CONSTITUENT ASSEMBLY OF INDIA - VOLUME IX


Tuesday, the 9th August 1949

Mr. President: Then comes amendment No. 85, also of Dr. Ambedkar. The question is:

"That in the first Proviso to article 255, the words and figures 'for the time being specified in Part I of the First Schedule' be omitted." The amendment was adopted. Mr. President : Then I put amendment No. 86.

The question is:

"That in clause (a) of the second Proviso to article 255, for the words 'three years the words -two years be substituted.- The amendment was adopted.

Mr. President: And then I put Rev. Nichols Roy's amendment.The question is:

"That in article 255,-

(a) after the words 'Parliament may by law provide the words 'or until Parliament thus provides, as may be prescribed by the President' be inserted;

(b) after the words 'Parliament may determine' the words 'or until Parliament determines as the President may -determine' be inserted; and

(c) the following Explanation be added at the end of the article:- "Explanation--The word "prescribed' has the same meaning as in article 251 (4) (b)

The amendment was adopted.

Mr. President : Then I put the article, as amended.

The question is:

"That article 255, as amended, stand part of the Constitution."

The motion was adopted. Article 255, as amended, was added to the Constitution.

Article 256

Mr President. We now take up article 256. Amendment No. 2925 by Dr. Ambedkar, in Vol. II, of the printed list.

The Honourable Dr. B. R. Ambedkar: Sir , I move:

"That for clause (1) of article 256 the following clause be substituted:-

'(1) Notwithstanding anything in article 217 of this Constitution. no law of the legislature of a State relating to taxes for the benefit of the State or of a municipality, district board. local board or other local authority therein, in -respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income."'

Sir, it is proposed in a: subsequent article to permit local authorities to levy certain taxes on professions, trades callings and employments upto a certain limit. -It is feared that such a tax, if levied by the State, might be called in question on the ground that it amounts to a tax on income and being within the exclusive authority of the Centre. It is to prevent any such challenge to any law made for the purposes mentioned in sub-clause (1) that this provision has been deemed by the Drafting Committee to be very necessary, and accordingly I move this amendment.

Mr. President :There is an amendment to this amendment of which notice, has been given by Mr. Sidhva.

Shri R. K.'Sidhva (C.P. & Berar : General) : I do not wish to move it.

Mr. President : Then there are amendments Nos. 2926 and 2927 an the Printed List, of Giani Gurmukh Singh Musafir. I see he is not moving them. Then No. 2928 standing in the name of Sardar Bhopinder Singh Man.

Sardar Bhopinder Singh Man (East Punjab: Sikh): I am not moving ft.

Mr. President : Then amendment No. 203, Mr. Sidhva.

Shri R. K. Sidhva: I do not wish to move it.

Mr. President : Then Nos. 89 and 90 in the name of Mr. P. D. Himatsingka. He is not moving them. No. 91 in the name. of Dr. Ambedkar.

The Honourable Dr. B. R. Ambedkar: Sir, I do not wish to move it.,

Mr.President : Amendment No. 92, Mr. Shibban Lal Saksena.Prof. Shibban Lal Saksena: Sir, I beg to move:

"That in clause (2) of article 256, for the words -two hundred and fifty rupees' in the two places where they occur, the words 'one per cent. of their annual income' or 'one thousand rupees' be substituted."

If that is done, the clause will run as follows

'(2) The total amount payable in respect of any one Person to the State or to any one municipality, district board; local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed one per cent. of their annual income or one thousand rupees per annum :

Provided that, if in the financial year immediately preceding the

commencement of this Constitution there was in force in any State or any such municipality, board or authority, a tax on professions, trades, callings or employments, the rate or the maximum rate of which exceeded one per cent. of their annual income or one thousand rupees per annum, such tax may continue to be levied until provision to the contrary is made by Parliament by law. and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards or authorities.'

