The judgment of the court was delivered by

RAMASWAMI J.-In these appeals which have been heard together a common question of law arises for determination, namely, whether the Madras Urban Land Tax Act, 1966 (12 of 1966), is constitutionally valid.

In 1963 the Madras Legislature enacted the Madras Urban Land Tax Act, 1963, which came into force in the City of Madras on the 1st of July, 1963. In the Statement of Objects and Reasons of the 1963 Act it was stated that the Taxation Enquiry Commission and the Planning Commission were suggesting the need for imposing a suitable levy on lands put to non-agricultural use in urban areas. The State Government, after examining the report of the Special Officer, decided to levy a tax on urban land on the basis of market value of the land at the rate of 0.4 per cent. on such market value. Section 3 of the Act of 1963 (which will be referred to as the old Act) provided that there shall be levied and collected for every Fasli year commencing from the date of the commencement of the Act, a tax on urban land from every owner of urban land at the rate of 0.4 per cent. of the average market value of the urban land in a sub-zone as determined under sub-section (2) of section 6. Section 7 provided for the determination of the highest and lowest market values in a zone. For determining the average market value, the Assistant Commissioner shall have regard to any matters specified in clauses (a) to (e) of sub-section (2) of section 6, namely:

(a) the locality in which the urban land is situated;

(b) the predominant use to which the urban land is put, that is to say, industrial, commercial or residential;

(c) accessibility or proximity to market, dispensary, hospital, railway station, educational institution, or Government offices;

(d) availability of civic amenities like water supply, drainage and lighting; and

(e) such other matters as may be prescribed.

The constitutional validity of Act 34 of 1963 was challenged and in Buckingham & Carnatic Co. Ltd. v. State of Madras a Division Bench of the Madras High Court held that the impugned Act fell under entry 49, List II, of Schedule VII to the Constitution, and was within the legislative competence of the State Legislature. But the Act was struck down on the ground that article 14 of the Constitution was violated, because the charging section of the Act levied the tax on urban land not on the market value of such urban land but on the average value of the lands in the locality known as a sub-zone. The new Act (Act 12 of 1966) was passed by the State Legislature after the decision of the Madras High Court. In the new Act provisions relating to fixation of average market value in the sub-zone were omitted. Instead, section 5 of the new Act provides that there shall be levied and collected from every year commencing from the date of the commencement of the Act a tax on each urban land from the owner of such urban land at the rate of 0.4 per cent. of the market value of such urban land. Section 2(10) defines "owner" as follows:

" 'Owner' includes-

(i) any person (including a mortgagee in possession) for the time being receiving or entitled to receive, whether on his own account or as agent, trustee, guardian, manager or receiver for another person or for any religious or charitable purposes, the rent or profits of the urban land or of the building constructed on the urban land in respect of which the word is used;

(ii) any person who is entitled to the kudiwaram in respect of any inam land; but does not include-

(a) a shrotriemdar; or

(b) any person who is entitled to the melwaram in respect of any inam land but in respect of which land any other person is entitled to the kudiwaram.

Explanation.-For the purposes of clause (9) and clause (10), inam land includes lakhiraj tenures of land and shrotriem land."

"Section 2(13) defines "land" to mean any land which is used or is capable of being used as a building site and includes garden or grounds, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops."

Section 6 states:

"For the purposes of this Act, the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of this Act."

Section 7 provides for the submission of returns by the owner of urban land and reads:

"Every owner of urban land liable to pay urban land tax under this Act shall, within a period of one month from the date of the publication of the Madras Urban Land Tax Ordinance, 1966 (Madras Ordinance III of 1966), in the Fort St. George Gazette, furnish to the Assistant Commissioner having jurisdiction a return in respect of each urban land containing the following particulars, namely:

(a) name of the owner of the urban land,

(b) the extent of the urban land,

(c) the name of the division or ward and of the street, survey number and sub-division number of the urban land and other particulars of such urban land, and

(d) the amount which in the opinion of the owner is the market value of the urban land."

Section 10 deals with the procedure for the determination of the market value by the Assistant Commissioner and states:

" (1) Where a return is furnished under section 7 the Assistant Commissioner shall examine the return and make such enquiry as he deems fit. If the Assistant Commissioner is satisfied that the particulars mentioned therein are correct and complete he shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land.

(2) (a) Where on examination of the return and after the enquiry the Assistant Commissioner is not satisfied that the particulars mentioned therein are correct and complete he shall serve a notice on the owner either to attend in person or at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the owner may rely in support of his return.

