor v. Guardians of Poors, 1889 (24) QBD 117; Over-
seers of Manchester v. Guardians of 01111skrik Union, 1890 (24) QBD 678,
Rustom Cavasjee Cooper v. Union of India, 1970 (3) and Ramesh Birch and D
others v. Union of India and others, [1989) Supp. 1 SCC 430, referred to.

Co11stitution of India by D.D. Bosu, (6th Edition) Vol. H, referred to.

2.3 The basic rules of interpreting Court judgments are the sa- as
those of construing other documenis. The only dilrereace Is tut the E
Judges are presumed to know the lelldency or parties mnc:enied to loter-
Pi;et the language in the judgments dllrerendy to suit their purposes and,
consequently, It ls Important that the words are chosen very carefully so
as not lo give room for corlroversy. The principle Is that II tlle language
lo a judgment is plain and unambiguous and can be reas.ably Inter·
preted in only one way it has lo be understood in ~l sense, -and -uy F
involved principle of artificial constroctioo has to be avoided. Further, If
there be any doubt about the decision, the entire judgment has lo be
considered, and a stray or a casual remark cannot be treated as a
decision. (p.S84DE]
G
CIVIL APPELLATE JORISDICTION : Civil Appeals Nos. 1290-
93/85.

---..,.i From the Judgments and Orders dated 14.11.1984 & 19.f1.1983 of th~
Jammu & Kashmir High Court in WP. Nos. 695/82;694/82, 11.l7/81 and
206/81. H
574 SUPREME COURT REPORTS (1993] 1 S.C.R.

A WITH

Civil Appeals Nos. 986-1080 of 1985. ~

D.P. Gupta, Solicitor General, V. Gauri Shankar, B.B. Ahuja, Soli J.
Sorabjee, M.H. Beg, D.D. Thakur, P. Parmeshwaran, Ranbir Chandra,.S.
B Rajappa, Ms. A. Subhashini, P. H. Parekh, Fazal, Ms. Madhu Khatri, L.K
Gupta, Arun Madan, E.C. Aggarwal, Ms. Purnima Bhatt, Atul Sharma,
M.N. Bhat, Manoj Arora, Anant Palli, Vijay Pandita, R.F. Nariman, J.P.
Pathak and M. Veerappa for the appearing parties. -.t:--
The Judgment of the Court was delivered by
c
SHARMA, CJ. The respondents in these appeals have successfully
contended before the High Court that the Wealth Tax Act, 1957 is not
applicable to the State of Jammu and Kashmir inasmuch as Section 1(2)
of the Act in so far as it extends the Act to Jammu and· Kashmir, is ultra
D vires the power of Parliament. The High Court has upheld their argument
that in view of the special provisions contained in Article 370, the Parlia-
ment had no legislative competence to extend the Act to the State of
J arnmu and Kashmir.

2. The provisions in Article 370 (omitting the parts which are not
E relevant here) are in the following terms:-

''Temporary provisions with respect to the State of Jammu
and Kashmir- (1) Notwithstanding anything in this Con-
stitution,~

F (b) the power of Parliament to make laws for the said State
shall be limited to -

(i) those matters in the Union List and the Concurrent
List which, in consultation with the Government of the
State, are declared by the President to correspond to
G
matters specified in the Instrument of Accession govern-
ing the accession of the State to the Dominion of India as
the matters with respect to which the Dominion Legisla-
ture may make laws for that State; and

H (ii) such other matters in the said Lists as, with the
-t
COMMISSIONER v. DR. KARAN SINGH [SHARMA Cl.] 575

concurrence of the Government of the State, the President A
may be order specify.

(d) such of the other provisions of this Constitution
shall apply in relation to that State subject to such excep-
tions and modifications as the President may by order
specify." B

By the Presidential Order made under Article 370 (1) called the Constitu-
tion (Application to Jammu & Kashmir) Order, 1954, the provisions of the
Constitution of India were applied to the State of J amniu & Kashmir with
several exceptions and modifications. The words "Notwithstanding anything ·C
in Clauses (2) and (3)" occurring in Clause (1), and Clauses (2), (3) and
(4) of Article 246 were omitted. Article 248 and Entry 97 of List I, List II
and List ill (concurrent List) of the Seventh Schedule too were omitted.
Thus the Parliament was vested with the power to make laws only with
respect to the matters enumerated in Entries 1 to 96 of List I. The residuary
power was retained by the State. Some modifications have lJeen made from D
time to time in the 1954 order, but they are not relevant· for the present
purpose and need not be noticed. According to the respondents, the Act
is relatable only and exclusively to Entry 97 of List I and since the said
Entry has no application to the Stale of Jammu and Kashmir, application
of the Act to their State is incompetel!\. The High Court has upheld this E
contention. If the above premise is Ulm:ct, there is no doubt that these
appeals should fail. The appeUant,. ~r, submits that the Act, in so far
as it applies to non-agricultural asset'!, is relatable to Entry 86 of List I and
not to Entry 97. It is common ground that the Act as applied to Jammu
and Kashmir does not take in Agricultural lands/assets.
F
3. The Parliament has been vested, by Article 246 (1) of the Con-
stitution, with the exclusive p0wer to make laws with respect to any of the
matters enumerated in List I of the Seventh Schedule. Entry 86 of the
Union List is in the following terms:-
G
"86. Taxes· on the capital value of the assets, exclusive of
agricultural land, of individuals and companies; taxes on
-~
the capital of companies."

The Act as it was initially passed in 1957 did not apply to agricultural land.
It was only by an amendment in 1969 that the agricultural land was also H

...
\
576 . I SUPREME COURT REPORTS (1993] 1 S.c.R.