Sir, I only want an increase in the amount. In fact, the amendment. which Dr. Ambedkar has moved makes it legal for local boards, district boards and municipalities to levy taxes on the income of the inhabitants in their areas. In fact I would have very much wished that this clause (2) had been deleted. Ibis was an amendment which no, less a person than the Premier of my Province, the Honourable Pandit Govind Ballabh Pant had also given notice of. What his amendment intended and what I also want to impress upon the House is that our local bodies are practically starved of finances. We have provided for finances for the Central Government, we are trying to allocate taxes between the Provinces and the Centre, but the municipalities, the local boards and all these local bodies have practically no finances. I come from the District of Gorakhpur which has recently been divided into two parts but still it has a population of about 22 lakhs. The annual income of the District Board there is only Rs. 11 lakhs which means about eight annas per individual of the population. Do you expect that any district board with such an income can do anything for the welfare of that mass of population ? I can quite understand the Centre being strong and having finances, the Provinces being strong and having finances, but ultimately all nation building tasks will have to be done by local authorities. You may say you can lay out railways and roads, you can also provide Universities, but ultimately it is the municipalities and local boards which have to look to the sanitation of the areas, to the primary education in their areas and to roads. Do you imagine that with a sum of Rs. 11 lakhs the District Board of Gorakhpur can meet the needs of that big District ? What has been my experience in my district must also be the experience of all of you in your districts. I therefore think that if you this source of income of taxation only up to a limit of Rs. 250, then you really close one important avenue to the District Board., In my district there are sugar mills, and they pay huge dividends-in fact Rs. 30-crores was the annual profit of the sugar factories in United Provinces and Bihar that year. Cannot the District Board legitimately ask them to pay a few thousand rupees I But by this you make it impossible for the District Board to levy any tax on the sugar mills although the sugar mills use their roads and the Board have to spend money on those roads. Yet we cannot tax these factories beyond Rs. 250. I have only demanded one per cent. of their income or Rs. 1,000. I have taken care to put both the things because it is quite possible that in the case of individuals it would not be possible to find out their income. We would not have all the powers of the income-tax authorities to go and find out the incomes of individuals. In the case of factories and corporations like sugar mills, they publish their balance sheets and we can know their income and tax them to the extent of one per cent. In other cases, you can limit the amount to Rs. 1,000. This will increase the revenues ofthe local bodies substantially. In fact at present because we cannot tax the rich properly we are forced to tax the poor people heavily. Even the man with a betel shop is taxed Rs. 5 or 10, which he cannot afford to pay. If we can tax. the sugar mills and other factories as also other millowners to the extent of at least 1 per cent of their annual income, I am sure these poor people will be spared that tax, which is now very heavy on them. I therefore think that

this limit of Rs. 250 is a proposition which should not be laid down in the Constitution. If necessary, it can be left to the Parliament, to which we have left many other things. Here you want to fix in the. Constitution that no local board shall levy a tax over Rs. 250 on income. I would therefore request the Drafting Committee to alter it as I have suggested or omit it altogether, so that the local boards may be free to tax on incomes according to the needs of their areas. While we, are spending crores of rupees under the central budget, local boards are starved for very small sums. They are the bodies who really want the money so that they can give proper attention to the people in their areas, give them better roads and schools and other amenities which they very much need. All our schemes are ultimately calculated to provide amenities to the villagers but if we deny the revenue to the district and local boards who are responsible for satisfying the needs of these areas, the people of those areas will suffer. I think that the sources of revenue of the district boards, municipalities and local boards must not be, limited in this manner in the Constitution. This is a very retrograde provision in the Constitution and must be amended.

