Sudhir Chandra Nawn.........................................................

Petitioners

v.

Wealth Tax Officer, Calcutta and Others..........................Respondents

Citation: AIR 1969 SC 59

Date of Judgement: April 23rd 1968

Name of the Judges: J.C Shah, V. Ramaswami, V. Bhargava, G.K MITTER and C.A
Vaidylialingam

FACTS OF THE CASE

In this present case, the petitioner for the years of 1959-60, 1960-61 and 1961-62 was assessed to
tax under the Wealth-tax Act, 1957, by the Wealth Tax Act, 1957 in Calcutta by the Wealth-tax
Officer and eventually failed to pay the tax and proceeding and penalty for recovery of tax were
taken against him.

The petitioner, Sudhir Chandra further moved this court for a writ quashing the order of
assessment and penalty and notices of demand for recovery of tax. The plea put forth by him was
supported on various grounds but the one stand caught my attention was acting contrary to the
Section 3, i.e. whether wealth tax is chargeable only on the accretion of wealth during the
financial year. Section 3 clearly states, through the relevant years there shall be charged for every
financial year a tax in respect of the net wealth on the corresponding valuation date of every
individual, Hindu undivided family and company, it the rate or rates specified in the Schedule.

The Parliament could not suggest that the same assets should continue to be charged to a tax year
after year, nonetheless, no constitutional prohibition against the Parliament levying the tax in
respect of the same subject-matter or taxing event in successive assessment periods.

PROCEDURAL HISTORY
The Supreme court authored the opinion in the case of Sushir Chandra Nawn v. Wealth Tax
Officer, Calcutta and others. The Writ Petition was directly instiutied in the Supreme Court of
India.

ISSUES

1.Whether wealth tax is chargeable only on the accretion of wealth during the financial year?

2.Whether the parliament has the power to legislate in respect of levy of wealth-tax?

3. Whether the plea that Section 7(1) of the Wealth-tax Act is ultra vires or not to the Parliament
without substance?

RULES

I. Wealth Tax Act, 1957, Section 3: Charge of wealth-tax. —

(1) [Subject to the other provisions (including provisions for the levy of additional wealth-tax)
contained in this Act], there shall be charged for every [assessment year] commencing on and
from the first day of April 1957 [but before the 1st day of April 1993], a tax (hereinafter referred
to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every
individual, Hindu undivided family and company [at the rate or rates specified in Schedule I.

(2) Subject to the other provisions contained in this Act, there shall be charged for every
assessment year commencing on and from the 1st day of April 1993, wealth-tax in respect of the
net wealth on the corresponding valuation date of every individual, Hindu undivided family and
company, at the rate of one per cent. of the amount by which the net wealth exceeds fifteen lakh
rupees.

II. Wealth Tax Act, 1945, Section 7: Value of assets how to be determined. —

(1) Subject to the provisions of sub-section

(2), the value of any asset, other than cash, for the purposes of this Act, shall be its value as on
the valuation date determined in the manner laid down in Schedule III.

(2) The value of a house belonging to the assessee and exclusively used by him for residential
purposes throughout the period of twelve months immediately preceding the valuation date, may,
at the option of the assessee, be taken to be the value determined in the manner laid down in
Schedule III as on the valuation date next following the date on which he became the owner of
the house or the valuation date relevant to the assessment year commencing on the Ist day of
April 1971, whichever valuation date is later. 112 [***] Explanation. For the purposes of this
sub-section,—

(i) where the house has been constructed by the assessee, he shall be deemed to have become the
owner thereof on the date on which the construction of such house was completed:

(ii) the house includes a part of a house is an independent residential unit.

III. Constitution of India, Art. 246 Clause (1) & (3)

The subject matter of laws made by Parliament and by the Legislatures of States

(1) Notwithstanding anything in clauses ( 2 ) and ( 3 ), Parliament has exclusive power to make
laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this
Constitution referred to as the Union List.