A brought within the purview of the Act.
: 4. The principal question that arises for considerauon in these ap-
. · peals is to. which entry does the Act (minus the agricultural land) relate to t
· < to EntfY 86 as contended by th{ appellant or to Entry 97 as contended
B by the respondents? .
5. Acco~dirig to the learned counsel for the assessee-respondents the
·issue is i:oncluded by the decision of a seven-Judge Bench of this court in
Union of India v. H.S. Dhillon, [1972] 2 SCR 33. According to theni, the ,
· decision does lay down in Wunistakable terms that the Act· is covered by
C Entry 97. fven on merits, they say, the Act is relatable to Entry 97 List I
and not to Entry 86 of List I. The learned counsel for the appellants, on
the other hand, say that Dhillon does not lay down any such proposition.
According _to them, the earlier decisions of the Constitution Benches
holding the said Act as relatable to entry 86 are in no manner shaken by
,D Dhillon. They argued further that independent of any decision, the Act is
clearly felatable only and exclusively to Entry 86 List I. Reliance upon
Entry 97 of List I is necessary to sustain the extension of the Act to
airicultural lands. But inasmuch as the Act, as applied to the State of
Jammu and KaShmir has no application to agricultural lands/assets,- Entry
E 97 is irrelevant in the present ~· they say.
6. The. Wealth Tax Act, 1957 was passed imposing a tax on the capital
. value of the 'net wealth ·of every individual, Hindu Undivided Family and
company•. Section 3 .provides for a tax in respect .·of net wealth on the ·)
.. corresponding valuation date. The eXpression "net wealth" has been defined
. F . by section 2 (m) as the amount by which the aggregate value computed in
"',,accordance with the provisions of the Act of_ all the assets on the valuation
' .date is in excess of the aggregate value of all the debts owed by the
assesree. Section 2 (e) declares 'assets' to include proi>erty of every
descriptio,; movable or iriimovable 'eXcepting, · agricultural land inter. alia.
G By section 24 of the Finance Act, 1969 (Act 14 of 1969) agricultural land
w3s prospectively included within the ambit of 'assets'. It would be instrucc . ,.-
. tive to examine the decisions of this Court de:iling with the Act prior ti;
the amendment Act ·14 of 1969. ··

7. In Banarsi Das v. Wealth Tax Officer, 56 I.T~· 224 the contention •
H raised was that under entry 86 of List I of the Seventh Schedule,. the
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.] 577

Parliament was competent to levy tax only upon the wealth of individuals A
but not on the wealth of groups of individuals like H.U.F. It was argued
that tax on the wealth of Hindu Undivided Families cannot also be sus-
tained with reference to Entry 97, inasmuch as the said Entry refers to
matters other than those specified in the Entries 1 to 96 in List I. Since the
wealth-tax falls expressly under Entry 86, it was argued, Entry 97 cannot B
be resorted to. Entry 97 reads 'any other matter not enumerated in List Il
or List III including any tax not mentioned in either of those Lists'. This
argument was repelled by a Constitution Bench of this Court holding that
the word 'individuals' in Entry 86 ·takes within its sweep groups of in-
dividuals like Hindu Undivided Families and that there was no basis for
placing a restricted meaning upon the word 'individuals' in the said entry. C
The Court reiterated the well established proposition that none of the items
in the Legislative Lists of the Constitution is to be read in a narrow or.
restricted sense and that each general word should be held to extend to all
ancillary or subsidiary matters which can fairly and reasonably be said to
be comprehended in it. Both the parties before the Court proceeded on D
the basis that the Act is relatable to Entry 86 alone. This was also the basis
of the decision of the Court.

8. In Sudhir Chandra Nawn v. Wealth Tax Officer, 69 l.T.R. 897, the
constitutional validity of Section 7 (1) of the Wealth Tax, Act was chal-
lenged. It was urged by the assessee-petitioners that Entry 86 of List I is, E
really, a tax upon lands and buildings-which tax can be imposed only by
the State Legislature under Entry 49 of List IT. (Entry 49 of List IT reads
as follows: '49. Taxes on lands and buildings'). The argument was that the
'capital value of the assets' occurring in Entry 86 takes in the value of the
lands and buildings and, therefore, the Parliament was not competent to F
levy tax on such assets. This argument was repelled by a Constitution Bench
holding that in the case of wealth-tax, the charge is'on the valuation of the
total' assets (inclusive of land• and buildings) minus the value of debts and
other obligations which the assessce has to discharge - whereas, in the case
of tax on lands and buildings, the value - capital or annual - would be
determined by taking the land or building or both as a unit and subjecting G
the value of a percentage to tax. It was' observed : ~Merely because in
determining the taxable quantum under taxing statutes made in exercise of
power under Entries 86, List I and 49, List Il, the basis of valuation of
assets is adopted, trespass on the field of one legislative power over another
H
578 SuPREME COURT REPORTS (1993) 1 S.C.R.

A may not be assumed". Shah, J. referred with approval to the decisions of
High Court of Kerala (441.T.R. 277), Orissa (561.T.R. 298) and Karnataka
(48 l.T.R. 472) holding that the power to levy tax on lands and buil~
under Entry 49 List II does not trench upon the power conferred upon the
Parliament by Entry 86, List I. Accordingly, the learned Judge held that
B the Wealth Tax Act is not ultra vires the. powers of the Parliament. The
entire decision proceeded on the basis that the Wealth Tax Act is referable
to Entry 86 of List I.