Shri B. M Gupte (Bombay: General) : Sir, I support this article as amended by the proposed amendment of Dr. Ambedkar and I congratulate the Drafting Committee on having redressed a legitimate grievance of the local bodies Government of India imposed a limit of a maximum of Rs. 50 only for profession tax and that practically rendered the source valueless. In the rural this source of revenue was not fruitful, as there agriculture; is the predominant occupation and there are hardly any professions which can be taxed. The municipalities could have usefully imposed this tax but this maximum of Rs. 50 practically did not make it worthwhile for them to go into the expenses of collecting such petty sums. Naturally therefore, this source was practically rendered useless for them and I therefore congratulate the Drafting Committee for having redressed this grievance of the local bodies. The financial condition of the local bodies is already very parlous. Their financial resources are far too inadequate compared to the services that expected from them. Their sources of taxation are already being encroached upon by the Central Government and the provincial Governments. In a democratic State the efficiency of the local bodies which cater to the day to day needs of the ordinary citizen is a matter of very great importance. Therefore anything calculated to improve the financial resources and hence the efficiency of the local bodies is certainly to be commended. I sympathise with Prof. Shibban Lal Saksena's amendment but we cannot go so far. We must maintain a balance between the needs of the Centre and the local bodies and in that light I think Rs. 250 is a substantial increase over Rs. 50 and Rs. 1,000 would be quite disproportionate. Though anything calculated to improve the efficiency and financial resources of local bodies is commendable, still I think that Rs. 1,000 would be a very high limit.' Therefore I support the article as amended by Dr. Ambedkar.

Shri R.K. Sidhva : Sir, I am reluctantly obliged to accept this article, although it is an improvement upon the previous one as suggested by the Drafting Committee. Why I say that I am reluctantly compelled to accept the article isbecause I do feel that local bodies in this country have not been given which is due to them in the Constitution. The local bodies are an epitome of the national government and in this Constitution we have tried to build it from the top leaving the bottom to take care of itself. That attitude, I can assure you, will not bring happiness and prosperity to the masses of this country. Local bodies have till now been left at the mercy of the provinces and although in this clause and some others hereafter mention has been made about the finances of the local bodies, their relation and their adjustment are entirely to be left

to the provincial governments, with the result that the local bodies are suffering immensely financially and the consequence is that the villages, small towns and even the big cities -suffer today. These are the places where we really should begin if we really want to bring in any kind of amenities and prosperity to the people to whom we have pledged to better their position. But in this Constitution I am sorry to say that kind of provision has not been made.

Under the 1935 Act a good deal of injustice was done by the British government to the local bodies and I am glad that this limit of Rs. 50 has been raised to Rs. 250. I would have preferred that this limit had been graded and brought up to Rs. 2,500. That would have brought revenue to the local bodies from persons who can afford, to pay and would have gone for the benefit of the needy and poor people. In October last year there was a conference called by the Health Ministry of all provincial- Ministers of Local Self Government, They unanimously stated that the local bodies were suffering for wan$ of funds and their finances should be improved if they are to do any good to the people. They appointed a Committee called the Local Finances Committee which met last month in Delhi and sent their interim recommendations to the Drafting Committee so that their case may not go by default. The Committee considers this limit of Rs. 250 as being very low and they would -like to raise It to a thousand rupees per annum. I do not know what consideration was given to this recommendation. This was a unanimous decision of the Ministers of the provincial Governments but it is not considered at all, and the Drafting Committee imposes their own decision which will benefit no one. The U.P. Government also had a committee, called the Local Bodies Graft-in-Aid, Committee who also sent an interim report to the Drafting Committee in which they say: "Clause (ii) mentions a special tax on trades and callings as compared with. clause (iii) which is a general tax. In regard to the latter, the powers of our municipal boards were further curtailed by the Professions Tax Limitation Act, 1941, which provides that notwithstanding the provisions of any law for the time being in force, any taxes payable in respect of any one person to a province or any local authority by way of tax on' professions, trades, callings or employment shall from and after April 1, 1942, cease to be levied to the extent to which such tans, exceed fifty rupees per annum. * * * Thus its exclusion from the restrictions of the Professions Tax Limitation Act has been of little practical utility. or benefit The tax under section 128(1) (iii) of the Municipalities Act was really a profitable source of income, and therefore its limitation to a low maximum of Rs. 50 per annum is not only objectionable in principle, as it violates against one of the chief canons of taxation requiring assessment on each individual in proportion to his ability to pay to ensure an equitable distribution between rich and mm. but has 'also affected adversely the financial position of several municipalities."