(b) The Assistant Commissioner after hearing such evidence as the owner may produce in pursuance of the notice under clause (a) and such other evidence as the Assistant Commissioner may require on any specified points shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land.

(c) Whether the owner has failed to attend or produce evidence in pursuance of the notice under clause (a) the Assistant Commissioner shall, on the basis of the enquiry made under clause (a) by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land."

Section 11 enacts:

" (1) Where the owner of urban land has failed to furnish the return under section 7 and the Assistant Commissioner has obtained the necessary information under section 9 he shall serve a notice on the owner in respect of each urban land specifying therein-

(a) the extent of the urban land,

(b) the amount which, in the opinion of the Assistant Commissioner, is the correct market value of the urban land, and direct him either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the owner may rely.

(2) After hearing such evidence, as the owner may produce and such other evidence as the Assistant Commissioner may require on any specified points, the Assistant Commissioner shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land.

(3) Where the owner has failed to attend or to produce evidence in pursuance of the notice under sub-section (1), the Assistant Commissioner shall, on the basis of the information obtained by him under section 9, by order in writing, determine the market value of the urban land and the amount of the urban land tax payable in respect of such urban land."

Section 20 provides for an appeal to the Tribunal from the orders of the Assistant Commissioner:

" (1) (a) Any assessee objecting to any order passed by the Assistant Commissioner under section 10 or 11 may appeal to the Tribunal within thirty days from the date of the receipt of the copy of the order.

(b) Any person denying his liability to be assessed under this Act may appeal to the Tribunal within thirty days from the date of the receipt of the notice of demand relating to the assessment:

Provided that no appeal shall lie under clause (a) or clause (b) of this sub-section unless the urban land tax has been paid before the appeal is filed.

(2) The Commissioner may, if he objects to any order passed by the Assistant Commissioner under section 10 or 11, direct the Urban Land Tax Officer concerned to appeal to the Tribunal against such order, and such appeal may be filed within sixty days from the date of the receipt of the copy of the order by the Commissioner.

(3) The Tribunal may admit an appeal after the expiry of the period referred to in clause (a) or clause (b) of sub-section (1) or in sub-section (2), as the case may be, if it is satisfied that there was sufficient cause for not presenting it within that period.

(4) An appeal to the Tribunal under this section shall be in the prescribed form and shall be verified in the prescribed manner and shall be accompanied by such fee as may be prescribed.

(5) The Tribunal may after giving both parties to the appeal an opportunity of being heard, pass such orders thereon, as it thinks fit and shall communicate any such orders to the assessee and to the Commissioner in such manner as may be prescribed."

Section 30 confers power of revision in the Board of Revenue and is to the following effect:

" (1) The Board of Revenue may, either on its own motion or on application made by the assessee in this behalf, call for and examine the records of any proceeding under this Act (not being a proceeding in respect of which an appeal lies to the Tribunal under section 20) to satisfy itself as to the regularity of such proceeding or the correctness, legality or propriety of any decision or order passed therein and if, in any case, it appears to the Board of Revenue that any such decision or order should be modified, annulled, reversed or remitted for reconsideration, it may pass orders accordingly:

Provided that the Board of Revenue shall not pass any order under this sub-section in any case, where the decision or order is sought to be revised by the Board of Revenue on its own motion, if such decision or order had been made more than three years previously:

Provided further that the Board of Revenue shall not pass any order under this section prejudicial to any party unless he has had a reasonable opportunity of making his representations."

Section 33 states:

" (1) The Tribunal, the Board of Revenue, the Commissioner, the Assistant Commissioner, or the Urban Land Tax Officer or any other officer empowered under this Act shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure 1908 (Central Act V of 1908), when trying a suit in respect of the following matters, namely:-

(a) enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavit;

(d) issuing commissions for the examination of witnesses;

and any proceeding before the Tribunal, the Board of Revenue, the Commissioner, the Assistant Commissioner, the Urban Land Tax Officer or any other officer empowered under this Act shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code (Central Act XLV of 1860).

(2) In any case in which an order of assessment is passed ex parte under this Act, the provisions of the Code of Civil Procedure, 1908 (Central Act V of 1908), shall apply in relation to such order as it applies in relation to a decree passed ex parte by a court."