9. In Assistant Commissioner of Urban Land Tar, Madras v. Buckin-
C gham and Camatic Co., Ltd., 75 I.T.R. 603 it was contended that the
Madras Urban Land Tax Act, 1966 imposing a tax on urban land at a
percentage of market value is outside Entry 49 of List II and falls within
Entry 86 of List I and, therefore, the State Legislature was incompetent to
enact the said law. The argument was rejected. It was pointed out that by
a legislation in exercise of the power under Entry 86 of List I, tax is
D contemplated to be levied on the value of the assets (subject to certain
deductions) whereas, for the purpose of levying tax under Entry 49 of List
II, the State Legislature may adopt the annual or capital value of the lands
and buildings as the basis for taxation. It was also held that the adoption
of the annual or capital value of lands and buil~ for determining the
E tax liability under Entry 49 of List II will not amount to trenching upon the
field reserved to the Parliament under Entry 86 of List I. Accordingly, the
validity of the Madras Act was upheld.

10. Now to Dhillon. The main contention urged by the learned
F counsel for the respondents calls for a close examination of the judgment
to determine the ratio underlying it. As stated hereinbefore, by section 24
of the Finance Act, 1969, agricultural land was included within the meaning
of the expression 'asset•" as defined in the Wealth Tax Aci. The validity of
the Amending Act was challenged before the High Court of Punjab and
Haryana on the ground that the Parliament was not competent to levy
G wealth-tax upon agricultural land inasmuch as entry 86 expressly excludes
agricultural land from its purview. The High Court upheld this submission
by a majority of 4 to 1. The Union of India filed an appeal before this
Court, which was heard by a Bench of seven Judges. Three judgments were·
delivered- one by S.M. Sikri, CJ., for himself and for S.C. Roy and D.G.
H Palekar, JJ., holding the Amendment .as valid;· second a separate bot
COMMISSIONER o/DR. KARAN SINGH [SHARMA, CJ.) 579

concurring judgment by G.K. Mitter, J., and the third (the dissenting A

- ~
opinion) by J.M. ,Shelat, J., on behalf of himself and A.N. Ray and l.D.
Dua, JJ. The reasoning of Mr. Soli Sorabjee, learned counsel for the
resrondents runs as follows: Shelat, J. (minority opinion) addressed himself
. pointedly to the question whether Entry 86 could be held to cover the
enactment in question and the definite conclusion was that it did. Since
B
agricultural land has been excluded from the purview of Entry 86 in express
terms, he held that entry 97 cannot be relied upon or resorted to sustain
-i the amendment impugned therein. Accordingly, he concluded that the
amending Act was ultra vires the powers of the Parliament. Mitter, J. on
the other hand, declared in unhesitating terms that Entry 86 did not cover
either the Act as originally enacted or as amended by Act 24 of 1969. Sikri, c
CJ., no doubt, adopted a different approach altogether. According to the
learned Chief Justice, it was not really necessary to examine whether the
impugned amendment is relatable to Entry 86 or 97 of List I; the correct
approach was to find out whether the impugned Act related to any of the
,,,, entries in List II; and if it did not, no further enquiry was needed to be
D
made and Parliament must be held to be competent to enact the impugned
legislation. On this reasoning, the impugned Act was held intra vires the
Parliament. In view of this finding it was unnecessary for the learned Chief
Justice to go into the question whether the impugned amendment is
relatable to Entry 86 or 97 of List I, but even then he thought it appropriate
Ej
-r- · to do so as otherwise the minority view would have become binding on the
principle affirmed in V. Padma11abha v. Dy. Tahsi/dar, Chittur, AIR 1963
(Kerala) 155; M.B. Thakar v. S.P. Pande, A.l.R. 1964 (Bombay) 170 and
Income Tax Officer, A//eppey, v. M. C. Poonnoose and Others, (1970) 1 SCR
678 at 681iG to 682A, In this view of the matter, the learned Chief Justice
expressly dealt with this issue and held that even the principal Act is
F
relatable only to Entry 97 of List I. Particular emphasis is laid on the
passage at p.73 G to p. 74 E of the judgment published in the Supreme
-----r Court Reports, This opinion, supported as it is by the opinion of Mitter,
J ,, concludes the issue- says Mr. Sorabjee.

11, Mr, Sorabjee further contended that whatever has been said in G
the judgment of Mitter, J., must be treated to be the majority view. In
support of this proposition, Mr. Sorabjee relied upon the observations in
·-~ Guardians of Poor v. Guardians of /'oors, 1889 (24) 0.B.D. 117 at 120, and
9
Overseers of Manchester v. Guardians of Omiskrik Union, 1890 Q.B.D. 678
at 682. Describing the views expressed by D.D. Basu on Article 141 in his H
580 SUPREME COURT REPORTS (1993) 1 S.C.R.

Commentary on the Constitution of India (6th edition, volume H at pages
14 and 15) as the correct approach of interpreting a judgment where the
judges holding the majority give independent judgments, Mr. Sorabjee A( -
contended that when one of the Judges expounds the Jaw on a particular
point, but others do not openly dissent from it, it must be taken that all the
Judges concurring in the- majority decision agreed to thaf exposition. He
relied on the following observations from the case of Guardians of Poor v.
Guardians of Poors, 1889 (24) QBD 117:

"We know that each of them considers the matter separate-
ly, and then they consider the matter jointly, interchanging
their judgment, so that every one of them has seen. the
judgments of others. If they mean to differ in their view,
they say so openly when they come to deliver their judg-
ments and if they do not do this, it must be taken that each
of them agrees with the judgments of the others."

