http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: SECOND GIFT TAX OFFICER, MANGALORE, ETC.

       Vs.

RESPONDENT: D. H. NAZARETH ETC.

DATE OF JUDGMENT: 02/04/1970

BENCH: HIDAYATULLAH, M. (CJ) BENCH: HIDAYATULLAH, M. (CJ) SHAH, J.C. GROVER, A.N. RAY, A.N. DUA, I.D.

CITATION:  1970 AIR  999            1971 SCR  (1) 195  1970 SCC  (2) 267  CITATOR INFO :  RF         1972 SC1061  (57,64,101,112)  F          1985 SC1211  (41)  R          1990 SC  85  (23)  D          1990 SC1637  (36)

ACT: Constitution  of India, 1950, Art. 248, Schedule VII,  Union List,  Entry 97 and State List, Entries 18 and 49--Gift  Tax Act  (18  of 1958)--Enacted by  Parliament  under  residuary power--Competence of Parliament.

HEADNOTE: Gift tax was levied under the Gift Tax Act, 1958, on  gifts, of  coffee plantations, paddy and other  agricultural  lands and  buildings, made by the respondents.  The Gift  Tax  Act was enacted by Parliament but there is no entry in the Union or  Concurrent Lists mentioning such a tax.  The High  Court held that Parliament was not competent to enact a law impos- ing  a gift tax on lands and buildings, because, entries  18 and  49  of  the  State List reserved  the  power  to  State Legislatures. On appeal to this Court. HELD  : The Constitution divides the topics  of  legislation into  three broad categories : (a) entRies enabling laws  to be  made, (b) entries enabling taxes to be imposed, and  (c) entries enabling fees and stamp duties to be collected.  The taxes are separately mentioned and contain the whole of  the power  of taxation, except entry 97 of the Union List  under which,  Parliament  ha,-, exclusive power to make a  law  in respect  of any matter not enumerated in the  Concurrent  or State Lists and the power includes the power of making a law imposing a tax not mentioned in either of the Lists. [199 G- H] Entry 18 of the State List dealing with ’land’, though  very wide,  does not therefore confer any power of  taxation  and cannot authorise a tax not expressly mentioned.[199 H] Entry 49 of the State    List  contemplates a  tax  directly levied bY reason of the general ownership    of  lands   and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

buildings. But the pith and substance of the Gift Tax Act,is to  place the tax on the gift of property which may  include land, and buildings.  It is not a tax imposed directly  upon lands and buildings but is a tax upon the value of the total gifts made in a year which is above the exempted limit.  The lands  and  buildings are valued only as a  measure  of  the value of the gift and what is taxed is the gift.  A gift tax is  thus not a tax on lands and buildings as such but  is  a levy  upon  a particular use, namely,  the  transmission  of title by gift. [200 A-E] There  being  no other entry in the State List  which  might cover  a gift tax, the residuary powers of Parliament  under Art. 248, and entry 97 of the Union List, could be exercised by Parliament to enact the law. [200 E-F] Sudhir  Chandra Nawn v. Wealth Tax Officer, Calcutta &  Ors. (1968) 69 I.T.R. 897 (S.C.) followed. S. Dhandapani v. Addl.  Gift Tax Officer, Cuddalore,  (1963) 49 I.T.R. 712, Shyam Sunder v. Gift Tax Officer, A.I.R. 1967 All.  19, Jupadi Sesharatnam v. Gift Tax officer,  Palacole, (1960) 38 I.T.R. 93 and Joseph v. Gift Tax, Officer,  (1964) 45 I.T.R. 66, approved. 196

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 664 to  669 of 1967. Appeals  from the judgment and order dated March  22,  1962, July  23, 1962, July 24, 1962, July 12, 1963 and August  14, 1963  in  Writ Petitions Nos. 1077 of 1959, 19  and  739  of 1960, 157 of 1961, 970 of 1962 and 594 of 1963. Jagadish  Swarup, Solicitor-General, S. K. Aiyar and  R.  N. Sachthey, for the appellants (in all the appeals). S. V. Gupte, A. K. Varma, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondent. (in C. A. Nos. 664  and 668 of 1967). O. P. Rana, for the intervener for the State of U.P. M.   R.  K.  Pillai,  for the intervener for  the  State  of Kerala. B. Sen, Santosh Chatterjee and G. S. Chatterjee for Sukumar Bose, for the State of West Bengal. S.  Govind Swaminathan, Advocate-General, Tamil Nadu, A.  V. Rangam and M. Subramaniam, for the State of Tamil Nadu. Lal Narayan Sinha, Advocate-General, Bihar, D. P. Singh nad V. J. Francis, for the intervener for the State of Bihar. K.  A. Chitaley, Advocate-General, State of Madhya  Pradesh, M.N.  Shroff  and I. N. Shroff, for the intervener  for  the State of Madhya Pradesh. E.  S.  Venkataramiah, Advocate-General, Mysore  and  S.  P. Nayar,    for the intervener for the State of Mysore. J.  C.  Medhi, Advocate-General, Assam and Naunit  Lal,  for the intervener for the State of Assam. The Judgment of the Court was delivered by Hidayatullah,  C.J. These six appeals by  certificate  under Art.  132(1)  of  the Constitution  are  filed  against  the decision  of  the  High  Court  of  Mysore,  declaring  that Parliament  had no power to legislate with respect to  taxes on  gift  of lands and buildings.  The High Court  passed  a detailed  judgment  on  two of the petitions  by  which  the competence of Parliament was challenged and followed its own decision  in the other four cases.  It is not  necessary  to give  the facts of the six petitions in the High Court.   As illustrative  of the facts involved we may mention  on  W.P. No.  1077 of 1959.  In that case a certain D.  H.  Nazareth,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

