A law to tax forward contracts, as defined in the Punjab Forward Contracts Tax Act, 1951 (Punjab Act VII of 1951), does not fall within Entry 62 of the State List and is beyond the legislative competence of the State Legislature.

Judgment

DAS GUPTA, J. : This appeal is against the judgment of the High Court of Punjab rejecting the appellants application under Art. 226 of the Constitution. In this application the appellants who had been carrying on the business of commission agents in Forward Contracts at Ludhiana alleged that the Punjab Forward Contracts Tax Act, 1951 (The Punjab Act No. VII of 1951) was ultra vires the powers conferred upon the State Legislature and prayed for a declaration that the Act and the notification made and the rules promulgated thereunder by the respondent State of Punjab were void. There was a further prayer for directing the State of Punjab by a writ of mandamus or other appropriate writ to allow the petitioners to carry on the business of Forward Contracts or as commission agents in Forward Contracts unrestricted by the provisions of the abovementioned Act and the rules thereunder and not to enforce the Act.

2. The respondent s case as made in para. 5 of its written-statement was that "the impugned Act is not ultra vires the State Legislature. It is a law with respect to the matters enumerated in Entry 62 of the State List read with Entry No. 7 of the Concurrent List of the 7th Schedule."

3. The High Court held that :

"The impugned Act is an Act to tax speculation in futures, at least so far as dealers such as the present applicants are concerned, falls within Item 62 of the State List as an Act to impose taxes on betting and gambling, and to that extent at least is valid."

In this view the High Court rejected the application.

4. The only question for our decision is as regards the legislative competence of the State Legislature of Punjab to enact this statute. Though a reference under Entry 7 of the Concurrent List of the 7th Schedule of the Constitution was made in the respondent s written statement no reliance appears to have been placed on this entry in the High Court nor has it been relied on before us by the learned counsel appearing on behalf of the respondent and it is quite clear that the impugned Act cannot fall within Item 7 of the Concurrent List which is in these terms :-"Contracts, including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land." It is common ground before us that the Act must be held to be within the legislative competence of the Punjab State Legislature only if in pith and substance it fell within Item 62 of the State List and if it did not so fall it must be held to be beyond the State Legislature s competence. Item 62 mentions "taxes on luxuries, including taxes on entertainment, amusements, betting and gambling."

5. If the impugned Act provides for a tax on betting and gambling then and then only it can come within Item 62. The Act provides for the levy of a tax on forward contracts and It has defined "forward contracts" is S. 2 in these words : "Forward contracts" means an agreement, oral or written, for sale of goods on a future date but on the basis of which actual delivery of goods is not made or taken but only the difference between the price of the goods agreed upon and that prevailing on the date mentioned in the agreement or any other date is paid or received by the parties." "Dealer" is defined in the same section to mean "any person, firm, Hindu Joint family or limited concern, including an arhti or "chamber" or association formed for the purpose of conducting business in forward contracts, who conducts such business in the course of trade in the State either on his own behalf or on behalf of any other person, arhti, "chamber"or association". "Sale" is defined to mean "the final settlement in respect of an agreement to sell goods mentioned in a forward contract, and it shall be deemed to have been completed on the date originally fixed in the forward contract for this purpose or any other date on which the final settlement is made." Section 4 is the charging section and provides for a levy on the bu