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

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 Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (""the Tribunal""), 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 of Income

Tax (Appeals) quashing the assessment framed by the Wealth-tax Officer following the decision of the Jammu and Kashmir 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 asses-see filed his return of net wealth on February 25, 1978, declaring his net

wealth at Rs. 1,26,000. The Inspecting Assistant Commissioner of Wealth-tax made the assessment on March 30, 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 and Kashmir was ultra

vires the Constitution of India, as applicable to the State of Jammu and Kashmir. The appeal of the Revenue to the Income Tax Appellate Tribunal

(""the Tribunal"") against the above order was dismissed by the Tribunal in view of the decision of this court cited above. As the appeal against the

decision of this court in P.C. Oswal Vs. S.P. Mehta, Wealth-tax Officer, was pending before the Supreme Court, the Revenue applied for a

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, learned counsel for the Revenue. None appears for the assessee. The real controversy in this case is in regard to

the legislative competence of Parliament to enact the Wealth-tax Act in relation to the State of Jammu and 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 CWT v.

Karan Singh and 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 Vs. S.P. Mehta, Wealth-tax Officer, 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 and 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 (page 633) :

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.

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 (page 633) :

The expression does not take in, it is submitted, general liabilities of the person owing 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.

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 and 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 the appeal against the judgment of this court was pending before the Supreme Court, the Revenue sought for a

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 Vs. S.P. Mehta,

Wealth-tax Officer, . 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, 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.