The validity of the new Act was challenged in a group of writ petitions before the Madras High Court on various constitutional grounds. By a common judgment dated the 10th April, 1968, a Full Bench of five Judges overruled all the contentions of the petitioners with regard to the legislative competence of the Madras Legislature to enact the new Act. However, the Full Bench by a majority of 4 to 1 struck down section 6 of the new Act as being violative of articles 14 and 19(1)(f) of the Constitution. The State of Madras and other respondents to the writ petitions (hereinafter called the respondents for the sake of convenience) filed Appeals Nos. 21 to 23 of 1969 under a certificate granted by the High Court under articles 132 and 133(1)(a), (b) and (c) of the Constitution. The writ petitioners (hereinafter called the petitioners) have filed Civil Appeals Nos 46, 47, 125 and 274 of 1969 against the same judgment on a certificate granted by the High Court under article 132 of the Constitution.

The first question to be considered in these appeals is whether the Madras Legislature was competent to enact the legislation under entry 49 of List II of Schedule VII of the Constitution which reads: "Taxes on lands and buildings." It was argued on behalf of the petitioners that the impugned Act fell under Schedule VII, List I, entry 86, that is, "Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies." The argument of Mr. V. K. T. Chari may be summarised as follows:

The impugned Act was, both in form and substance, taxation of capital and was hence beyond the competence of the State Legislature. To tax on the basis of capital or principal value of assets was permissible to Parliament under List I, entries 86 and 87, and to the State under entry 48 of List II. Taxation of capital was the appropriate method provided for effecting the directive principle under article 39 of the Constitution, namely, to prevent concentration of wealth. Article 366(9) contains a definition of "estate duty" with reference to the principal value. Entry 86 of List I (Taxes on the capital value of assets exclusive of agricultural land) and entry 88 (Duties in respect of succession to such property) form a ground of entries, the scheme of which is to carry out the directive principle of article 39(c). The Constitution indicated that capital value or principal value shall be the basis of taxation under these entries and, therefore, the method of taxation of capital or principal value was prohibited even to Parliament in respect of other taxes and to the States except in respect of estate duty on agricultural land. Such in effect is the argument of Mr. V.K.T. Chari. But in our opinion there is no warrant for the assumption that entries 86, 88 of List I and entry 48 of List II form a special group embodying any particular scheme. The directive principle embodied in article 39(c) applies both to Parliament and to the State Legislature and it is difficult to conceive how entries 86 to 88 of List I would exclude any power of the State Legislature to implement the same principle. The legislative entries must be given a large and liberal interpretation, the reason being that the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. We see no reason, therefore, for holding that entries 86 and 87 or List I preclude the State Legislature from taxing capital value of lands and buildings under entry 49 of List II. In our opinion there is no conflict between entry 86 of List I and entry 49 of List II. The basis of taxation under the two entries is quite distinct. As regards entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. The tax under entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only the encumbrance specifically charged against any item of asset, but the general liabilty of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. In certain exceptional cases, where a person owes no debts and is under no enforceable obligation to discharge any liability out of his assets it may be possible to break up the tax which is leviable on the total assets into components and attribute a component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under entry 49, List II. But in a normal case a tax on capital value of assets bears no definable relation to lands and buildings which may or may not form a component of the total assets of the assessee. But entry 49 of list II contemplates a levy of tax on lands and buildings or both as units. It is not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of power under entry 86, List I, tax is contemplated to be levied on the value of the assets. 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. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under the two entries over-lapping. The two taxes are entirely different in their basic concept and fall on different subject matters.

In Rolla Ram v. Province of East Punjab the Federal Court held that the tax levied by section 3 of the Punjab Urban Immovable Property Tax Act, 1940 (17 of 1940), on buildings and lands situated in a specified area at such rate not exceeding twenty per cent. of the annual value of such buildings and lands, as the Provincial Government may by notification in the Official Gazette direct in respect of each such rating area was not a tax on income, but was a tax on lands and buildings within the meaning of Item No. 42 of List II of the Seventh Schedule of the Government of India Act, 1935. In that case it was contended that under the provisions of the Punjab Act the basis of the tax was the annual value of the buildings and since the same basis was used in the Income-tax Act for determining the income from property and generally speaking the annual value is the fairest standard for measuring income and, in many cases, is indistinguishable from it, the tax levied by the impugned Act was in substance a tax on income. The court pointed out that the annual value is not necessarily actual income, but is only a standard by which income may be measured and merely because the Income-tax Act had adopted the annual value as the standard for determining the income, it did not follow that, if the same standard is employed as a measure for any other tax, that latter tax becomes also a tax on income. It was held by the court that in substance the property tax levied by section 3, Punjab Urban Immovable Property Tax Act, 1940, fell within item 42 of the Provincial List and was not a tax on income falling within item 54 of the Federal List although the basis of the tax was the annual value of the building. The same view has been expressed by this court in Sudhir Chandra Nawn v. Wealth-tax Officer wherein it was held that the power to levy tax on lands and buildings under entry 49 of List II did not trench upon the power conferred on Parliament by entry 88 of List I and, therefore, the enactment of the Wealth-tax Act by Parliament was not ultra vires.