owner of a coffee plantation, 197 made  a  gift  by registered deed, January 22,  1958,  of  a coffee plantation and other properties in favour of his four sons.  The market value of the property was Rs. 3,74,080 and the coffee plantation accounted for Rs. 3,24,700.  Gift  tax of Rs. 35,612/- was demanded.  If the coffee _plantation was left  out of consideration the tax was liable to be  reduced by  Rs.  3,4,036.  The authority to charge gift tax  on  the gift  of the coffee plantation was challenged and the  right of  Parliament to impose a gift tax on lands  and  buildings questioned.   In  some of the other  cases  agricultural  or paddy lands or buildings were the subjects of gifts and they were similarly taxed and the tax questioned. The  High Court held that, entry 49 of the State  List  read with  entry  18 of the same list reserved the power  to  tax lands  and  buildings to the Legislature of the  States  and Parliament  could  not, therefore, use the  residuary  power conferred  by entry 97 of the Union list.  This decision  is challenged before us. The Gift Tax Act was passed in 1958 and subjected gifts made in the year ending March 31, 1958 to tax.  The Act contained the usual exempted limits and other exemptions.  We need not concern  ourselves  with them here.  We are  only  concerned with the validity of parliamentary legislation imposing gift tax at all. To consider the objection to the Gift Tax Act which was sus- tained  by  the High Court a few general principles  may  be borne in mind.  Under Art. 245 Parliament makes laws for the whole  or  any  part  of the  territory  of  India  and  the Legislatures  of the States for the whole or part  of  their respective  States.  The subject matter of laws are set  out in  three  lists in the Seventh Schedule.  List  I  (usually referred  to  as  the  Union  List)  enumerates  topics   of legislation  in  respect to which Parliament  has  exclusive power  to make laws and List II (usually referred to as  the State  List) enumerates topics of legislation in respect  to which  the State Legislatures have exclusive power  to  make laws.  List III (usually referred to as the Concurrent List) contains  topics  in respect to which  both  Parliament  and Legislature   of   a  State  have  power   to   make   laws. Inconsistency between laws made by Parliament and those made by  the  Legislatures of the State, both  acting  under  the Concurrent List, is resolved by making Parliamentary law  to prevail over the law made by the State Legislature.  So long as  the Parliamentary law continues, the State  law  remains inoperative  but  becomes operative once  the  Parliamentary law, throwing it into shadow, is removed.  Then there is the declaration   in  Art.  248  of  the  residuary  powers   of legislation.  Parliament has exclusive power to make any law in  respect to any matter not enumerated in  the  Concurrent List or State List and this power includes the power of mak- ing any law imposing a tax not mentioned in either of  those lists. 198 For this purpose, and to avoid any doubts, an entry has also been included in the Union List to the following effect:               "97.  Any other matter not enumerated in  List               II or List III including any tax not mentioned               in either of those lists". It  will,  therefore,  be  seen  that  the  sovereignty   of Parliament   and  the  Legislatures  is  a  sovereignty   of enumerated  entries, but within the ambit of an  entry,  the exercise  of  power  is as plenary as  any  legislature  can possess, subject, of course, to the limitations arising from

