Constitution- Taxation

Introduction

The constitutional provisions relating to taxation in India are designed to ensure

that both the Union and the States have the resources they need to function
effectively, while also protecting the interests of taxpayers.

Need for Constitutional Provisions Relating to Taxation

The Constitution divides taxation powers between the Union and the States in a way
that gives the Union government the power to levy taxes on a wider range of items
than the States. This is because the Union government has a wider range of
responsibilities, such as national defence and foreign affairs.

Constitutional Provisions Relating to Taxation

The constitutional provisions relating to taxation in India are contained in

Articles 265 to 289 of the Constitution of India.

Article 265
Article 265 of the Constitution of India states that no tax can be levied or
collected except by the authority of law. This means that all taxes must be imposed
by a valid law and that no tax can be levied or collected without the authority of
law.

Article 266
Article 266 of the Constitution of India deals with the Consolidated Funds and
Public Accounts of India and the States. It states that the following shall form
one consolidated fund to be entitled the Consolidated Fund of India:
@The whole or part of the net proceeds of certain taxes and duties to States
@All loans raised by the Government by the issue of treasury bills
@All money received by the Government in repayment of loans
@All revenues received by the Government of India
@Loans or ways and means of advances

Article 268
Article 268 of the Constitution of India deals with duties levied by the Union
government but collected and claimed by the State governments. These duties include
stamp duties, excise on medicinal and toilet preparations, etc. These duties
collected by states do not form a part of the Consolidated Fund of India but are
with the state only.

Article 269
Article 269 of the Constitution of India provides the list of various taxes that
are levied and collected by the Union and the manner of distribution and assignment
of Tax to States. These taxes include taxes on income other than agricultural
income, taxes on corporation tax and duties of customs.

Article 269(A)
Article 269(A) of the Constitution of India was inserted by the 122nd Amendment of
the Constitution in 2017. This article gives the power to collect goods and
services tax (GST) on supplies in the course of inter-state trade or commerce to
the Government of India.

Article 270
Article 270 of the Constitution of India deals with the taxes levied and
distributed between the Union and the States. It states that the following taxes
are levied and collected by the Union government and the proceeds are distributed
between the Union and the States in the following manner:

All taxes and duties mentioned in the Union List, except the duties and taxes
mentioned in Articles 268, 269 and 269A.
Taxes and surcharges on taxes, duties and cess on particular functions are
specified in Article 271 under any law created by Parliament.

Article 273
This article provides for grants to the States of Assam, Bihar Orissa and West
Bengal in lieu of any share of the net proceeds of the export duty on jute and jute
products. The grants are charged to the Consolidated Fund of India and are to be
made for a period of ten years from the commencement of the Constitution.

Article 275
This article provides for grants-in-aid to the States by the Union government. The
grants are to be made on the recommendation of the Finance Commission. The grants
are to be used for the development of the States and for the welfare of the people.

Article 276
This article provides for taxes that are levied by the States. The taxes are to be
levied and collected by the States. The taxes that can be levied by the States
include sales tax, value-added tax (VAT), professional tax and stamp duty.

Article 277
Article 277 of the Constitution of India provides that cesses, fees, duties or
taxes which were levied immediately before the commencement of the Constitution by
any municipality or other local authority for the purposes of the State.

Article 279
Article 279 of the Constitution of India deals with the calculation of “net
proceeds”. Net proceeds are the proceeds of a tax or duty after deducting the cost
of collection, as ascertained and certified by the Comptroller and Auditor-General
of India.

Article 282
Article 282 of the Constitution of India provides for grants by the Union
government to the States for any public purpose. The grants can be made for
special, temporary or ad hoc schemes. The power to grant sanctions under Article
282 is not restricted.

Article 286
Article 286 of the Constitution of India restricts the power of the States to tax.
It states that the States cannot:

○Impose taxes on imports or exports.

○Impose taxes on sales or purchases that take place outside the territory of the
State.
○ Impose taxes on goods that are of special importance, unless the Parliament has
authorised them to do so.

Article 289
Article 289 of the Constitution of India states that the property and income of the
States are not liable to taxation by the Union government, except in the following
cases:

○If the Parliament makes a law to that effect.

○If the State government consents to such taxation.

Other Articles
Article 301 of the Constitution of India guarantees freedom of trade, commerce and
intercourse throughout the territory of India.

Article 302 empowers the Parliament to impose restrictions on trade, commerce and
intercourse in the interest of the general public.