The problem in this case is the problem of characterisation of the law or classification of the law. In other words the question must be asked: what is the subject matter of the legislation in its "pith and substance" or in its true nature and character for the purpose of determining whether it is legislation with respect to entry 49, List II or entry 86 of List I. In Gallagher v. Lynn the principle is stated as follows:

"It is well established....that you are to look at the 'true nature and character of the legislation....the pith and the substance of the legislation'. If, on the view of the statute as a whole, you find that 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. The legislation must not, under the guise of dealing with one matter, in fact encroach upon the forbidden field. Nor are you to look only at the object of the legislator. An Act may have a perfectly lawful object, e.g., to promote the health of the inhabitants, but may seek to achieve that object by invalid methods, e.g., by a direct prohibition of any trade with a foreign country. In other words, you may certainly consider the clauses of an Act to whether they are passed 'in respect of' the forbidden subject."

In the case of Subrahmanyan Chettiar v. Muttuswami Goundan, Sir Maurice Gwyer, C.J. said:

"It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee whereby the impugned statute is examined to ascertain its 'pith and substance', or its 'true nature and character', for the purpose of determining whether it is legislation with respect to matters in this list or in that: Citizens Insurance Company of Canada v. Parsons; Russel v. Queen; Union Colliery Co. of British Columbia v. Bryden; Att.- Gen. for Canada v. Att.-Gen. for British Columbia; Board of Trustees of Lethbridge Irrigation District v. Independent Order of Foresters. In my opinion this rule of interpretation is equally applicable to the Indian Constitution Act."

For the reasons already expressed we hold that in pith and substance the new Act in imposing a tax on urban land at a percentage of the market value is entirely within the ambit of entry 49 of List II and within the competence of the State Legislature and does not in any way trench upon the field of legislation of entry 86 of List I.

It was then said that as entry 49 of List II provides for taxes on lands and buildings, the impugned Act which imposes tax on lands alone cannot be held to fall under that entry. It was submitted that when the Legislature taxed land deliberately the legislation fell under entry 45 of List II, i.e., "land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights and alienation of revenues" and not under entry 49 of that List. The legislative history of entry 49 of List II does not, however, lend any support to this argument. Before the Government of India Act, 1935, lands and buildings were taxed separately and all that was done under the Government of India Act, 1935, and the constitution was to combine the two entries relating to land and building into a single entry. Section 45-A of the Government of India Act, 1919, provided for making rules under the Act for the devolution of authority in respect of provincial subjects to local Governments, and for the allocation of revenues or other moneys to those Governments. The Government of India by a notification dated December 16, 1920, made rules under that provision called the "Scheduled Tax Rules". These Rules contained two schedules. The First Schedule contained eight items of tax or fee. The Legislative Council of a Province may without obtaining the previous sanction of the Governor-General make and take into consideration any law imposing for the purposes of the local Government any tax included in Schedule I. Schedule II, contained eleven items of tax. In making a law imposing or authorising any local authority to impose for the purposes of such local authority any tax in Schedule II, the Legislative Council required no previous sanction of the Governor-General. In Schedule II, item No. 2 was tax on land or land values and item No. 3 was a tax on buildings. In the Government of India Act, 1935, the two entries were combined and List II, entry 42, is "taxes on lands and buildings and hats and windows". The legislative history of entry 49, List II, does not, therefore, lend any support to the argument that entry 49 of List II relating to tax on land and buildings cannot be separated. On the other hand, we are of opinion that entry 49, "Taxes on lands and buildings", should be construed as taxes on land and taxes on buildings and there is on reason for restricting the amplitude of the language used in the entry. This view is also borne out by authorities. In Raja Jagannath Baksh Singh v. State of U.P. the question at issue was whether the tax imposed by the U.P. Government on land holdings under the U.P. Large Land Holdings Tax Act, 1957 (U.P. Act 31 of 1957) was constitutionally valid. It was held that the legislation fell under entry 49 of List II and the tax on land would include agricultural land also. Similarly in H. R