JAGADISAN J. - The question raised is whether the Gift-tax Act, 1958 (18 of 1958), enacted by Parliament is within its legislative competence in so far as the Act purports to levy a tax on gifts of agricultural lands.
The petitioner executed a settlement deed on 8th April, 1957, in favour of his niece, Manonmani Ammal, and thereby gifted an extent of 20 acres 28 cents of agricultural lands. He also made a gift under an instrument dated 7th April, 1957, of an extent of 114 acres 38 cents of agricultural lands in favour of his two sisters, Gajalakshmi and Savithri. The Gift-tax Officer, Cuddalore, called upon the petitioner by notice dated 4th December, 1958, to furnish a return in the prescribed form of all gifts made by him for the year ending 31st March, 1958. The officer exercised his jurisdiction under the provisions of the Gift-tax Act, 1958. The petitioner submitted a return and disclosed the two settlement deeds referred to above. By order dated 7th April, 1960, the officer assessed the petitioner to gift-tax of Rs. 8,520 valuing the agricultural lands at Rs. 1,54,000. On such assessment the petitioner was called upon to pay the tax on or before 15th May, 1960. In this petition the petitioner prays for the issue of a writ of certiorari under article 226 of the Constitution to quash the order of assessment to tax.
The Gift-tax Act, 1958, is impugned on the ground that the topic of agricultural lands falls within the exclusive competence of the State legislature, that the said topic is outside the purview of the powers of Parliament and that a tax on agricultural lands which is no doubt permissible under the Act cannot be levied by Parliament but only by the State legislature. The short point that arises for consideration is whether Parliament is competent to legislate imposing tax on gifts or transfers of agricultural lands.
We shall first examine the scope and ambit of the Gift-tax Act. In substance the design of the Act is to levy and collect tax on gifts. Gift is defined as the transfer by one person to another of any existing movable or immovable property made voluntarily without consideration in money or moneys worth. The charging section, section 3, provides that 'there shall be charged for every financial year commencing on and from the 1st day of April, 1958, a tax (hereinafter referred to as gift-tax) in respect of the gifts, if any, made by a person during the previous year (other than gifts made before the 1st day of April, 1957) at the rate or rates specified in the Schedule.' The rate of tax prescribed by the Schedule ranges between 4 per cent. to 40 per cent. Section 4 enacts that where property is transferred otherwise than for adequate consideration the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift under the Act. This is a deeming provision, subjecting a transaction, which is not a gift either under the definition of that term under the Gift-tax Act or under its definition under the Transfer of Property Act, to charge. Section 4 comprises various transactions covered by the clauses mentioned therein which are deemed to be gifts chargeable to tax. Such creation of a statutory fiction is no unknown or unfamiliar, particularly in taxing enactments. Section 5 of the Act is the exemption provision. One exemption is that, gift-tax shall not be charged in respect of gifts made by any person of immovable property, situate outside the territories to which the Act extends or of movable property outside the said territories unless the person is a citizen of India. The determination of value for the purpose of levy of the tax has to be estimated by the Gift-tax Officer on the basis of the market value of the subject matter of the gift on the date of the gift. If, however, the value of the property gifted cannot be estimated in terms of its value in the open market, if it no market for sale, then it is to be determined in the prescribed manner. The manner is prescribed under the rules. Section 7 to 10 provide the hierarchy of officers of the department entrusted with the duty of assessment. The procedure for assessment is prescribed in section 13 to 18. Section 19 provides for the liability of a legal representative in respect of a tax levied on a deceased person. Section 20 to 21 deal with cases of assessment after partition of a Hindu undivided family and those of discontinued firms or association of persons. Section 22 to 28 provide the machinery for appeals from one officer to another superior officer, reference to the High Court and appeal to the Supreme Court. The gift-tax is payable by the donor but where in the opinion of the Gift-tax Officer, the tax cannot be recovered from the donor, it may be recovered from the donee. Section 32 prescribes the mode of recovery of tax and penalties Section 34 gives the power to the department to rectify mistakes and section 35 enables prosecution of the delinquents in cases where there has been a failure on his part to furnish a return or to produce accounts records, documents, etc., or other statements or information. The rest of the provisions of the Act are of a miscellaneous nature, and are merely intended to ensure the effective working of the Act. The central theme of the Act is, therefore, to levy tax on transactions which are defined as gifts under the Act, at a particular rate and to collect the tax and the penalties that might be imposed for non-observance by the assessee of the statutory formalities. It is of course clear that transfer of agricultural lands if it is covered by the definition of gift would be within this taxing enactment.
