Commissioner of Wealth Tax vs Ghulam Mohi-ud-Din Mutto

Dr. B.P. Saraf, C.J.—By this reference u/s 27(1) of the Wealth-tax Act, 1957 ('the Act')(erroneously numbered as income tax Reference),

at the instance of the revenue, the Tribunal, Amritsar Bench, Amritsar, has referred the following question of law to this Court for opinion:

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the Commissioner (Appeals)

quashing the assessment framed by the WTO following the decision of J&K High Court in the case of P.C. Oswal Vs. S.P. Mehta, Wealth-tax

Officer,

The material facts giving rise to this reference are as follows: The assessee filed his return of net wealth on 25-2-1978 declaring his net wealth at

Rs. 1,26,000. The IAC of Wealth-tax made the assessment on 30-3-1982 and determined the net wealth of the assessee at Rs. 2,64,810. This he

did by enhancing the value of immovable properties and disallowing the claim of the assessee that a plot of land, measuring 4K 1M., owned by

him, was agricultural land. The assessee appealed to the Commissioner of income tax (Appeals), Amritsar, against the above order. The

Commissioner (Appeals) quashed the assessment order following the decision of this Court in P.C. Oswal Vs. S.P. Mehta, Wealth-tax Officer, ,

wherein it was held that the application of the Wealth-tax Act to the State of Jammu & Kashmir was ultra vires the Constitution of India, as

applicable to the State of Jammu & Kashmir. The appeal of the revenue to the Tribunal against the above order was dismissed by the Tribunal in

view of the decision of this Court cited above. As appeal against the decision of this Court in P.C. Oswal's case (supra) was pending before the

Supreme Court, the revenue applied for reference of the question of law arising out of the order of the Tribunal to this Court for opinion. Hence

this reference.

We have heard Mr. Anil Bhan, the learned counsel for the revenue. None appears for the assessee. The real controversy in this case is in regard

to the legislative competence of the Parliament to enact the Wealth-tax Act in relation to the State of Jammu & Kashmir in view of the special

provision contained in article 370 of the Constitution of India. That controversy now stands concluded by the decision of the Supreme Court in

Commissioner of Wealth Tax Vs. Dr Karan Singh and Others, In that case, the Supreme Court reversed the decision of this Court in P.C. Oswal's

case (supra) and held that the Wealth-tax Act, as originally enacted, was covered by Entry 86 of List I of the Constitution of India and its

extension to the State of Jammu & Kashmir was perfectly constitutional.

In the above case, the Supreme Court considered at length the question whether the Wealth-tax Act (minus agricultural land) related to Entry 86

of List I (Union List) of the Seventh Schedule as contended by the revenue or Entry 97 of List III (Concurrent List) as contended by the assessee

and held:

The language of Entry 86 also clearly indicates that the tax is upon individuals and not directly upon the assets or upon their value. The wealth-tax

is determined with reference to the capital value of the assets minus debts and other deductions mentioned in the Act. We cannot accept the

argument that since the tax is contemplated to be levied upon the capital value of assets of an individual, the exclusion of his debts and other

liabilities changes the nature and character of the tax. Indeed, learned counsel for the respondents could not suggest any enactment relatable to

Entry 86 except the Wealth-tax Act. (p. 633)

The Supreme Court also repelled the argument on behalf of the assessee that the 'capital value of the assets' on a true interpretation can only

mean market value of assets minus any encumbrances charged upon the assets themselves and held:

... The expression does not take in, it is submitted, general liabilities of the person owning them. This argument, in our opinion, ignores the basic

nature of the tax contemplated by Entry 86. It is a tax upon the net wealth of an individual. It is a net-wealth tax. Net wealth of an individual

necessarily means 'what all he owns minus what all he owes' - and this is what the Act purports to tax."" (p. 633)

The Supreme Court, therefore, held that the Wealth-tax Act, as originally enacted, was covered by Entry 86 of List I of the Constitution of India

and its extension to the State of Jammu & Kashmir was perfectly constitutional.

In view of the above decision of the Supreme Court, the Tribunal was definitely in error in holding that the Wealth-tax Act was not applicable to

the State of Jammu and Kashmir.

So far as the question referred to us by the Tribunal is concerned, we are of the opinion that the question has not been framed properly. The

question of law that arises out of the order of the Tribunal is whether the Tribunal was right in law in holding that the extension of the Wealth-tax

Act to the State of Jammu and Kashmir was unconstitutional. The Tribunal followed the decision of this Court, which was binding on it and held

that it was unconstitutional. As appeal against the judgment of this Court was pending before the Supreme Court, the revenue sought for reference

of the question of law arising out of the order of the Tribunal to this Court for opinion u/s 27(1) of the Act. The question being a pure question of

law and there being no decision of the Supreme Court on the point, it was a referable question of law and the Tribunal should have referred the

same instead of referring the question ""whether the Tribunal was correct in law in confirming the order of the Commissioner of Wealth-tax

(Appeals) quashing the assessment order framed by the Wealth-tax Officer following the decision of this Court in P.C. Oswal's case (supra)"". The

decision of this Court in the above case, at the material time, being the subject-matter of appeal before the Supreme Court, it was incumbent on

the part of the Tribunal to refer the same to the High Court. The Tribunal should have reframed the question to bring out the real controversy in the

case, which it failed to do. We, therefore, reframe the question as below:

Whether the Tribunal was justified in holding that the extension of the Wealth-tax Act, as originally enacted, to the State of Jammu and Kashmir

was unconstitutional?

and answer the same by holding that the Wealth-tax Act, as originally enacted, falls within Entry 86 of List I of the Seventh Schedule to the

Constitution of India and its extension to the State of Jammu and Kashmir was perfectly constitutional.

In the premises, we answer the above reframed question in the negative, i.e., in favour of the revenue and against the assessee.

This reference is disposed of, accordingly, with no order as to costs.