I, therefore, contend that this provision of the Drafting Committee will not meet the requirements of the local bodies. in the Calcutta Corporation they are levying a licence fee of Rs. 500 for certain professions which they are allowed to do under the Government of India Act, 1935. Under this provision they will be deprived of that income. The' Administrative Officer of the, Calcutta Corporation cites the instance of Joint Stock Companies which as managing agents control more than half a dozen large industrial concerns and may not yet be taxed more than Rs. 500 while the burden of' taxation falls more heavily on the poorer sections of professional and business people. TheCorporation wants the upper limit to be raised to Rs. 2,500 while the West Bengal Municipal Association suggests Rs. 1,500. I therefore feel that while the Drafting Committee has made, very little improvement on their previous draft they were not correct in rejecting a graded

scale so that local bodies get a large amount which can be used for constructive work. From my own experience I may say that they should not be treated in this way because the provincial Governments are always stingy in the matter of granting funds for these bodies and unless we in this Constitution make better provision for them the lot of people living in those areas will not improve. I do not know why the Drafting Committee were so stingy when the provincial Governments who have to administer these local bodies thought a larger amount was necessary.

Sir, I support this article subject to above remarks.

Shri Prabhudayal Himatsingka: Sir, I oppose the amendment of Prof. Saksena. I had an amendment myself but I did not move it as it was not discussed in the party. This article is an exception to the general, rule that taxes on income are to be imposed by the Centre only. It is an exception for the benefit of the local bodies. But if you see the article you will find that taxes can be imposed on professions, trades, callings and employment for the benefit of the State or a municipality, district board, local board, etc. So that provincial Governments can impose this tax and local bodies can also do it. Whether a man has an income or not from some trade, profession or calling; he may be made to pay Rs. 250 to the State and also taxed by the local body in whose jurisdiction the trade or profession is carried on. The man who has an income which is small or has no income at all should not be made to pay any tax. In the Government of India Act there was a limitation that the tax should not exceed Rs. 50 and the provincial Governments have passed Acts levying Rs. 30 on all persons making an income by any profession, trade or calling. The result is that a person who has to pay Rs. 30 as income-tax has to pay a like sum to the provincial Government. On the basis of this article he can be made to pay Rs. 250 to the municipality and Rs. 250 to the provincial Government apart from what he has to pay to the Centre in the shape of income-tax. Here, wherever any person is carrying on any trade or profession, whether he is making an income or not, he can be compelled to pay tax. Therefore the salutary provision of limiting it to Rs. 50 was very good. The present suggestion that it can be made I per cent. of the income or Rs. 1,000 is such that it cannot be supported under any circumstances. My friend forgets that simply because a man carries on a profession he may not be in a position to pay even Rs. 50 not to speak of Rs. 1,000. Therefore I wish that the Drafting Committee which had amendment No. 91 in its name had moved it limiting it to Rs. 100. But as they have not moved it, they should agree to Rs. 250.

Chaudhari Ranbir Singh (East Punjab: General): *[M. President, I am reluctant to support this article because I hold that the amendment moved by my Friend Mr. Shibban Lal Saksena to this article is based on a principle and its rejection would mean injustice to the, general public. These days generally the people of meagre income have to pay. Profession Tax. While the poor Harijans have to pay twenty to twenty-four rupees on account of Profession Tax, though their capacity does no permit them to pay even two or three rupees, the rich industrialists and factory owners, who are capable of paving far more than the Harijans, do not pay their full share. The maximum limit of Profession Tax prescribed under this article is Rs. 250. It would operate inequitably against the poor people. As an agriculturist I would like to state

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*[ ]Translation of Hindustani speech.

