Union of India v H. S. Dhillon (1971)

It is the leading authority on residuary power under Art. 248 and Entry 97 of List I, and it settles the method by which competence is tested in India. The technique it lays down — ask first whether the law falls in List II, and if it does not, Parliament is competent — is the reason Indian residuary power is far stronger in practice than the text alone suggests.

The Wealth Tax Act 1957 charged tax on net wealth. Assets in s. 2(c) included property of every description, movable or immovable; net wealth in s. 2(m) was the excess of the aggregate value of all assets, wherever located, belonging to the assessee on the valuation date over the aggregate of his debts. Section 3 was the charging section.

By s. 24 of the Finance Act 1969 the Act was amended so as to include the capital value of agricultural land in the computation of net wealth.

The amendment was challenged in the High Court of Punjab and Haryana before a Bench of five judges. Four judges held s. 24 beyond the legislative competence of Parliament so far as it included agricultural land; Pandit J alone held it intra vires. The High Court directed that the amended Act, in so far as it included the capital value of agricultural land for computing net wealth, was ultra vires. Importantly, the majority also held that the tax was not covered by Entry 49 of List II — taxes on lands and buildings.

The Union appealed.

• Entry 86, List I: taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies.
• Entry 49, List II: taxes on lands and buildings.
• Entry 97, List I, read with Art. 248: residuary power, expressly including the power to impose a tax not mentioned in List II or List III.

The difficulty is obvious. Entry 86 in terms excludes agricultural land. Does that exclusion mean that a tax on the capital value of agricultural land is forbidden to Parliament altogether — or merely that it does not fall under Entry 86, leaving Entry 97 available?

Mr Setalvad for the Union put it in a single sentence that became the accepted method: the impugned Act is not a law with respect to any entry in List II, including Entry 49; if that is so, it must necessarily fall within the legislative competence of Parliament under Entry 86 read with Entry 97, or under Entry 97 by itself read with Art. 248; and the words exclusive of agricultural land in Entry 86 could not cut down the scope of Entry 97.

The Court's own conclusion on Entry 86

The Court was clearly of the opinion that no part of the impugned legislation falls within Entry 86, List I. Earlier authority had only assumed, without deciding, that the original Wealth Tax Act fell within Entry 86, and had analysed and contrasted that entry with Entry 49 on that assumption.

Entry 97 may be combined with a specific entry

Even assuming that the Wealth Tax Act as originally enacted was legislation under Entry 86, the Court held there is nothing in the Constitution to prevent Parliament from combining its powers under Entry 86 with its powers under Entry 97. There is no principle debarring Parliament from relying on the powers under specified Entries 1 to 96 of List I and supplementing them with the power under Entry 97 and Art. 248 — and, for that matter, with powers under entries in the Concurrent List.

It was argued that residuary power was different in kind. The Court could see no difference in principle: residuary power is as much power as the power conferred under Art. 246 in respect of a specified item.

The comparative authority

The Court drew on In re The Regulation and Control of Aeronautics in Canada, where the Privy Council upheld a Dominion statute by supplementing the powers under specified items of s. 91 with the residuary power. There may be a small portion of a field not vested in the Dominion by specific words, and equally not vested in the Provinces; as to that portion, it must necessarily belong to the Dominion under its power to make laws for the peace, order and good government of Canada. The Board was also influenced by the national interest and importance of the subject.

The Constituent Assembly on Entry 97

The Court quoted the debates on Entry 91 of the draft Constitution, which became Entry 97. Sardar Hukam Singh's point was that whatever is not included in Lists II and III must be deemed included in List I. Mr Naziruddin Ahmad went further and complained that once Entry 91 was accepted, Entries 1 to 90 of List I became redundant, since every subject not in Lists II and III would go to the Centre anyway; the simple course would have been to say that List II belongs to the States, List III to both, and every other conceivable subject to the Centre.

That objection was never met, and it is the best explanation of why the Dhillon method works: the enumerated Union entries are, in strictness, illustrative of a power that is in any event residual.

The impugned Act is valid. The appeal was allowed, the judgment and order of the High Court set aside and the writ petition dismissed, with no order as to costs.

The test of Parliament's competence is negative. Ask whether the law is with respect to a matter in List II. If it is not, Parliament is competent — under a specific entry in List I or List III if one fits, and otherwise under Entry 97 read with Art. 248. Parliament may also combine a specific entry with the residuary entry. An express exclusion within a specific Union entry limits that entry only; it does not carve the excluded matter out of the residuary power.

• In any problem on a central law, run the Dhillon method: is it a law with respect to a List II entry? If no, stop — Parliament is competent.
• Contrast the position of a State law, where the question is the opposite: the State must find its entry in List II, and there is no residuary power to fall back on.
• Use it with Art. 248 to make the comparative point: in the United States and Australia the residue lies with the units; in India it lies with the Union, and it expressly includes taxation. Dhillon is what turns that textual choice into a practical one.