The learned counsel also recommended adoption of the practice followed
in England for considering the judgments of the House of Lords indicated
in case of Overseers of Manchester v. Guardians of Onnskrik Union, 1890
(24) QBD 678 in the following terms:

"Where in the House of Lords one of the learned Lords
gives an elaborate explanation of the meaning of a statute,
and some of the other learned Lords present concur in the
explanation, and none express their dissent from it, it must
be taken that all of them agreed in it.'

By way of further elaboration Mr. Sorabjee contended that this principle
:s applicable even to the views of dissenting Judges, unless the majority
>pinion expressly disagrees with the same. He referred to the decision in
~ustom Cavasjee Cooper v. Union of India, (1970) 3 SCR 530, as an
·llustration of this proposition where the observations in the judgment of
lay, J. cannot be~eated to be the majority view for the reason that at
1age 561G reserva on was expressed by Shalt, J. in express terms. The
rgument, therefo is that since in judgment of Sikri, CJ. we do not find
ny dis.Cot or reservation from the views of Mitter, J. on the non-ap-
•licability of Entry 86 of the Wealth Tax Act, the said view must be treated
> be that of all the four Judges forming the majority. Reliance was also
I laced on paragraph 20 of the Judgment in Ramesh Birch and Others v..
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.) 581

Union of India and others, [1989) Supp, 1 SCC 430. A
12. Dr. Gouri Shankar, on the other band, submitted that the ques-
tion as to which entry covered the Wealth Tax Act as originally enacted
did not arise for decision in the case at all and that the controversy in
Dhillon was confined to the validity of section 24 of the Finance Act, 1969 B
in so far as it amended the provisions of the Wealth Tax Act. According
to him, the judgment of Sikri CJ., did not finally determine the issue which
Entry covered the main Act. The observations relied upon in the judgment
of Sikri CJ., are mere passing observations in the nature of loud thinking.
They do not carry the force of precedent. They must be treated as obiter.
Mr. Solicitor General, while adopting the approach of Dr. Gauri Shankar, C
proceeded further to deal with the principle relating to precedents. He
referred to Basu's commentary {Vol. H at pages 16 and 17) and relied on
Stephen (Commentaries Vol. I p. 11) stating:-

'The underlying principle of a judicial decision which forms
its authoritative element for the future, is termed ratio
D
decidendi. It is contrasted with an obiter dictum or that
part of a judgment which consists of the expression of the
Judge's opinion on a point of law which is not directly
raised by the issue between the litigants."
E
The lear;ned counsel also referred to the oft quoted proposition that
every judgment must be read as applicable to the particular facts proved
or assumed and the generality of the expressions used must be read as
qualified by the particular facts of the case and the issues raised therein.
The learned Solicitor General also placed reliance on the decisions in The F
State of Orissa v. Sudhansu Se/char Misra and Ors., [1968) 2 SCR 154
162E-163B; Additional District Magi.strate, Jabalpur v. Shivakiint Shulda,
(1976) 2 SCC 521; Sreenivasa General Traders and Others v-State ofAndhra
Pradesh and Others, (1983) 4 SCC 353 and Rajput Ruda Maha and others
v. Stale of Gujara~ [1980) 2 SCR 353.
G
13. During the course of the hearing. the counsel placed learned and
interestmg arguments dealing with the rules relating to precedents as
mentioned above, and attempt was made to distinguish the foreign judg-
ments on the ground that Article 141 of the Constitution of India in
mandatory terms lays down that the law declared by the Supreme Court H
582 SUPREME COURT REPORTS (1993) 1 S.C.R.
'
A shall be binding on all Courts within the territory of India. It was also
suggested that the expression 'courts' within the meaning of Article 141
does not include Supreme Court and the Supreme Court is not bound by
its own decisions Punjab Land Development Corpn. Ltd. v. Resident Officer
Labour Court and Other, [1990) 3 SCC 682. We have also examined all the
three judgments given in Dhi/lon's case placed by the learned advocates in
B
great detail and analysed at considerable length and since in our view the
majority judgment cannot be understood to have recorded a concluded
opinion on the applicability of Entry 86 to the main Wealth Tax Act, we
do not think it necessary to deal with the elaborate agruments on the rules
for interpreting the judgments. We now proceed to indicate our reasons.
c
14. As mentioned earlier, the challenge in Dhillon's case was limited
to section 24 of the Finance Act, 1969 insofar it amended the relevant
provisions of the Wealth Tax Act, 1957. Initially the value of agricultural
land was exempt from the charge of wealth tax. The exemption was
D withdrawn by this amendment. This was challenged as ultra vires by the
assessee H.S. Dhillon and the High Court agreed with him. The judgment
was appealed against by ~he Union .or India. Mr. Setalvad, appearing in
support of the appeal, contended that the impugned Act was not a law with
-respect to any Entry (including Entry 49) in List II and if this was so it
E must necessarily fall within the legislative competence of parliament. He
reminded the court that the Parliament was competent to legislate with
respect to Entry 86 read with Entry 97 or Entry 97 by itself read with
Article Z48 of the Constitution. The argument was being addressed poin-
tedly with reference to the impugned Act i.e., the Finance Act, 1969. Mr.
Setalvad urged "that the proper way of testing the validity of a parliamen-
F
tary statute in our Constitution was first to see whether the parliamentary
legislation was with respect to a matter or tax mentioned in List II; if it was
not, no other question would arise This approach was taken note of by
11
•

the judgment of Sikri, CJ. in the last paragraph of page 45 and second
paragraph at page 46 of the Supreme Court Reports. the judgment read
G as a whole including the passage, which has been relied upon by Mr.
Sorabjee, in our view leads to the irresistible conclusion that Sikri, CJ.
accepted the line suggested by Mr. Setalvau and, therefore, it did not
remain necessary for the learned Chiei Justice to express a fine! opinion
as lo the particular Entry covering the Wealth T31< Act. In the very next
H paragraph at page 46 Sikri, CJ. said,
COMMISSIONER v. DR. KARAN SINGH (SHARMA. CJ.] . 583