before the House that apart from the Land Revenue, the other taxes that are realised from us in the Punjab by District Boards and other Local bodies come to six pies in the rupee. Now attempts are being made there to raise this rate further. Well, the income of rupees two thousand 'a year goes tax free but not even a bigha of land is exempt from Land Revenue. I am utterly unable to understand the logic

behind this proposition. Certainly this operates very disadvantageously against the farmers. Irrespective of the fact whether they have economic holding or not, land revenue is charged from them, and in addition to that the Profession Tax at the rate of six pies a rupee is also realised from them. I fail to understand why this principle of additional taxation is not applied, in respect of rich people. Limiting of Profession Tax to an amount of Rs. 250 a year would cause a considerable loss to the income of District Boards and other Local bodies and in that case they have either to impose further taxes on the poor section of the population or they have to curtail the undertakings, beneficial to the poor. If we mean to do good to the poor and to establish hospitals and other institutions for their benefit we have to tax the rich people. You will be in a position to do so only when you accept the amendment moved by Prof. Shibban Lal Saksena. As compared to the taxes that agriculturists have to pay, this maximum limit of Profession Tax is not, much. I may again add that keeping in view the principles on which the land revenue is charged, the limit for the Profession Tax is very negligible because the agriculturists have to pay far more than one per cent. on their incomes. I would, therefore submit that the amendment to this article moved by Mr. Shibban Lal Saksena should be adopted.]

Babu Ramnarayan Singh (Bihar: General) : Mr. President, I partly agree with you when you object to the speeches made in criticism of Government. But, Sir, it is very difficult to forget the experience specially when it is a bitter one. Sir, we are making the Constitution. I was under the impression that all the powers of the country will be directly transferred to the people in the villages. Now, what do I find ? All the powers are concentrated in the Centre and some powers are allowed to trickle down to the provinces. Now we have to see what the provinces have done and will do. Some amendments have been given notice of by Prof. Saksena. I do not understand why this limitation of Rs. 250 is unposed on the levy that can be made by a local body. There is no limitation on the taxes that may be levied by the Central and provincial Governments. They may levy lakhs and lakhs. This is most objectionable.

Sir, when I said that all the power should be given to the people in the villages I did not mean that there ought to be no provincial or Central Government. Let there be Central and provincial Governments. But let them not govern the people. Let them help and organise the people and advise the people. Why should even in matters of taxation the people in the villages and districts are not to have a hand ? If you go to the mofussil you will see the governmental activities there. If there is a very well-kept road it is a P.W.D. road of the Centre or of the Province. All roads constructed by local bodies are in a very bad condition, This is so because all the money is in the hands of the Central or provincial Government. It is all going the wrong way. All the money should belong to the local bodies. As it is they are getting some funds by way of mercy from the local Government which in turn gets something from the Central Government. I do not think this is right. This process should be reversed. Everything should belong to the villagers. The provincial Government should get contributions from the local bodies and the Central Government should get contribution from the provincial Governments. Sir, I am not going to say much on the subject. I would only say that the amendment of my Friend', Mr. Saksena, is a very reasonable one. With these words I strongly support and I appeal to the House to accept his amendment.Shrimati Purnima Banerji (United Provinces : General) : Mr. President, Sir, I am sure all of us agree with the amendment moved by Dr. Ambedkar to empower local bodies to levy taxes on professions. We also agree with the other amendment moved by Prof. Shibban Lal Saksena saying that the upper limit of the Lax Collected should not be fixed at Rs.

250 but should relate to the income of the person concerned. As you know, in our province of the U.P., we have by a recent Act established about twenty-two thousand Panchayats all over the province. To these Panchayats such rights and functions have been given which, if properly exercised, would really bring Swaraj to the people. As you know, our country is big and wide and medical amenities and educational facilities are all very sadly lacking. If these Panchayats or local bodies are to function properly, they must have adequate finances at their command. We have given them enough powers and we hope that, as time passes on, they will lay down roads and will foster such industries as will add to the prosperity of the villages and the localities. We fear that all these nation-building activities which are now allotted to them will not be able to reach their fruition unless we have enough finances. Therefore we agree with the amendment now placed before the House that the finances of the local bodies should draw some profit from the trades and professions in the area concerned and this incorme should bear some proportion to the income of the persons paying the tax. As I said, we hope that these Panchayats and local bodies will lay down roads and will pay their fullest attention to the development of such industries as WM add to the general prosperity of the villages. With these words, I support the amendment moved by Dr. Ambedkar and also the amendment moved by my Friend, Mr. Shibban Lal Saksena, saying that the limit of Rs. 250 should not be fixed but rather it should be stated in this way that it should be at least one per cent. of the income of the person taxed.