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

the  Fundamental  Rights.   The entries  themselves  do  not follow any logical classification or dichotomy.  As was said in  State  of  Rajasthan v. S.  Chawla  and  another(1)  the entries  in the list must be regarded as enumeratio  simplex of  broad  categories.   Since they are  likely  to  overlap occasionally, it is usual to examine the pith and  substance of  legislation  with a view to determining to  which  entry they can be substantially related, a slight connection  with another  entry in another list notwithstanding.   Therefore, to find out whether a piece of legislation falls within  any entry  its true nature and character must be in  respect  to that particular entry.  The entries must of course receive a large  and liberal interpretation because the few  words  of the  entry are intended to confer vast and plenary  _powers. If,  however, no entry in any of the three lists covers  it, then  it must be regarded as a matter not enumerated in  any of  the  three  lists.   Then  it  belongs  exclusively   to Parliament  under entry 97 of the Union List as a  topic  of legislation. The Gift Tax Act was enacted by Parliament and it is  admit- ted  that no entry in the Union List or the Concurrent  List mentions such a tax.  Therefore, Parliament purported to use its powers derived from entry 97 of the Union List read with Art.  248 of the Constitution.  This power admittedly  could not  be  invoked if the subject of taxes on gifts  could  be said to be comprehended in any entry in the State List.  The High  Court  has accepted the contention of  the  tax-payers that it is so comprehended in entries 18 and 49 of the State List.  Those entries read               18.  Land, that is to say, rights in  or  over               land,  land tenures including the relation  of               landlord  and  tenant, and the  collection  of               rents; transfer and alienation of agricultural               land; land improvement and agricultural loans;               colonization."               "49.  Taxes on lands and buildings." The argument is that by entry 18, ’land’ of all  description is made subject to legislation in the States and by entry 49 taxes of (1)  [1959] Supp. 1 S.C.R. 904. 199 whatever  description  on  lands in  that  large  sense  and buildings  generally  fall also in the jurisdiction  of  the State.   Reference is made to entries 45, 46, 47 and  48  of the  State List in which certain taxes are to be imposed  on land  and  agricultural  land  or  income  from  agriculture exclusively  by the States in contrast with entries 82,  86, 87  and 88 where the taxes are imposed on  properties  other than  agricultural land or income from agriculture.   It  is submitted, therefore, that the general scheme of division of taxing   and  other  entries  by  which  land   particularly agricultural  land and income therefrom is reserved for  the States  shows  that  taxes  on  lands  and  buildings   read liberally must also cover taxes in respect of gifts of  land particularly agricultural land and buildings.  If the  entry so  read  can be reasonably said to include  the  tax,  then there can be no question of recourse to the residuary powers of Parliament. The  matter  is not res integra and however  attractive  the argument, it cannot be accepted.  Many High Courts in  India have considered this matter before the Supreme Court decided it.   The Mysore view was not followed in S.  Dhandapani  v. Addl.   Gift Tax Officer, Cuddalore(1) (Madras High  Court); Shyam Sunder v. Gift Tax Officer(2) (disapproved on  another point  in the Supreme Court).  A contrary view  was  earlier

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

also  expressed in Jupadi Sesharatnam v. Gift  Tax  Officer, Palacole(3)  (Andhra Pradesh High Court) and Joseph v.  Gift Tax  Officer (4) (Kerala High Court).  In fact the  judgment under appeal stands alone. The  subject  of entry 49 of the State List in  relation  to imposition of Wealth Tax came up for consideration in Sudhir Chandra  Nawn v. Wealth Tax Officer, Calcutta & ors.(5)  and the view of the High Court on the construction of this entry was  affirmed.  Although the judgment’ under appeal was  not referred to expressly the result is that it must be taken to be  impliedly  overruled.  In view of the decision  of  this Court  it  is not necessary to deal with the  matter  except briefly. The  Constitution  divides the topics  of  legislation  into three  broad  categories : (a) entries enabling laws  to  be made,  (b)  entries enabling taxes to be  imposed,  and  (c) entries enabling fees and stamp duties to be collected.   It is  not  intended that every entry gives a right to  levy  a tax.  The taxes are separately mentioned and in fact contain the  whole  of  the  power of taxation.   Unless  a  tax  is specifically  mentioned  it  cannot  be  imposed  except  by Parliament  in the exercise of its residuary powers  already mentioned.   Therefore, entry 18 of the State List does  not confer additional power (1)   (1963) 49 I.T.R. 712. (3)  (1960) 38 I.L.R. 93. (5)  (1968) 69 I.T.R. 897 (S.C). (2)   A.I.R. 1967 All. 19. (4)  (1964) 45 I.L.R. 66. 200 of  taxation.  At the most fees can be levied in respect  of the items mentioned in that entry, vide entry 66 of the same list.   Nor ,is it possible to read a clear cut division  of agricultural  land  in  favour of the  States  although  the intention is to put land in most of its aspects in the State List- But however wide that entry, it cannot still authorise a  tax not expressly mentioned.  Therefore, either the  pith and  substance of the Gift Tax Act falls within entry 49  of State List or it does not.  If it does, then Parliament will have  no  power  to levy the tax even  under  the  residuary powers.   If it does not, then Parliament  must  undoubtedly possess that power under Art. 248 and entry 97 of the  Union List. The pith and ’substance of Gift Tax Act is to place the  tax on  the  gift  of  property  which  may  include  land   and buildings.  It is not a tax imposed directly upon lands  and buildings  but  is a tax upon the value of the  total  gifts made, in a year which is above the exempted limit.  There is no tax upon lands or buildings as units of taxation.  Indeed the  lands  and buildings are valued to find out  the  total amount of the gift and what is taxed is the gift.  The value of the lands and buildings is only the measure of the  value of  the  gift.  A gift-tax is thus not a tax  on  lands  and buildings  as  such  (which is a tax  resting  upon  general ownership  of  lands  and buildings) but is a  levy  upon  a particular use, which is transmission of title by gift.  The two  are not the same thing and the incidence of the tax  is not the same.  Since entry 49 of the State List contemplates a tax directly levied by reason of the general ownership  of lands  and  buildings,  it cannot include the  gift  tax  as levied  by  Parliament.  There being no  other  entry  which covers a gift tax, the residuary powers of Parliament  could be  exercised to enact a law.  The appeals must,  therefore, be  allowed  but  there  shall  be  no  order  about   costs throughout.   The appeal 666/67 however abates as  the  sole

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

respondent died. V.P.S.                        Appeals allowed. 201