(2) Notwithstanding anything in clause ( 3 ), Parliament, and, subject to clause ( 1 ), the

(4) Parliament has power to make laws with respect to any matter for any part of the territory of
India not included (in a State) notwithstanding that such matter is a matter enumerated in the
State Lis

IV. 7th Schedule entry 86 List I

V. Seveth Schedduel entry 49 List II scope of-If Parliament Competent to legislate to levy
wealth-tax on assets including land and buildings.

ANALYSIS
In order to under if the tax is chargeable only on the accretion of wealth during the financial year,
we need to break down the terms "net wealth" and "assets".

Net wealth is the amount by which the aggregate value computed in accordance with the
provisions of the Act of all the assets, wherever located, belonging to the assessee on the
valuation date, including assets required to be included in this net wealth as on the date under the
Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation
date and the term "assets" is defined in Section 2(e) as inclusive of the property of every
description, movable or immovable, but not including agricultural land and growing crops, grass
or standing trees on such land.

Referring to the case of Banarsi Dass, v. Wealth-tax Officer, Special Circle, Meerut, the counsel
of the petitioner stated that subject of Wealth-tax Act falls within the terms of entry 86 List I of
the Seventh Schedule and the "net wealth" includes non- agricultural lands and buildings of an
assessee. However, this argument was misconceived. The tax which is imposed by entry 86 List I
of the Seventh Schedule is on the capital value of the assets, exclusive of agricultural land, of
individuals and companies; taxes on the capital of companies on the valuation date and is not
directly a tax on lands and buildings. The tax is not imposed on the components of the assets of
the assessee but it is imposed on the total assets which the assessee owns, and in determining the
net wealth not only the encumbrances specific item of asset, but the general liability of the
assessee to pay his debts and to discharge his lawful obligations have to be taken into account. In
addition with Section 3 of Wealth Tax Act, 1957 charge is only upon the net wealth of an
assessee on the corresponding valuation date and not on the increase in the wealth of the
assessee, or accretion to the wealth of the assessee since the last valuation date.

Moving on to the next issue is does the parliament has power to legislate in respect of levy of
wealth-tax, the counsel of the petitioner misconstructed the arguments stating that the Parliament
is incompetent to legislate for the levy of wealth-tax on the capital value of assets which include
non- agricultural lands and buildings, but the net wealth includes non- agricultural lands and
buildings of an assessee, and power to levy tax on lands and buildings is generally reserved to
the State Legislature.

When a person is in a situation where a person owes no debts and is under no obligation to
discharge any liability out of his assets, it is feasible to break the tax which seems to be leviable
on the total assets into components and allot that component to lands and buildings owned by an
assessee. In these cases, the component would likely to be similar to a tax on lands and buildings
levied on the capital or annual value under entry 49 List II, this would entirely be in certain
exceptional cases. But, the legislative authority of Parliament is not concerned with the
possibility of exceptional cases of taxes under two different heads operating similarly on tax-
payers and 49 List II of 7th Schedule entirely deals with levy of tax on lands and buildings or
both as units.

Tax on lands and buildings is directly imposed on lands and buildings and bears a definite
relation to it and not the capital value of assets which may form a component of the total assets
of the assessee. For the purpose of levying tax under entry 49 List II, the State Legislature may
adopt for determining the incidence of tax the annual or the capital value of the lands and
buildings. ( Ralla Ram v. The Province of East Punjab) However, in the present case, the
adoption of the annual, or capital value of lands and buildings for determining tax liability would
not make the fields of legislation under the two entries overlapping. (Sugar Mills Ltd. Hargaon v.
State of U.P. and another)

Even thought hypothetically there is some overlapping between the two entries, it cannot, on that
account be said that the Parliament has no power to legislate with reagard to the of levy of
wealth-tax in respect of the lands and buildings which may form part of the assets of the
assessee. Gwyer, C.J in the Central Provinces and Berar Act No. XIV of 1938(1) stated that, " a
general power ought not to be so construed as to make a nullity of a particular power conferred
by the same Act and operating in the same field when by reading the former in a more restricted
sense effect can be given to the latter in its ordinary and natural meaning."