Shri M. Ananthasayanam Ayyangar (Madras: General): Sir, those friends who want to increase the maximum limit from Rs. 250 to one per cent. of the income, I am afraid, have entirely misunderstood the needs of the Centre and the manner in which whatever the Centre collects by way of income-tax is.distributed to the provinces. Let us first of all see what the Centre gets and what proportion is given away to the provinces. A large proportion of the income-Lax is distributed to the provinces. Only a fraction is retained by the Centre. Another source of revenue to the Centre is excise and even there the Centre is only a collecting agency for purposes of uniformity. As in the case of incometax a large proportion of it is to be given away to the provinces on principles hereafter to be laid down by the Finance Commission. The only thing that the Centre collects and retains for itself is the customs revenue. Therefore the Centre will be completely starved if we go on allocating various sources of revenues to the provinces. That is what our friends are attempting to do. The article which has now been moved by my honourable Friend, Dr. Ambedkar is a concession. Income-tax is a source of revenue to the Centre. The Profession Tax is an invasion of the income-tax field. There is already a provision in the present Government of India Act of 1935; Section 142-A fixes the maximum limit at fifty rupees. This profession tax is an invasion into a source of revenue for the Centre. From its collection of income-tax, the Centre gives grants-in-aid to the provinces and the provinces in turn give grants-in-aid to the municipalites, corporations and various other local bodies. This is not as if this profesional tax is the only source of, revenue to the local bodies and village panchayats. In the villages there is no professional tax. Agriculture is the only profession there. There is no justification for increasing the maximum from Rs. 250 to one per cent. of the income especially considering the rise in the cost of living index, which is now nearly three time the time the pre-war figure. The suggestion of my Friend, Mr. Shibbal Lal Saksena, is that the maximum, instead of being Rs. 250. should be one per cent, If Rs. 250 is the maximum, then the income on the basis ofone per cent should be Rs. 25,000. Is there a chance of any one having an income of more than Rs. 25,000 in an ordinary

village ? Therefore this suggestion is not going to be useful so the villages are concerned. So far as the municipalities are concerned, it is only from the provinces that money could flow into the municipalities as it would flow from the Centre to the provinces. This could only be from the allocations made from the, income-tax collected by the Centre. Under these circumstances, Rs. 250 which is now the, upper limit is sufficient and anything more than that would seriously interfere with the collection of income-tax by the Centre. I am therefore constrained to oppose the amendment of my Friend, Mr. Shibban Lal Saksena, and support the article as moved.

The Honourable Dr. B. R. Ambedkar: Sir, I do not think that any very, detailed reply is called for. The position is simply this, that in every Constitution the taxing resources of a State are generally distributed between the Centre and the States. The question of distributing the resources between the States and' the local authorities is left to be done by law made by the State, because the local authority is purely a creation of the State. It has no plenary jurisdiction; it is created for certain purposes; it can be wound up by the State if those purposes are not properly carried out. This article, which I am provision in a Constitution dealing with the financial resources of what are called local authorities which are subordinate to the State. But having regard to the fact that there are at present certain local authorities and their administration is dependent upon certain taxes which they have been levying and although those taxes have been contrary to the spirit of the Income-tax law, the Drafting Committee, having taken into consideration the existing circumstances, is prepared to allow the existing state of affairs to continue. In fact exception was taken to the limit fixed by the Expert Committee which was Rs. 250. The proposal was that it ought to be brought down to Rs. 150. The Drafting Committee on reconsideration decided that that need not be done and under the present state of affairs may be continued up to the limit and within the scope that it occupies today. I therefore say that this is a pure exception, and on principle I am definitely opposed to it and I am therefore. not prepared to accept any amendment that may have been moved by any honourable Friend.