We shall now advert to the provisions of the Constitution in regard to the spheres of legislation of Parliament and the State legislatures. Article 245(1) states the Parliament may make laws for the whole or any part of the territory of India and the legislature of a State may make laws for the whole or any part of the State, and that no law made by Parliament shall be deemed to be invalid on the ground that it would have extraterritorial operation. The power of parliament therefore pervades throughout the Union. The legislative competence of Parliament in spite of its extensiveness over the whole of the Union is subject to restriction, inasmuch as it can legislate only with regard to the subjects enumerated in Lists I and III of Schedule VII of the Constitution. Article 246 reads :
'(1) Notwithstanding anything 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 legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List).
(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 (in this Constitution referred to as the State List).'
Article 248(1) provides that Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. And that such power shall include the power of making any law imposing a tax not mentioned in either of those Lists.
The legislative powers are distributed between the Union and the States. There are three Lists specifying the subjects or topics of legislation. List I or the Union List comprises 97 items and these subjects are within the exclusive competence of the Union Parliament. List II is the State list containing 66 items over which the State Legislatures alone have the power to legislate excluding Parliament. List III is the Concurrent List having 47 subjects in regard to which both the Union and the State legislatures, has got plenary powers of a sovereign legislative body.
There is no specific entry or subject in any of the three Lists providing for a tax on transfer of property or gift. The Union claims the power to enact the Gift-tax Act even with reference to agricultural lands only under entry 97 of the Union List, and that reads :
'Any other matter no enumerated in List II or List III including any tax not mentioned in either of those Lists.'
Now entry 97 has to be read along with article 248(2) of the Constitution which provides that Parliament has exclusive power of making any law imposing a tax not mentioned in the State or Concurrent Lists. There are specific entries in the Union List providing for taxation Like entry 82 (taxes on income other than agricultural income : entry 86 (taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies); entry 89 (Terminal taxes on goods or passengers carried by railway, sea or air; taxes on railway fares and freights); entry 92 (taxes on the sale of purchase of newspapers and on advertisements published therein). Similarly in the State List there are specific entries for levying taxes, like entry 46 (taxes on agricultural income); entry 49 (taxes on lands and buildings); entry 59 (taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development); entry 52 (taxes on the entry of goods into a local area for consumption, use or sale therein; entry 53 (taxes on the consumption or sale of electricity); entry 54 (taxes on the sales or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I); entry 55 (taxes on advertisements other than advertisements published in the newspapers); entry 56 (taxes on goods and passengers carried by road or on inland waterways); entry 57 (taxes on vehicles whether mechanically propelled, etc.); entry 60 (taxes on professions, trade, callings and employments); entry 61 (capitation taxes); entry 62 (taxes on luxuries, including taxes on entertainments, amusements betting and gambling). There is no entry in the Concurrent List specifying a topic for taxation. The dichotomy between topics of taxation and other topics is clearly maintained in this scheme of distribution of legislative powers. The doctrine of implied or incidental power inherent in any legislative body to undertake legislation in respect of a specified field, to which we shall advert to a little later, does not appear to be capable of application either to Parliament or to the State when a taxing power in invoked not on the ground of its being specified in the List, but on the ground that it is necessary, ancillary or incidental to the other enumerated subjects. We do not think that the question, whether that is a correct mode of interpretation of the entries in the Lists, is debatable in view of the pronouncement of the Supreme Court in Sundararamiers case (Sundararamier and Co. v. State of Andhra Pradesh). It is enough to refer to the following passage in the judgment of Venkatarama Aiyar J., at page 1480 :
'The above analysis - and it is not exhaustive of the entries in the Lists - leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of article 248, clauses (1) and (2), and of entry 97 in List I of the Constitution. Construing entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce.'