'It seems to us that the best way of dealing with the question 'A
of the validity of the impugned Act and with the contentions
of the parties is to ask ourselves two questions; first, is the
impugned Act legislation with respect to entry 49 List II ?
and secondly, if it is not, is it beyond the legislative com-
petence of Parliament?
B
The learned Chief Justice did not stop al that. He proceeded to say
further,

"We have put these questions in this order and in this form
because we are definitely of the opinion, as explained a c
little later, that the scheme of our Constitution and the
actual terms of the relevant articles, namely, Art. 246, Art.
248 and entry 97 List I, show that any matter, including tax,
which has not been allotted exclusively to the State Legis-
latures under List II or concurrently with Parliament under
List Ill, falls within List 1, including entry 97 of that lis.t 'D
read with Art. 248."

15. In his learned judgment, Sikri, CJ., considered the constitutional
scheme specially with reference to Articles 246, 248, 250 · and 253 and
section 104 of the Government of India Act, 1935: ,While. considering the . E
· Constituent Assembly Debates and other relevant documents dealing with
the process which ultimately led to the making of the Constitlltion as it was
finally adopted, the following interpretation of Dr. B.R.'Ambedkar was
specifically referred to :-

'A 'lything not included in List II or Ill shall be deemed to F
fall in List r.

Besides, Constitutions of several foreign countries as also. many decisions
'were discussed and the conclusion reached in the following· words at page
729 of the Reports ;-
G
~In our view the High Court was right in holding that the
impugned Act was not a law with respect to entry 49, List
U, or did not impose a tax mentioned in ~:ntry 49, List U.
If that is so, then the legislation is·valid ·either under entry
86, List I, read with entry 97; List I. or entry 97 Lisi.I, H
584 SUPREME COURT REPORTS (1993] 1 S.C.R.

A standing by itself."

It was only after arriving at the conclusion finally that the question whether
the impogned Act (we will prefer to call it as the Finance Act, 1%9) fell
within Entry 86, List I, read with Entry 97, List I, or Entry 97, List I alone,
B was adverted to; and while so doing the fact, that it was not ne_cessary tQ
decide thi' issue was taken note of. Mr. Sorabjee is right that the observa-
tions in this part of the judgment from p. 73G to p. 74E were made in view
of the judgment of Shelat, J. on Entry 86, and these observations were
critical of the minority view on Entry 86, but the respondents before us are
failing to appreciate that a critical comment made on a certain statement
C does not, in absence of an expression to that effect, necessarily lead to the
inference that the converse is true. It may mean that the statement requires
further consideration or that the grounds given in support of the statement
are fallacious or inadequate or that the matter requires a fuller examination
and until that is done, the assumed correctness of statement cannot be
D accepted. The basic rules of interpreting Court judgnients are the same as
those of construing other documents. The only difference is that the Judges
are presumed to know the tendency of parties concerned to interpret the
language in the judgment• differently to suit their purposes and the conse-
quent importance t_hat the words have to be chosen very carefully so as not
to give room for controversy. The principle is that if the language in a
E judgment is plain and unambiguous and can be reasonably interpreted in
only one way it has to be understood in that sense, and any involved·
principle of artificial construction has to be avoided. Further, if there be
any doubt about the decision, the entire judgment has to be considered,
anct a stray sentence or a casual remark cannot be treated as a decision.
F Examined in this light, the judgment of learned Chief Justice indicates that
the main question agitating his mind was - if levy of wealth-tax on agricul-
--
tural land is not within the purview of List II, if it is not warranted by any
Entry in Ll;;t In and if it is alw not within the purview of Entry 86 of List
I, then which is the authority competent to levy it? Evidently, there c•nnot
G be a subject matter or tax, which no legislature under the Con$titution can
levy. Accordingly, he held, the said tax is warranted by Entry 97 of List I
read with Article 248. The question, whether the Wealth Tax Act (without
·reference to the· impugned Finance Act, 1969) falls within Entry 86 did not
arise for consideration and was not answered but. left undetermined, by the
learned Chief Justice, though Mitter, J., did certainly express hin1Self on it.
H A reference to other parts of the very passage relied upon by Mr. Sorabjee
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.] 585

as indicated below, will be helpful. A

- ~ 16. After pointing out two or three features which, in the opinion of
Sikri, CJ., were inconsistent with the views of Shelat J ., the judgment
stated.:-

"Therefore, it seems to us that the whole of the impugned B
Act clearly falls within entry 97 List I."

-1- At the cost of repetition we would like to point out that the impugned Act
was the 1969 Amendment Act. The distinction between the Amendment
Act and the original Wealth Tax Act was always present in the mind of the
learned Chief 1ustice as is clear from the very next sentence, which reads
c
- thus :-

"We may mention that this Court "as never held that the
original Wealth Tax Act fell under entry 86 List I. It was
~ only as5umed that the original Wealth Tax Act fell within D
entry 86 List I and on that a.sumption this entry was
analysed and contrasted with entry 49 List II."