Mr. President : The question is :

"That for clause (1) of article 256, the following clause be substituted:-

"That in clause (2) of article 256, for the words `two hundred and fifty rupees' in the two places where they occur the words one per cent. of their annual income or ` one thousand rupees' be substituted."

The amendment was negatived.

Mr. President : The question is:

"That for clause (1) of article 256, the following clause be substituted:-

`Notwithstanding anything in article 217 of this Constitution, law of the legislature of a State relating to taxes for the benefit of the State or of a municipality, district Board, local board or other local authority therein, in respect of professions, trades callings or employments shall be invalid on the ground that is relates to a tax on income."

The amendment was adopted.

Mr. President: The question is :

"That article 256, as amended, stand part of the Constitution."

The motion was adopted.

Article 256 as amended, was added to the Constitutions.

Article 257

(Amendment No. 2929 was not moved)

The Honourable Dr. B. R. Ambedkar: Sir, I move:

"That the words 'by law' be added at the end of article 257."

It is a little inadvertent omission.

Mr. President: There are two other amendments which do not arise after the amendment of Dr. Ambedkar.

The question is :

"That the words 'by law' be added at the end of article 257."

The amendment was adopted.

Mr. President : The question is: "That article 257, as amended, stand part of the Constitution.'

The motion was adopted. Article 257 as amended, was added to the Constitution.

New Article 258-A

Mr. President: We will leave out 258 for the

present and we shall take up article 259. There is one new article 258-A of which notice has been given by Shri Himatsingka, Patil and Barman. Is it to be moved?

Shri Prabhu Dayal Himatsingka : No, Sir. (Amendments Nos. 2938 and 2939 were not moved.)

Article 259

(Amendment No. 2940 was not moved.) Honourable Dr. B. R. Ambedkar : Sir, I move:

"That in clause (1) of article 259, for the word 'Auditor-General' the words 'Comptroller and Auditor-General, be substituted."

This is done in order to bring the same nomenclature in article 259 which has been given to this officer in the previous article this Assembly has passed,

Mr. President: The question is:

"That in clause (1) of article 259, for the word 'Auditor-General' the words 'Comptroller and Auditor-General be substituted." The amendment was adopted.

Mr. President: The question is :

"That article 259, as amended, stand part of the Constitution." The motion was adopted:

Article 259, as amended, was added to the Constitution,

Article 260

Mr. President : Then we go to article 260.

The Honourable Dr. B. R. Ambedkar: Sir, I move.

"That for amendment No. 2943 of the List of Amendments, the following be substituted:-

That for clause (1) of article 260, the following clause be substituted :-

'(1) The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order, constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President."'

Sir, the point of this amendment is this. Originally, as the article stood, it stated that the Commission shall be appointed at the end of five years. It is felt that it is necessary to permit the President to appoint the Commission much earlier and consequently we are now providing that it should be appointed within two years from the commencement of the Constitution.

Mr. President: You may move amendment No. 96 also.

The Honourable Dr. B. R. Ambedkar: Sir, I move:

"That in sub-clause (b) of clause (3) of article 260, for the words 'revenues of India' the words 'Consolidated Fund of India' be substituted."

This is a formal one.

Mr. President: There are amendments to this article, which have been printed in the Book.

(Amendments Nos. 2941, 2942, 2944, 2945, 2946, 2947, 2948, 204, 205, 97 and 98 were not moved.)

Mr. President: Amendment No. 115. Pandit Kunzru. (Pandit Hirday Nath Kunzru was not in the House.)

He told me that he would like to move this amendment. I would allow any other Member if he wishes to move it.

(At this stage Pandit Hirday Nath Kunzru came in.)