The main contention urged by learned counsel for the petitioner is that a scrutiny of the various subjects in the Lists appended to Schedule VII would clearly indicate that the framers of the Constitution were anxious to keep out agricultural lands from the purview of Parliament and to keep them within the States power possible because the tenures of agricultural lands vary from State to State and that legislation in regard to such lands should be left to the respective States as they would be fully conversant with the nature and conditions of those tenures. There is some foundation for this argument as we shall presently show. Entry 82 of List I provides for tax on income other than agricultural lands. Entry 46 of List II provides for tax on agricultural income. Entry 86 of List I prescribes the subject as taxes on the capital value of the assets exclusive of agricultural land. Entry 87 of List I reds : Estate duty in respect of property other than agricultural lands.' Entry 48 of List II permits the State legislature to levy estate duty in respect of agricultural lands. Entry 88 of List I reads 'Duties in respect of succession to property other than agricultural lands'. Entry 47 of List II reads; 'Duties in respect of succession to agricultural lands'. It is therefore true that to some extent taxation and levy of duty in respect of agricultural lands have been taken out of the legislative jurisdiction of Parliament and placed in the exclusive jurisdiction of the State legislature. But this argument cannot really help the learned counsel for the petitioner in establishing that a tax on transfer of agricultural lands is outside Parliaments power of legislation, because there is no specific entry in this behalf in List II, and because 97 of List I clothes Parliament with the residuary power to enact tax laws in respect of a topic not mentioned in List II of List III.
The trump-card of the learned counsel for the petitioner in advancing the contention impugning the validity of this Act entry 18 of List II, which reads :
'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.'
Learned counsel submits that transfer and alienation of agricultural lands is a specified topic under List II and a power to tax such transfer and alienation should be deemed to be implied or incidental to the exercise of the power to legislate by the State in regard to that topic. We have already pointed out that in view of the decision of the Supreme Court in Sundararamiers case, the Constitution must be taken to have provided subjects for taxation separately and independently of the other subjects, and that there can be no power assumed or inferred in regard to taxation, from topics not specifically providing for a tax levy. Though this would be sufficient answer to contention raised by the learned counsel for the petitioner, we would also deal with the question of the proper interpretation of the entries in the Lists to find out whether entry 18 of List II is truly elastic enough to include a taxing power.
The accepted rule is that the entries in the Lists should receive a liberal construction bearing in mind that the enumeration and the distribution of the subjects have not been done with a mathematical nicety or scientific precision but on quite a broad basis. The Constitution marks the outlines of the powers granted to the legislature, Union or State, but does not specify or enumerate sub-divisions of the power. Heads of legislative power in a written Constitution of enumerated subjects should be interpreted as being symbolic of comprehensive power including many things not apparent on the face but really within its pith and substance. This mode of interpretation of the constitutional provisions has been pressed upon us by the learned counsel for the petitioner, and we have no difficulty in accepting it as a sound rule. But we must mention that it would be incorrect to assume that anything which can be related to the subject of the power would fall within it. There cannot be a greater misconception of the proper interpretation of the legislative subject or topic than to assume that any connection or link between the enumerated subject and the field of legislation would be sufficient. We are unable to subscribe to the view that the rule of liberal construction enjoining the reading of a general word to extend to all ancillary and subsidiary matters, which can justly and reasonably be comprehended in it, is so unrestricted in operation as to bring in matters having only a remote connection within the orbit of the specified power. A reasonable connection must be shown to exist between the law and the subject of the power under which the legislature purported to enact it before it can be sustained under the incidental power. To quote Lord Haldane in Attorney-General v. Colonial Sugar Refining Co.