MrJ Sorabjce laid great emphasis on the above sentences and urged that
~ .
·an inference should be drawn'therefrom about the majority view holding
that Entry 86 was not attracted. We do not agree with him. In his judgment
E
- 'r Shela!, J. had referred to se.veral decisions in favour of holding Entry 86
applicable and the last sentence quoted ab.ove, was only a comment on that
part of the judgment. Besides, there is further indication given in the very
next sentence, which, in our view, reiterates the conclusion already reached
and recorded at page 72G (quoted above) and that is in the following F
words:-
·~
"Be that as it may, we are clearly of the opinion that no part
of the impugned legislation falls within entry 86 List I."
(emphasis added)
G
In the next paragraph the permissibility of the parliament combining its
powers under Entry 86 with its powers under Entry 97 was considered and

F answered in the affir,inative. This was apparently the conclusion made at
P118c·,v::zG1.(quoted ab6ve) that the legislation should be held to be valid
under Entry 86 List I, read with Entry 97 List I. H.
~
586 SUPREME COURT REPORTS [1993) 1 S.C.R.

A 17. We, therefore, interpret the judgment of Sikri, CJ. (on behalf of
himself and two other learned Judges) as holding that

(i) the proper way of testing the validity of a parliamentary
statute under our Constitution was first to see whether the
~
-
parliamentary legislation was with respect to a matter or tax
B mentioned in List II; if it was not, no other question will
arise;

(ii) the impugned Act was not a law with respect to Entry 49 ..L-
List II or for that matter any other entry in that List;
c (iii) consequently the legislation (that is the 1%9 Amendment
Act) was valid either under Entry 86 List I read with Entry
97 List I, or Entry 97 List I standing by itself; -
(iv) it. was not necessary to decide the question whether the
D impugned Act fell within Entry 86 List I read with Entry 97 l"--
List I, or Entry 97 List I alone;

(v) there were several fallacies in the reasoning of the minority
judgment holding Entry 86 applicable, and the assumption
made therein that this question was settled earlier by this
E
Court was not correct.
-<-
(vi) be that as it may, so far as the impugned legislation (The
1%9 Amendment Act) was concerned, it did not fall within
Entry 86;
F
(vii) there is nothing in the Constitution to prevent the Parlia-
ment from combining its powers under Entry 86 List I with
its powers under Entry 97, List I.
r-·.
18. We, therefore, hold that the issue, whether the Wealth Tax Act,
G 1957 falls in Entry 86 or not, was not finally decided in the judgment of
Sikri, CJ., and was left open for future when such an occasion arose. While

H
so doing certain observations critical to the views of Shelat, J. were ex-
pressed but merely on account of this, Dhillon's judgment cannot be
treated to be a binding precedent preventing this Bench from considering
the main issue on merits.
-.
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.] 587

19. The position, therefore, is that the issue as to whether the Wealth A
Tax Act, 1957 (without its amendment Act, 1969, as it has been conceded
on behalf of the appellant to be inapplicable to the State of J ammu and ,
Kashmir), extends to the State of Jammu and Kashmir or not, is, as
mentioned earlier, dependent on the question whether the Act falls under
Entry 86, List I quoted in paragraph 3 above or not. The residuary power B
in the case of Jammu and Kashmir is with the State and cases relied upon
by the parties are of no help.

20. The argument of Mr. Sorabjee is that the expression "capital value
of assets" in Entry 86 does not signify the same thing as not wealth as C
defined in Wealth Tax Act. For calculating the 'capital value of assets" only
the encumbrances which are charged on the assets, can be deducted from
the market value of the assets, and not the general liabilities of the
individual owlling the assets, which are to be taken into account for the
purpose of wealth-tax.. Adopting the observations of H.J. Kania, J. (as he
then was) in Sir Byramjee v. Province of Bombay, AIR 1940 (Bombay) 65 D
at 75, it was asserted that under Entry 86, "the tax should be on the total
capital assets and not on individual portions of a person's capital". In Sir
Byramjee 's case the relevant entry was Entry 55 in List I of the Government
of India Act, 1935, similar to the present Entry 86. The learned counsel
pointed out that Bombay decision was approved by the Federal Court in E
-r Ra/la Ram v. Province of East Punjab, AIR 1949 FC 81. Reference was also
made to the judgment in Municipal Corporation v. Gordhandas, AIR 1954.
Bombay 188 at 194. In support of his stand that Wealth Tax Act is covered
by Entry 86 Dr. Gauri Shanker took us through the background in which
the Wealth Tax Act was enacted. He placed before us the legislative
practice in other countries also as reported by OECD Committee on Fiscal F
Affairs and the discussion by Kaldor in his book "Indian Tax Reforms".
Dealing with the deductions which are allowed under the Wealth Tax Act
for liabilities and debts, the learned counsel proceeded to say that that is
the methodology of levy of this form of capital taxation adopted interna·
tionally. Paragraph 1.39 of the OECD Committee's Report stated that :- G

"Just as all assets to which a value can be attached should
in principle be included in the tax base, so in principle all
debts should be deducted from the taxpayer's assets, in
order to arrive at his net wealth." H
588 SUPREME COURT REPORTS (1993) 1 S.C.R.

A In the next paragraph of the Report, the equity of allowing debts not
related to the acquisition ot assets is also discussed. The learned counsel
summed up by saying that the substance of the practice adopted in other ~ .,,
countries and the economic concept underlying the theory of equi-marginal
sacrifice, which is called the ability to pay, is that there will be no true Pi-'

B
measure of a person's net worth unless from the gross aggregate capital
value, deductions are given for liabilities and debts, and that is the rationale
I
of Entry 86 as also that of the Wealth Tax Act.

