UOI VS H.S. DHILLON (1971) 2 SCC 779

 UOI VS H.S. DHILLON (1971) 2 SCC 779

 

FACTS

In this case, the Punjab and Haryana High Court, by a majority judgment of 4:1, declared the Wealth Tax Act as amended by the Finance Act, 1969, unconstitutional under the Indian Constitution. The amendment included the capital value of agricultural land for calculating net wealth.

 

ISSUES:

• Whether the Wealth Tax Act, 1957, as amended by Section 24 of the Finance Act, 1969, was constitutionally valid.

 

APPELLANT’S CONTENTIONS:

The appellant argued that the impugned Act did not fall within the scope of Entry 49 of List II but fell under Entry 86 read with Entry 97 or Entry 97 read with Article 248 of the Constitution. They contended that the phrase "exclusive of agricultural land" did not limit the scope of Article 248 or Entry 97 of List I. The appellant believed that the proper approach to test the validity of the Parliamentary statute was to first determine whether it aligned with the subjects listed in List II; if not, no further objections would arise.

 

RESPONDENT’S CONTENTIONS:

The respondents argued that the Constitution granted exclusive authority to State Legislatures to enact laws concerning agricultural land, income from it, and related taxes. They disputed the High Court's view that the impugned Act did not pertain to matters within Entry 49, List II. They argued that the words "exclusive of agricultural land" in Entry 86 of List I prohibited Parliament from legislating on taxes related to the capital value of assets. Regarding Entry 97 of List I, they contended that if a matter was excluded from other entries in List I, it should also be excluded from Entry 97.

 

JUDGMENT-

Article 246 clarified that Parliament had exclusive authority to enact laws in List I matters, regardless of clauses (2) and (3) of Article 246. State Legislatures could enact laws on List II matters but were subject to clauses (1) and (2) of Article 246. This established the paramountcy of Parliament's power.

• Article 248 and Entry 97 of List I conferred residual legislative powers on the Union Parliament. If a Central Act did not fall within List II, it was unnecessary to consider Lists I or III.
• The Court distinguished between "net wealth tax" and "property tax," concluding that the impugned Act did not fall under Entry 49, List II, making it valid. The majority held that none of the legislation fell under Entry 86, List I, rendering it valid. The appeal was allowed by a majority without costs.
• However, Judges Shelat, Ray, and Dua dissented, asserting that Article 248 and Entry 97's residual powers must encompass matters not in the three lists. They argued that the tax under the Wealth Tax Act was under Entry 86, List I, and lacked competence under Article 248 or Entry 97, List I.