Article 285 of the Indian Constitution is a crucial provision that defines a significant aspect of fiscal federalism in India by addressing the taxation of Union Government property by States and local authorities. It establishes the general principle of immunity of Union property from State and local taxation, with specific conditions and exceptions. This article is located in Part XII of the Constitution, which deals with Finance, Property, Contracts, and Suits.
The article plays a vital role in delineating the financial powers between the Union and State governments, ensuring that the Union’s functions are not impeded by potential taxation by State or sub-State entities. It reflects the structure of the Indian federation where certain powers and immunities are distinctly allocated.
Original Text
(1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.
(2) Nothing in clause (1) shall, until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State.
Detailed Explanation
Article 285 deals with the exemption of the property owned by the Union Government from taxes levied by State Governments or any local authority (like municipalities, panchayats, district boards, etc.) within a State.
Clause (1) lays down the primary rule: the property belonging to the Union is immune from all taxes imposed by a State or any authority subordinate to a State. This means that State Legislatures cannot enact laws to tax Union property, nor can local bodies empowered by States impose such taxes. This immunity is comprehensive, covering all types of taxes on property, such as property tax, land tax, etc. The rationale behind this immunity is to ensure the smooth functioning of the Union Government and its various departments and undertakings without the burden or potential hindrance of taxation by individual States. However, this immunity is not absolute; it is subject to a crucial exception: Parliament has the power to override this exemption by enacting a law. If Parliament passes a law stating that certain Union property or Union properties in general shall be subject to State/local taxation, then the exemption granted by Article 285(1) will cease to apply to the extent provided by that law.
Clause (2) provides for a specific exception based on the situation existing immediately before the commencement of the Constitution on January 26, 1950. It states that if any property of the Union was lawfully subject to taxation by an authority within a State (which could be the State itself or a local body) just before the Constitution came into force, that tax can continue to be levied. This clause ensures continuity for existing tax arrangements on Union property that were in place pre-1950. However, this continuation is also not permanent; Parliament has the power to discontinue such taxes by enacting a law. Thus, Parliament can abolish these pre-Constitution taxes on Union property that are allowed to continue under this clause. This clause essentially grandfathers existing tax liabilities on Union property from the pre-Constitution era but reserves the ultimate power to Parliament to determine their fate.
In essence, Article 285 establishes a default rule of immunity for Union property from State/local taxation, subject to Parliament’s power to permit such taxation (Clause 1), while also allowing the continuation of specific pre-Constitution taxes on Union property unless Parliament intervenes (Clause 2).
Detailed Notes
- Clause (1):
- Establishes the general principle of exemption.
- Property of the Union Government is exempt from taxation.
- Exemption applies to taxes imposed by a State Government.
- Exemption also applies to taxes imposed by any authority within a State (e.g., municipalities, panchayats, district boards, etc.).
- Covers all taxes on property.
- This exemption is not absolute.
- Exception to Clause (1): Parliament can, by law, provide otherwise, allowing States or authorities within a State to tax Union property.
- Clause (2):
- Provides for a specific historical exception.
- Applies to taxes being lawfully levied on Union property by an authority within a State immediately before the commencement of the Constitution (January 26, 1950).
- If such a tax existed, it can continue to be levied notwithstanding the general exemption in Clause (1).
- This continuation is valid so long as that tax continues to be levied in that State (implying the State/local authority must still be levying that specific tax).
- This continuation is not permanent.
- Condition on Clause (2): Parliament can, by law, provide otherwise, which would prevent the continuation of such pre-Constitution taxes on Union property.
- Scope of “Property of the Union”: Includes all kinds of property – movable, immovable, tangible, intangible, land, buildings, machinery, etc., owned by the Union Government or its departments. This also extends to properties of Government Companies or Statutory Corporations if they are essentially agencies of the Union Government and their property is considered Union property.
- Scope of “Tax”: Includes all levies on property, like property tax, land revenue, etc. However, fees for services rendered (like water supply, sanitation, lighting) are generally not considered ’taxes’ for the purpose of this exemption and can be levied on Union property unless Parliament provides otherwise.
- Relationship between Clauses: Clause (1) sets the general rule and Parliament’s power to relax it prospectively. Clause (2) deals with a specific set of pre-existing taxes and Parliament’s power to abolish them.
- Federal Significance: Defines the fiscal relationship concerning property taxation between the Union and States/local bodies, emphasizing the Union’s sovereign immunity unless waived by Parliament.
Additional Comments
- The exemption under Article 285(1) applies to the property itself, not necessarily to the income derived from it or activities conducted on it.
- Whether the property of a Public Sector Undertaking (PSU) or a statutory corporation is considered “property of the Union” for the purpose of this article depends on the degree of government control and ownership. Courts have examined this on a case-by-case basis. Generally, if the entity is financially and administratively controlled by the Union Government and performs governmental functions or functions closely related to them, its property may be considered Union property.
- Fees charged for services like water or electricity are generally distinguishable from taxes on property and may be leviable on Union property.
- Parliament has enacted laws in specific contexts that might relate to this article, though a general comprehensive law under Article 285(1) allowing widespread State taxation of Union property is not in place.
Summary
Article 285 of the Indian Constitution provides that the property owned by the Union Government is exempt from all taxes imposed by a State or any authority within a State. This exemption, however, is not absolute and can be overridden by a law made by Parliament. The article also contains a provision allowing the continuation of any tax that was lawfully levied on Union property by an authority within a State immediately before the Constitution came into force, until Parliament provides otherwise by law. This establishes the principle of immunity for Union property from State and local taxation, while reserving ultimate control over this matter to the Parliament.