'There is no ground for the notion that where power A is granted to the Federal parliament and power B is not, power B may be exercised because the exercise of it may be helpful to the carrying out of power A or any law under power A.'
The contention that the topic of transfer and alienation of agricultural lands is so wide and comprehensive as to comprise within its scope the power to tax such transfer and alienation cannot, it seems to us, be sustained, even on the doctrine of liberal construction of topics extending them to subjects which can be said to be fairly and reasonably within the scope of its reach.
What determines the legislative competence to pass an enactment in a system of enumerated and specified powers is the true nature, character and purpose of the legislation, that is to say, its pith and substance. If on the view of the statute as a whole, the substance of the legislation is within the express powers, then it is not invalidated if incidentally it affects matters which are outside the authorised field (Gallaghar v. Lynn). It is the purpose of the legislation that really matters in determining whether a particular statute comes within the list of subjects relied upon in support of its validity. Courts will have to determine the legal effect of the law, and also to enquire whether there are any grounds for supposing that the legal effect does not establish the real purpose of the law. If the pith and substance of the purpose of the impugned legislation can be fairly comprehended within the enumerated subject to the fact that it incidentally trenches upon or intrudes upon another power of another legislature would not impair its validity or vires. It would of course be open to the court to examine the degree of intrusion or invasion into the field of another legislature as there may be cases in which the magnitude of the encroachment may be so great that the pith and substance of the legislation may not be that comprised in the specified power, the true object of such legislation being to usurp power; and not to exercise the specified power. This doctrine of pith and substance is described in Canada as the doctrine of 'Aspect of legislation'. The British North America Act, by section 91 and 92, provides for the distributing of legislative powers between the Dominion and the Provinces.
Viscount Haldane dealing with a case from the Dominion of Canada in John Deere Plow Co. v. Wharton, observed thus, at page 339 :
'It must be borne in mind in construing the two section (91 and 92) that matters which in a special aspect and for a particular purpose may fall within one of them may in a different aspect and for a different purpose fall within the other. In such cases the nature and scope of the legislative attempt of the Dominion or the Province, as the case may be, have to be examined with reference to the actual facts if it is to be possible to determine under which set powers it falls in substance and in reality.'
By 'aspect' must be understood as the aspect or point of view of the legislator in legislating - the object, purpose and scope of the legislation; that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon (Lefroy on Canadian Constitution page 200).
By whatever name the doctrine is called, whether it is the rule of 'pith and substance' or the rule of 'double aspect' if the purpose of the legislation is within the true periphery of the subject of the power, the validity of the enactment is beyond question, even if it can be said that it is possible top view the legislation as trenching or encroaching upon the legislative jurisdiction of another body. The encroachment is privileged and does not deflect the Act from the real and true purpose. Viewed from this standpoint, we have no doubt that the Gift-tax Act of 1958 is within entry 97 of List I of Schedule VII and is not covered by any of the entries in List II and is certainly not within the implied or incidental power arising out of entry 18 of List II.
The 'pith and substance' or the 'aspect' rule holds full away and cannot be defeated by the doctrine of 'ancillary' or 'implied' power. Generally speaking the scope of the implied power is to achieve the real use of the specified power. 'Laws' which in the language of the American Constitution are 'necessary and proper' or in the language of the Australian Constitution 'incidental' to the execution of the power are alike constitutional' (Stemp v. Australian Glass .) Dealing with section 91 and 92 of the British North America Act, Lefroy in his Canadian Constitution, at page 164, states : 'An Act of the Dominion parliament is not affected in respect to its validity by the fact that it interferes prejudicially with the object and operation of the provincial Act, provided that it is not in itself legislation upon or within one of the subjects assigned to the exclusive jurisdiction of the provincial legislature. The Privy Council made this very clear by their judgment in Russell v. Queen (9 A. C. at p. 130).' In the scheme of the drawing up of the Legislative Lists under Schedule VII of the Indian Constitution there is hardly any scope to imply a taxing power from the language of the general subjects. There is clear internal evidence manifest from the entries in the Lists themselves that the Constitution has distributed and allocated taxing powers distinctly under each of the Lists and has given parliament the power to legislate tax measures in respect of all matters not falling within List II or III. It is impossible to spell out that the State legislatures have any power of taxing by implication repugnant to the omnibus power of parliament under entry 97 of List I.