Article 303 allows the Parliament to give preference to one State over another in
the matter of trade, commerce and intercourse if there is a scarcity of goods in
that State.

Article 304 allows a State government to impose taxes on goods imported from other
States and Union Territories.

Case laws

Gopinath v. the State of Kerala

Under Article 286 the Supreme Court held that the sale of cashew nuts by the
Cashew Corporation of India to local users was not in the course of import and did
not come under an exemption of the Central Sales Tax Act, 1956.

Hyderabad Chemical and Pharmaceutical Works Ltd. v. State of Andhra Pradesh

The Supreme Court held that the State government could continue to levy a fee
on the appellant for the supervision of the use of alcohol in the manufacture of
medicines, even though the Parliament had passed a law that prohibited the levy of
fees on the manufacture of medicines.

SRD Nutrients Private Limited v. Commissioner of Central Excise

It has ruled that the education cess and the higher education cess are surcharges,
not cess.

Conclusion

The constitutional provisions relating to taxation in India are complex and have
been interpreted by the courts in a number of cases.

Black money

Black money has long been a scourge for the Indian economy with residents refusing
to report transactions to evade tax and avoid regulatory scrutiny.

In 2015, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of
Tax Act, 2015 (Black Money Act) was enacted to penalise persons with black money
abroad and to curb overseas diversion of Indian funds with the intention of evading
taxes in India. The Black Money Act is essentially an extension of the Indian
income tax regime that specifically targets residents hiding their income from
foreign sources from the authorities.

What is black money?

Black money is generally money that is earned (either legally or through illicit
activities) but has not been reported to authorities and, consequently, has not
been taxed.

Assessees and assessment

Unlike the Income Tax Act, 1961 (Income Tax Act) (which taxes residents, non-
residents and persons not ordinarily resident), the Black Money Act applies only to
persons (assessees) who have been resident in India in the relevant year. As the
taxable components under the Black Money Act are, by their very nature,
undisclosed, their taxation differs significantly from the Income Tax Act (which
provides for self-assessment).
Under the Black Money Act, assessment of undisclosed foreign income and, or, assets
and computation of tax and penalty thereon are undertaken by the assessing officer.
The assessing officer may act: (i) upon receipt of information from authorities
under the Income Tax Act or any other law in force; or (ii) suo motu upon coming
across any information, if, based on such information, he is of the opinion that
assessment is required.
Rate of tax, penalty and recovery
Under the Black Money Act, undisclosed foreign income and, or, assets are subject
to tax at 30% of the taxable value of such income and, or asset. Further, the
assessee is also liable to a penalty of 3 times of the tax computed. As a
consequence, the assessee ends up paying 120% of the taxable value of undisclosed
foreign income or asset.

The Government may recover the applicable tax and penalty by issuing notices in the
nature of garnishee notices to debtors and, or, employers of the assessee. Default
in complying with such notices exposes the debtors and, or, employers to
proceedings under the Black Money Act. Additionally, the sums may be recovered by
attachment and sale of the assessee’s movable or immovable property, or by
appointing a receiver for the management of the assessee’s movable and immovable
property.

Consequences of contravention
The consequences of contravention of the Black Money Act are both civil and
criminal. A range of monetary penalties are imposed for various non-compliances
such as failure to file returns on time, failure to disclose foreign income and,
or, assets, etc.

For such wilful non-compliances, evasion of tax, etc., a person may be prosecuted
and imprisoned for anywhere between 3 months and 10 years depending on the nature
of the offence.

Various Authorities under WTA

Wealth-tax authorities and their jurisdiction.

Section 8. The income-tax authorities specified in section 116 of the Income-tax
Act shall be the wealth-tax authorities for the purposes of this Act and every such
authority shall exercise the powers and perform the functions of a wealth-tax
authority under this Act in respect of any
individual, Hindu undivided family or company, and for this purpose his
jurisdiction under this Act shall be the same as he has under the Income-tax Act by
virtue of orders or directions issued under section 120 of that Act (including
orders or directions assigning concurrent
jurisdiction) or under any other provision of that Act.

Control of wealth-tax authorities.

Sec 9. Section 118 of the Income-tax Act and any notification issued thereunder
shall apply in relation to the control of wealth-tax authorities as they apply in
relation to the control of the corresponding income-tax authorities, except to the
extent to which the Board may, by notification in the Official Gazette, otherwise
direct in respect of any wealth-tax authority