Union Of India V. Hs Dhillon - A Landmark Precedent Against Federalism

Author: LawSphereX

Category: Property & Real Estate

Published: 2026-08-23T21:39:42.476441+00:00

Updated: 2026-08-30T07:05:51.179Z

UNION OF INDIA V. HS DHILLON: A LANDMARK

PRECEDENT AGAINST FEDERALISM Kawanpreet Kaur, Jindal Global Law School Introduction Federalism is the cornerstone of the Indian Constitution, forming an important part of the basic structure of the Constitution, as held in the landmark case of SR Bommai v. Union of India. 1 Federalism represents the philosophy of decentralisation of powers enabling issues at various levels to be addressed by the most suitable authorities, accommodating vast diversity and unique challenges. It recognises the need for local solutions to local problems while also providing a strong central authority to address national priorities. The fundamental feature of federalism is separation of powers between the Central and State governments, making sure that the powers are not concentrated in the hands of one authority.

This separation encourages cooperative governance by enabling both governmental levels to operate independently within their separate spheres of influence while working together to achieve common objectives. The Supreme Court has reaffirmed the importance of this federal balance in numerous cases, underscoring that any encroachment by one level of government on the domain of another would violate the principles of the Constitution. This framework ensures that the Union and States operate as partners rather than competitors in governance. This demarcation of powers of the Central and State governments have been laid down under Article 246 of the Constitution. Article 246 clearly states the division of powers between the Union and State governments under the three lists mentioned under the Seventh Schedule i. e. , Union List, State List and Concurrent List.

2 Further, the power to legislate on subjects which are not present in any of the lists i. e. , residuary subjects is reserved with the Union government under Article 248 of the Constitution. 3 Even if the powers of the Union and State government are separate, the courts over the years have seen a challenge on this power. While the courts have protected the powers of States to

1 S.R. Bommai and Ors. v. Union of India (UOI) and Ors., MANU/SC/0444/1994.

2 INDIA CONST. art. 246.

3 INDIA CONST. art. 248.

make laws in many cases like the landmark case of Government of NCT of Delhi v. Union of India, in which the court upheld the power of legislature of Delhi to make laws except in cases of public order, police and land matters,4 there have also been cases like State of West Bengal v. Union of India in which the court held that the Constitution does not recognise sovereignty of States and hence States cannot challenge the legislative decisions of the Union government. 5 The case of Union of India v. HS Dhillon In the case of Union of India v. HS Dhillon, the legislative actions of the Union government were in question. The Union government amended the Wealth Tax Act, 1957 by Section 24 of the Finance Act, 1969 and added the capital value of agriculture land in the definition of computation of net wealth.

This action was challenged by the State government in the High Court of Punjab and Haryana claiming that Entry 49 of List II empowers the State to make laws on taxes on lands and buildings. 6 On the other side, the Union government argued that it had the power to make such laws under Entry 86 of List I, which provides that the Union government has the power to legislate on matter of taxes on the capital value of the assets, exclusive of agricultural land;7 read with Entry 97 of List I, which lays down Union government’s power to make laws on any matter not enumerated in List II or List III including any tax not mentioned in either of those lists;8 or under Entry 97 of List I alone. The Punjab and Haryana High Court held in the favour of the State government. This decision was appealed in the Supreme Court where the decision of the High Court was overruled.

The Supreme Court held in favour of Union Government holding the said amendment to been under Entry 97 of List I. It was also held that if any matter does not fall within the ambit of List II, it is irreverent to see if it falls under List I or List III or is a residuary subject. This decision is flawed for several reasons as it overlooked key legal principles and failed to adequately consider the broader implications of the issue at hand. Critical Analysis Entry 49 of the State list lays down the power of the State legislatures to make laws on taxes on lands and buildings. The word “land” can be interpreted as being inclusive of agriculture

4 Government of NCT of Delhi v. Union of India (UOI) and Ors., MANU/SC/0680/2018.

5 State of West Bengal v. Union of India (UOI), MANU/SC/0086/1962.

6 INDIA CONST. art. 246, sched 7, list II, entry 49.

7 INDIA CONST. art. 246, sched 7, list I, entry 86.

8 INDIA CONST. art. 246, sched 7, list I, entry 97.

land. Moreover, even without this interpretation, agriculture is a part of State list under Entry

14. These entries under the lists do not confer powers but delineates the fields in which the

respective powers are conferred on the legislatures.9 In the case of Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta and Ors., it was held that since the powers related to agriculture fall within the ambit of the State, the Constitution makers excluded agriculture land from Entry

86 of List I.10 Further, according to the Doctrine of Incidental Powers, the power to legislate

on a subject also includes the power to legislate on ancillary matters that are reasonably connected to that subject. In the case of State of Rajasthan v. G Chawla, the court held that the power to legislate on a topic includes the power to legislate on any ancillary matter which can be said to be reasonably included in the topic. 11 On application of this doctrine in the present case, since agriculture is a subject of State list, the State legislatures have an incidental power to legislate on taxes to be collected from agriculture land. Additionally, a bare reading of Entries 82, 86 to 88 under List I clearly shows the exclusion of agriculture land suggesting the intention of the Constitution framers. Thus, tax on agriculture income cannot be included under the power of Union Parliament and its inclusion in the lists is achieved by including it in Entry 49 of the State list.