Learned counsel for the petitioner next submitted that entry 47 of List II would apply and exclude the jurisdiction of parliament. Entry No. 46 is 'Duties in respect of succession to agricultural land'. The submission of the learned counsel is that a transfer of property or alienation by way of gift is succession within the meaning of the expression under this entry. Reliance is placed upon a decision of this court in Santhamma v. Neelamma. The question raised in that case was whether the provisions of Chapter VI of the Madras Aliyasanthana Act were valid and were within the legislative competence of the Provincial legislature under the Government of India Act of 1935. It was held that the expression 'inheritance or a succession' as used in regulations and other parliamentary and Indian enactments was not to be understood as confined to cases of 'devolution' in the strict sense of a passing of interest in property from the dead to the living, but as comprehending also the adjustment of the rights and obligations that subsist between the parties governed by Hindu law. It was further held that the subject of partition in a joint family including an Aliyasanthana kudumba would fall within the entry 'transfer' in item 21 of the Provincial list and item 8 of the Concurrent List even if it does not fall within the entries as 'succession' and 'devolution'; and that the expression 'devolution and succession' in the Lists would cover partition in a Hindu family. Now a partition is no a transfer and we cannot hold that this decision is authority for the proposition that succession would mean transfer, inter vivos, as well. In our opinion it would amount to misconstruction of entry 47 to hold that a tax on transfer of land is the same as the duty in respect of succession to agricultural land.
The Andhra Pradesh High Court in Sesharatnam v. Gift-tax Officer, Palacole had occasion to consider the validity of the Gift-tax Act in relation to its applicability to transfer of agricultural lands. Dealing with the decision in Santhamma v. Neelamma and considering the question whether succession under entry 47 involves a transfer inter vivos, the learned Chief Justice Observes thus :
'We cannot also give effect to the argument that gift-tax would come within the purview of entry 47 of List II. It was contended that the words succession to agricultural land in that entry would take in a gift of agricultural land because succession to property maybe either by inheritance or by transfer inter vivos. This argument is sought to be sustained on Santhamma v. Neelamma ...... The conclusion as to the meaning of the words inheritance and succession was based upon the legislative practice bearing on the Hindu law of partition. We are not here called upon to decide whether those words in that context could bear the meaning given to them but if it was meant to lay down as a general rule that the words inheritance and succession always include transfers inter vivos we express our respectful dissent.'
We are referring to this decision only to show that there is a difference of judicial opinion in regard to the proper interpretation of the word 'succession' occurring in the legislative list.
But for the purposes of this case it is not necessary for us to dissent from the ruling of the Division Bench in Santhamma v. Neelamma, as we are of opinion that in the face of a specific power entrusted to Parliament under entry 97 of List, I it would not be proper to strain the language of entry 47 and deprive parliament of its legitimate jurisdiction by holding that every kind of transfer is involved in succession.
The Andhra Pradesh High Court and the Kerala High Court have taken the view that the Gift-tax Act is valid in its operation on transfer of agricultural lands. These decisions are reported in Sesharatnam v. Gift-tax Officer and Joseph v. Gift-tax Officer. The Mysore High Court has taken the contrary view and that decision is reported in Hazareth Gift-tax Officer. With respect we agree with the decisions of the Andhra Pradesh and the Kerala High Courts.
The writ petition fails and is dismissed with costs. The rule nisi is discharged. Counsels fee Rs. 150.