The constitutional aspect of the case can be brought into light throught the entry "taxes on lands
and buildings" as is it more of a general entry than the entry in respect of a tax on the annual
value of assets of an individual or a company, and with realtion to Parliament, the power to
legislate on capital value of the assets including lands and buildings, the power of the State
Legislature was pro tanto excluded. The scheme of Art. 246 of the Constitution which distributes
legislative powers upon the Parliament and State Legislature provides that,
(1) Notwithstanding anything in clauses (2) and 3 Parliament has exclusive power to make laws
with respect to any of the matters enumerated in List I in the Seventh Schedule. [1939] F.C.R.
18,49.

(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature
of any State also, have the power to make laws with respect to any of the matters enumerated in
List III in the Seventh Schedule.

(3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws
for such State or any part thereof with respect to any of the matters enumerated in List II in the
Seventh Schedule.

Hence, the exclusive power to legislate conferred upon Parliament is exercisable, clause 3 is
made more emphatic by providing that the legislature of any State has exclusive power to make
laws for such State or any part thereof with respect to any of the matters enumerated in List II in
the Seventh Schedule.

The last issue seeks find out whether the plea that Section 7(1) of the Wealth-tax Act is ultra vires
the Parliament is also wholly without substance. Clause 1 of vivdly mentions that , "Subject to
any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act,
shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if
sold in the open market on the valuation date."

It was urged that no rules were framed in respect of the valuation of lands and buildings.
However, Section 7 only directs that the valuation of any asset other than cash has to be made
subject to the rules. It does not contemplate that there shall be rules before an asset can be
valued. Failure to make rules for valuation of a type of asset cannot, therefore, affect the vires of
Section 7. Further, it was also said that Section 7(1) which requires that the asset shall be valued
at the price which it would fetch if sold in the open market on the valuation date, was
expropriation. This contention was not raised in the petition, and no ground is made out for
holding that the rate at which wealth-tax is levied is expropriation.

CONCLUSION

Refering to all the rules in relation to the analyasis, the Supreme court dismissed the petition
with costs. In my opinion I concur with the judgment as the power to legislate by the Parliament
is exercisable and even if there is exists a conflict conflict between entry 86 List I and entry 49
List II, which is unable of reconciliation, the power of Parliament to legislate in respect of a
matter which is exclusively entrusted to it must supersede pro tanto the exercise of power of the
State Legislature. The could not be in favour of assessee even after reviewing from all angles. I
would also like to refer to a case Khan Bahadur Chowakkaran Kaloth Mammad Kevi v. Wealth
Tax Officer, which held the that wealth-tax is specifically and in substance covered by entry 86
of the Union List of the Seventh Schedule to the Constitution of India, and there is really no
conflict and no overlapping between the jurisdiction of the Parliament under entry 86 of the
Union List to enact a law levying a tax on the capital value of assets, and of the State Legislature
under entry 49 of the State List, to enact a law levying a tax on lands and buildings.

A similar view was expressed by the Orissa High Court in Vysyaraju Badri Narayanamurthy v.
Commissioner of Wealth- tax, Bihar & Orissa (2) ; and also in Sri Krishna Rao L. Balckai v.
Third Wealth-tax Officer (3)

Further, the Parliament had the power to legislate to levy the wealth-tax in respect of the lands
and buildings, which may form part of the assets of an assessee.

Sudhir Chandra Nawn vs. Wealth Tax Officer, Calcutta and Ors. (23.04.1968 - SC) :
MANU/SC/0032/1968

9)      Conclusion (Decision of the Court, the ratio/ reason for decision, and your own analysis

in terms of linking to principles of interpretation of constitution /  tax law / current legal

system or practice – (4 Marks)