Moreover, while matters related to agriculture land have been given under List II, their corresponding entries have been given in List I. For example, entry 46 of List II which states “taxes on agricultural income,” Entry 82 reads “taxes on income other than agricultural income. ” This can be seen for various other entries. Since there is no corresponding entry for Entry 86 of List I, the nearest entry to it is Entry 49 of List II. 12 Hence, the matter in issue falls within the State list. Further, Article 248 of the Constitution provides exclusive power to the Union Parliament to legislate over residuary subjects. As pointed out by the minority bench, any subject can be classified as residual only if it is not included in the three lists. In the case of Subrahmanyan Chettier v.

Muthuswami, it was held that residuary power should be the last resort in any case and should be used only when such matter cannot be found under any three lists. 13 The case of Gift Tax Officer v. Nazareth also stated that to interpret powers under Entry 97 of List I, the scheme distribution between Centre and State given under the Constitution have to be analysed

9 Harakchand Ratanchand Banthia v. Union of India, MANU/SC/0038/1969.

10 Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta and Ors., MANU/SC/0032/1968.

11 The State of Rajasthan v. G. Chawla and Ors., MANU/SC/0141/1958.

12 Union of India v. Harbhajan Singh Dhillon, MANU/SC/0062/1971.

13 Subrahmanyan Chettier v. Muthuswami, MANU/FE/0004/1940.

first. 14 Tax on agriculture land cannot be said to be a residuary subject as the same is under List II15 and therefore, the subject cannot be interpreted as being under the power of Union Parliament. Even if State has power only till the extent of agriculture land in the Act, still the matter cannot be classified as residuary. In the Nawn case, it was held that though powers conferred can be exercised in as plenary way as possible, it can be granted in a restricted manner as well. 16 However, because powers are granted in a restricted manner does not make any matter a residuary subject. 17 Moreover, even if agriculture land was omitted deliberately by the Constitution makers, its exclusion under Entry 86 nullifies the residuary power of the Union Parliament. 18 Hence, tax on agriculture land cannot be legislated upon under Entry 97 of List I.

Further, Doctrine of Colourable Legislation states if one power cannot be exercised directly by an authority, it cannot be exercised indirectly. In the case K. C. Gajapati Narayan Deo v. State of Orissa, the court held that the Constitution has clearly distributed the legislative powers to various bodies, which have to act within their respective spheres. 19 Hence, applying this doctrine, the Union government did not have the legislative power of making the amendment. Additionally, it was stated that if a subject does not fall under the State or Concurrent list, it does not matter if the subject is under List I or is a residual subject as the Union Parliament is authorised to legislate on both.

However, this interpretation takes away certain independent powers like the ancillary powers of the State legislatures by ruling out their authority over a subject just by checking the State list. 20 This also provides immense power to the Union Parliament, impairing the federal structure of the country and the purpose of the Seventh Schedule. Furthermore, the majority bench held that the words “any other matter” given under entry 97 of the Union list meant matters other than given under Entries 1 to 96 of the list. This holding is flawed as the words used mean any other matter which is not mentioned under any lists, which is also explicitly mentioned in the Entry. Additionally, it was also held that the word “exclusive of” mentioned under Entry 86 of the Union list meant that agriculture land was

14 Gift Tax Officer v. Nazareth, MANU/SC/0309/1970.

15 supra note 12, ¶121 (per J.M. Shelat J., dissenting) (India).

16 supra note 10.

17 supra note 12, ¶119 (per J.M. Shelat J., dissenting) (India).

18 supra note 12, ¶114 (per J.M. Shelat J., dissenting) (India).

19 K.C. Gajapati Narayan Deo and Ors. v. The State of Orissa, MANU/SC/0014/1953.

20 Raj Shah, Amendment to article 248(1) of the constitution of India-Residuary powers of the

legislation, 8 Journal of the Indian Law Institute 24, 23-26 (2022), https://www. lawjournals. org/assets/archives/2022/vol8issue2/8-1-50-574. pdf. excluded only from entry 86 and not the list. However, these words cannot be interpreted only for a single entry but have to be seen taking into account the whole list as each subject covers a distinct topic. Lastly, making an amendment in the act by adding agriculture land does not change its nature from being legislated under Entry 86 to Entry 97 of List I and since Entry 86 excludes agriculture land, it cannot be said to be under the power of Union Parliament. 21 Conclusion Therefore, the impugned Act was within the powers of the State legislature under List II and not the Union Parliament within Entry 97 of List I. The majority bench erred in its decision to include the impugned matter under the power of the Union Parliament.

Though the Constitution provides for a federal structure, the powers are more weighed in favour of the Union Parliament and the same has been upheld by courts in various cases. This not only infringes on the powers of the State legislatures while providing immense power to the Union Parliament but also impairs the federal structure of the country. This goes against India being a federal nation and undermines the power of the States. In such cases, the judiciary should not just look at the bare reading of the Constitutional provisions but should also consider extra-legal material such as political and social issues to maintain the distribution of powers and avoidance of conflicts between the Centre and the States. The Courts must adopt such an interpretation which glorifies the democratic spirit of the Constitution.

21 supra note 1, ¶120 (per J.M. Shelat J., dissenting) (India).