21. We must, therefore, ascertain the correct nature of the tax under j_-
'f'i·~
the Wealth-Ill'\ Act and the scope of Entry 86 by reference to the expres-
c sions 'capital value" an.d "assets". It is firmly established that iri construing
the language of constitutional enactments conferring legislative power the
most liberal construction should put upon the words so that the same have
effect in their widest amplitude. See Navinchandra Mafatlal v. The Com-
missioner of Income-Tax Bombay City, [1955) 1 SCR 829, 836, 837. In Sri ,.-
D Ram Ram Narain Medhi v. The State of Bombay, (1959) Suppl. 1 SCR 489, 'I"- ~
•
this Coult' followed the approach indicated by the Privy Council in British
Coal Corporation v. 'fhe King, 1935 Appeal Cases p. 500, 518 in the
following words :-

'Indeed, in interpreting a constituent or organic statute
E such as the Act, that construction most beneficial to the
widest possible amplitude of its powers must be adopted."
-< -
and further declared that the heads of legislation should not be construed
in a narrow and pedantic sense but should be given a large and liberal
F interpretation. It is also settled that for finding out the true nature and
II
character of a taxing Act, the charging section has to be construed with the '"
help of the other relevant provisions. In the case. of the Wealth-tax Act T- .....
Sections 3 to 7 read with Sections 2 (e) and 2 {m) have to be examined.
Section 3 levies an annual tax in respect of the net wealth on the valuation
date on every individual etc. al the rate spc:cified in the schedule. Section
G 7 mandates that the value for the purpose of charge shall be the value
estimated to be the price which in the opinion of the assessing officer it
would fetch if sold in the open market ~n the valuation date. The expres-
sion 'net wealth" is defined in .section 2 (m) as the· amount by which the
-..,.....-
aggregate value computed in accordance with the prescribed provisions, is
H in excess of the aggregate value of all the debts owned by, the assessee.
...,.
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.] 589

Thus it appears that the tax is an annual levy on the total value of all assets A
owned by an assessee excluding exempted properties. Such value is the
price which the property would fetch if sold in the.market; in other words
its capital value. From the capital value, certain liabilities and debts are to
be deducted to arrive at the net wealth. The base of the tax is capital value
and net wealth assessable is capital value after deductions of debts and B
liabilities. The expression "capital value" of assets is not capable of any
prescribed definition but as pointed out in Harvard Law School World Tax
Series, Taxation in the Federal Republic of Germany, quoted by Sikri, CJ.
in his judgment,

"the taxes on capital which are summarised in this chapter c
are the net worth tax, the real property tax, and the capital
levy under the Equalisation of Burdens Law."

The distinction between a net-wealth tax levied upon a person and a
tax on the property directly is pointed out in the same wo:k in the following D
words:

"Some of the taxes on capital are deemed to be imposed
on the person of the taxpa;·cr while others are deemed to
be imposed on an object. Examples of the former are the E
net worth tax and tl)e capital levy under the Equalisation
of Burdens Law, while the real property tax and the trade
tax on business capital are classified in the latter category.
The main importance of this distinction is that taxes in the
first group pre-suppose a taxpayer with independent legal F
existence, that is, an individual or a legal entity Guridical
person), while in the case of taxes in the second group, the
taxable object itself is deemed liable for the tax, in addition
to its owner, so that the taxpayer can be a partnership,
association of the civil law, or other combination of persons
without separate legal existence. Taxes of the first type give G
consideration to the tax-payer's ability to pay, while those
of the second type consider me~ely the value of th.e taxable
object, such as the capital of a business, in the case of the
trade tax on business capiial, or the assessed value of real
property, in the case of the real property tax." H
590 SUPREME COURT REPORTS (1993) 1 S.C.R.

A If we may point out with respect, Sikri, CJ. having quoted the above
passage with approval at page 72 of (1972) 2 S.C.R., says rather inexplicably
at page 74.

'It seems to us that the other part of entry, i.e., 'tax on the
capital of companies' in entry 86 List I also seems to
B indicate that this entry is not strictly concerned with taxa-
tion of net wealth because capital of a company is in one
sense a liability of the company and not its asset. Even if it
is regarded as an asset, there is nothing in the entry to
compel Parliament to provide for deduction of debts. It
c would also be noticed that entry 86 List I deals only with
bdividuals and companies but net wealth tax can be levied
not only in individuals but on other entities and associations
also. It is true that under entry 86 Lisi I aggregation is
necessary because it is a tax on the capital value of assets
of an individual but it does not follow from this that
D
Parliament is obliged to provide for deduction of debts in
order to determine the capital value of assets of an in-
dividual or a company.'

(emphasis supplied)
E
According to the learned Chief Justice it is not incumbent on Parlia-
ment to provide for deduction of debts in ascertaining the capital value of
the assets. But, having said so, the learned Chief Justice does not proceed
further and say that such deduction, if provided, changes the character of
F tax from a tax on capital value to something else. Indeed, on principle, such
a statement could not have been made or supported. The learned Chief
Justice repeatedly stated that the Parliament or the Legislature need not ~
provide for such deductions, but without carrying the thought to its logical
conclusion, concluded that "the whole of the impugned Act" (which as
pointed out hereinbefore means. the Act 24 of 1969 amending the Wealth
G Tax Act) 'clearly falls within entry 97 of List I.' We have already indicated
in paragraph 16 earlier that the expression 'the whole of the impugned
Act", did not refer to the wealth tax as orignially enacted. We are, there-
fore, of the opinion that the Wealth Tax Act (as originally enacted and
extended to J & K) is a 'net-wealth tax' Act imposed upon the individual;
H group of individuals like H.U.F. and companies. The Tax is not upon the
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.] 591

assets as such but is upon the indi,idual and companies with reference to A
the 'capital value of the assets' held by them. As explained in Assistant
)'( Commissioner of Urban Land Tax v. Buckingham Camatic Co. Ltd., 15 ITR
603.

