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1963 Supreme(Ori) 87
HIGH COURT OF ORISSA
R.L.NARASIMHAM,R.K.DAS, JJ.
Vysya Raju Badri Narayanamurthy
Versus
Commissioner of Wealth Tax.B.and O.
S. J. C. Nos. 42 of 1962 and Nos. 7 and 8 of 1963
Decided On : 04-11-1963
D. Narasaraju, N.V. Ramdas and P.V.B. Rao, for Petitioner; D. Mohanty, for Opposite Party.
The Wealth Tax Act, 1957 is constitutionally valid, does not infringe fundamental rights, and the retrospective effect given to it from 1-4-1957 is valid.
Headnote:
WEALTH TAX ACT - CONSTITUTIONAL VALIDITY - LEGISLATIVE COMPETENCE - INTERPRETATION OF ENTRIES 86 OF LIST I AND 49 OF LIST II - FUNDAMENTAL RIGHTS - ARTICLES 14 AND 19(1)(F) - RETROSPECTIVE EFFECT.
Fact of the Case:
The Wealth Tax Act, 1957 was challenged on the grounds of its constitutional validity, infringement of fundamental rights under Articles 14 and 19(1)(f), and the retrospective effect given to the Act from 1-4-1957.
Finding of the Court:
The Court upheld the constitutional validity of the Wealth Tax Act, 1957, holding that it was within the legislative competence of Parliament under Entry 86 of List I of the Seventh Schedule to the Constitution. The Court also held that the Act did not infringe the fundamental rights guaranteed under Articles 14 and 19(1)(f) of the Constitution. Further, the Court held that the retrospective effect given to the Act from 1-4-1957 was valid, as it was not truly retrospective in nature.
Issues: 1. Whether the Wealth Tax Act, 1957 is constitutionally valid? 2. Whether the Act infringes the fundamental rights guaranteed under Articles 14 and 19(1)(f) of the Constitution? 3. Whether the retrospective effect given to the Act from 1-4-1957 is valid?
Ratio Decidendi: 1. The Court interpreted Entry 86 of List I and Entry 49 of List II of the Seventh Schedule to the Constitution and held that Entry 86, which deals with the tax on the capital value of assets, excluding agricultural land, of individuals and companies, is not limited by Entry 49, which deals with taxes on lands and buildings. The Court reasoned that the two entries have different pith and substance, and that Entry 86 is not restricted to agricultural lands. 2. The Court held that the Act does not infringe the fundamental rights guaranteed under Articles 14 and 19(1)(f) of the Constitution. The Court reasoned that the tax is a reasonable restriction in the interest of the public, as it is aimed at preventing the concentration of wealth in a few hands and implementing the Directive Principles of State Policy under Article 39(c). The Court also held that the provisions of Section 4 of the Act, which ignore certain transfers made by an assessee, are a reasonable restriction to prevent evasion of tax. 3. The Court held that the retrospective effect given to the Act from 1-4-1957 is valid, as it is not truly retrospective in nature. The Court reasoned that the assets of an individual on 1-4-1957 are alone liable to wealth tax, but they must necessarily include the assets acquired by him in the previous year.
Final Decision: The Court answered all three questions in the negative, upholding the constitutional validity of the Wealth Tax Act, 1957, and its retrospective effect from 1-4-1957.
Judgement
NARASIMHAM, C.J. :- In these three references under Section 27(1) of the Wealth Tax Act 1957, the main question for consideration is the constitutional validity of the Wealth Tax Act (hereinafter referred to as the Act). In reference No. 42 of 1962 which deals with assessment to Wealth Tax for the year 1957-58 the further question for decision by this Court is whether the Act could have limited retrospective effect so as to apply to the wealth of an assessee for the previous year.
2. The Act was passed by Parliament and brought into force with effect from 1-4-1957. The statement of Objects and Reasons (see Gazette of India Extraordinary dated 28th March 1957, Part II, Section 2, page 132) reveals that the object of the Act is to impose an annual tax on the net wealth of individuals, Hindu Undivided families and companies.
"The Wealth Tax is an important constituent of an integrated tax structure which the Government have been aiming at for sometime and it is consistent with the avowed goal of the attainment of a socialistic pattern of society."
This goal appears to have been aimed at with a view to implement Article 39(c) of the Constitution which seeks to prevent concentration of wealth in the hands of a few individuals which is perhaps the necessary evil of any capitalistic system. The Act authorises the imposition of Wealth Tax at certain rates on the net wealth, either of an individual or of a Hindu undivided family subject to certain exemptions specified in Section 5.
The schedule attached to the Act gives the rates at which wealth tax is leviable on the net wealth. Different rates of assessment have been provided for assessing tax on (i) individual and (ii) a Hindu undivided family. The net wealth of a person is defined in clause (24) of Section 2 of the Act and it would include all assets including moveable and immoveable property. Section 4, however, says that in computing the net wealth of an individual any transfer made directly or indirectly, otherwise than for adequate consideration, either to a wife (living with him) or to a minor child, shall be ignored and the assets so transferred shall be computed as the net wealth of the transferor himself. That section further provides that transfers to other persons also, if the transfer is revocable, shall be ignored.
3. The constitutional validity of the Act was challenged (1) in Bombay in Mahavirprasad Badridas v. M.S. Yanik, AIR 1960 Bom 191, (2) in Andhra Pradesh in Subramanyam v. Addl. Wealth Tax Officer, Eluru, AIR 1961 Andh Pra 75, (3) in Allahabad in Jugal Kishore v. Wealth Tax Officer Special Circle C Ward, Kanpur, AIR 1961 All 487 (4) in Kerala in Mammad Keyi v. Wealth Tax Officer, Calicut, AIR 1962 Kerala 110 and (5) in Mysore in Krishna Rao v. Third Wealth Tax Officer, AIR 1963 Mys 111. In all these decisions the High Courts have upheld the validity of the Act. In Kerala however, the learned Judges (in AIR 1962 Kerala 110) struck down the provisions of the Act relating to Hindu undivided families as unconstitutional on the ground that there is an unfair discrimination between a Hindu undivided family and a non-Hindu undivided family such as the Moplah family governed by the Marumakatayan law and the Christian undivided family.
4. Mr. Narasaraju, eminent counsel for the petitioner, while reiterating some of the arguments which were rejected in the aforesaid decisions, raised some new points also which require careful consideration. His submissions may be classified as follows :-
(i) The legislative competence of Parliament to pass the Act which depends on a proper construction of entry 86 of List I of the 7th schedule to the Constitution along with Entry 49 of List II of the said schedule.
(ii) Contravention of the fundamental rights guaranteed under Article 14 and Article 19(1)(f).
5. Parliament passed the Act in exercise of the legislative power conferred by Entry 86 of List I of the Seventh Schedule, which reads as follows :-
"Tax on the capital value of the