"II is not a tax directly on the capital value of the assets of
individuals and companies on the valuation date ......The B
tax under entry86 proceeds on the principle of aggregation
and is imposed on the totality of the value of all the assets.
It is imposed on the total assets which the assessee owns
and in determining the net ·wealth, not only the encumbran-
ces specifically charged against any item of assets but the c
general liability of the assessee to pay his debts and to
discharge his lawful obligations have to be taken into ac-
count.11

This was also the view expressed in Nawn.
D
· 22. The language of Entry 86 also clearly indicates that the tax is
upon the individual< and not directly upon the assets or upon their value.
The wealth-tax is determined with reference to the capital value of the
assets minus the debts and other deductions mentioned in the Act. We
cannot accept the argument that sine.! the tax is contemplated to be levied E
upon the capital value of the assets of an individual, the exclusion of his
debts and other liabilities changes the nature and character of the tax.
Indeed, the learned counsel for the respondents could not suggest any

- enactment relatable to Entry 86 except the Wealth Tax Act. '

23. II is argued for the respondents that 'capital value of the assets'
on a true interpretation can only mean market value of the assets minus
F

any encumbrances charged upon the assets themselves. The expression
does• not take in, it is submitted, general liabilities of the person owning
them: This argument, in our opinion, ignores the basic nature of the tax
contemplated by Entry 86. It is a tax upon the net wealth of an individual. G
It is a net-wealth tax. Net wealth of an individual necessarily means "what
all he owns minus wha'1,all he owes" - and this is what the Act purports to
lax.

24. Mr. Sorabjee relied upon the decisions of the Bombay High Court
in Sir Byramjee Jeejeebhoy v. Province of Bombay and others, 1940 Bombay H
•
592 SUPREME COURT REPORTS [1993) l S.C.R.

A 65, and Municipal Corporation, Ahmedabad v. Gordhandas, 1954 Bombay
188. In the first case, the question was whether the Bombay Finance Act,
1932 which levied tax upon urban immovable property was outside the
competence of the Bombay legislature on the ground that the tax levied
was one in the nature of Income Tax Act relatable to Entry 54 of the
Federal List in the VII schedule to the Government oflndia Act, 1935. All
B
the three Judges constituting the full Bench repelled the said argument. In
the course of their discussion they also referred to Entry 55 of the Federal
List; but that aspect did not arise in that case and, therefore, any passing
observation made with respect to the content of the said Entry cannot be
of any assistance to us in this case. Similarly, in Gordhandas the question
C was with respect to the power of the Bombay Municipal Corporation to
levy tax on land. The petitioners contentions was that the said tax falls
outside Entry 42 of List II of the VII Schedule to the 1935 Act (correspond-
ing to Entry 49 of List II of our Constitution) and that the tax on land
imposed by the said Act is really in the nature of tax contemplated by Entry
D 55 of the Federal List. Reliance was placed upon the decision in AIR 1940
Bombay 65. The said argument was dealt with by Gajendragadkar, J. (as
he then was) in the following words:

'I have dealt with this question on the assumption that
Entry 55 in List I confers jurisdiction on the Cent~al Legis-
E lature to levy a tax on the capital value, not only of all the
assets, but of even a part of the assets. In AIR 1940 Born.
--f -
65 a Full Bench of this Court had to consider the construc-

F
tion of Entry 54 in List I as against Entry 42 in List II.
Incidentally an argument was urged before the Full Bench
even as to Entry 55 in List I. Chief Justice Beaumont said
that it was unnecessary to consider the argument based on
-
Entry 55; but, never-the-less, he observed that an analysis
of the language employed in Entries 54 and 55 respectively
affords scope for the argument that the assets mentioned
in Entry 55 must mean the totality of the assets. According
G to Mr. Justice Broomfield, the meaning of the expression
"capital value of the assets" in Entry 55 was by no means
clear. He, however, added that it may be that what was
intended was a tax on the total value of the assets in the
nature of a capital levy. Mr. Jnstice Kania, on the other
H hand, expressed his clear opinion that under Entry 55 the
COMMISSIONER v. DR. KARAN SINGH [SHARMA, CJ.] 593

tax should be on the total capital assets and not on in- A
dividual portions of a persons capital."

It was held that the said earlier decision in no manner supported the
assessee's contention.

25. Lastly, reference was made to the decision of this Court in New B
Manek Chowk Mills v. Municipal Corporation, (1967] 2 SCR 679. In that
case, it was .held by this Court that Entry 49 in List II of the VII Schedule
permits levy of tax on lands and buildings but not on machinery installed
on land or in the building. It was held that rule 7 (2) of the Rules framed
under Bombay Provincial Municipal Corporation Act, 1949 which provided C
that all plant and machinery contained or situated in any building or land
shall be deemed to form part of such building or land was held to be
beyond the legislative competence of the State. We are unable to see how
the principle of this deci,ion is of any assistance to the respondents herein.

26. For the reasons mentioned above, we hold that the wealth-tax, as D
originally enacted was covered by Entry 86 of List I of the Constitution,
and its extention to the State of Jammu & Kashmir was perfectly constitu-
tional and consequently the impugned judgment of the High Court is not
correct. Accordingly these appeals are allowed, the impugned judgment is
set aside and the Writ Petitions filed before the Jarnmu & Kashmir High
Court are dismissed but in the circumstances without costs. E
R.P. Appeals allowed.