Pandit Hirday Nath Kunzru: (United Provisions: General): Mr. President I beg to move :

'That with reference to amendment No. 95 of List I (Third Week) of Amendments to Amendments, for sub-clause (a) of clause (3) of article 260, the following sub-clauses be substituted :

'(a) the distribution between the Union and the States of the net proceeds of taxes on income which are to be divided initially between them under this Chapter;

(aa) the allocation between the States of the respective shares of the net proceeds of taxes which are to be, or may be, divided between the Union and the States under this Chapter;"'

Sir, the sub-clause to which I have moved the amendment runs as follows: "(a) the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the $tales of the -respective shares of such proceeds;".

This sub-clause which is sub-clause (a) of clause (3) of article 260 provides that it will be the duty of the Finance Commission not merely to distribute that part of the taxes divisible between the Central Government and the provinces which belongs to the provinces among the provinces themselves, but also that the Commission should lay down how these proceeds are to be distributed, that is -the

proceeds of what I may call the divisible taxes, between the Centre and the provinces. My amendment, if accepted, will leave the position as it is so far asthe taxes on income are concerned; but it will change the Position with regard to the other divisible taxes which, I suppose, will be excise duties. I nave left the position with regard to taxes on come as it is because article 251 lays down that after the Finance Commission has been appointed, the President will prescribe the percentage of the net proceeds of the taxes on income to be assigned to the provinces after consultation with the Finance Commission when it is appointed. I confess that I did not fully realise when this article was under .discussion what the effect of the definition of the word `prescribed' laid down there would be on article 260. I discovered this only when I drafted with the help of the Draftsman and Joint Secretary of the Constituent Assembly the amendment that I have just moved. I have however sought to impose one limi_ tation even in that respect, and that limitation is this. While the President may consult the Finance Commission initially with regard to the respective shares of the net proceeds of the taxes on income calculated in the manner laid down in article 25 1, to be assigned to the Centre and the provinces, the Commission should not have the power to re-view these percentages later on its own initiative. If we leave sub-clause (3) of article 260 as it is, then it will be the duty of the Cornmission to make recommendations to the President as regards the distribution of the proceeds of the divisible taxes between the Centre and the provinces and it will be able to review any percentages that may be initially fixed. The purpose of say amendment is to limit the power of the Finance Commission in this respect to the initial fixation of the percentage. Once the shares of the Centre and the provinces have been fixed, I suggest that the Finance, Commission should have nothing more to do with that matter unless the matter is referred to it by the President. Should the provinces stand in need of more money later on, should their recurring expenditure increase to such an extent as to need, on prudent financial and economic grounds, not large grants but a definite share in the pro-. ceeds of certain taxes, ther the matter ought to be considered by the Government of India in consultation with the provinces. I shall not discuss this question at length because I dealt with the principle underlying this yesterday; but I venture to -repeat that my opinion on this subject has not been altered-in the slightest degree by the observations made by Dr. Ambedkar yesterday.

Now I come to the second part of my amendment. If sub-clause (a) of clause (3) of article 260 is left as it is, then the Finance Commission will be able to say how much of the net proceeds of the Union duties of exercise should be kept by the Government of India and how much should be assigned to the, provinces. Now the article that relates to the imposition of Union duties of excise and the distribution of their proceeds between the Centre and the provinces is article 253. There is nothing in the language of that article to compel the President to consult the Finance Commission before coming to a decision oil this subject. If the second part of my amendment is accepted, then the power of the President to consult the Commission in this respect will remain absolutely untrammelled-. Honourable Members will thus see that if my amendment is accepted, while the provinces will, lose nothing, the Centre which will have to bear the ultimate responsibility for the protection of the highest interests of the country and for its defence will be in a Position to discharge those responsibilities adequately even in emergencies' The framers of the Constitution realised that the position as contemplated here might be found to be unsatisfactory later on when the Central Government was confronted with an exceptional situation and for this reason, I suppose, 'included Particle 277 in the Draft

Constitution which empowers the Government of India in,an emergency to suspend all or any of the provisions of articles 249 and 259 -of -this Constitution. This is obviously a verys sweeping provision. The representation of -the provinces will easlly see how dangerous this article is. They will be completely at the mercy of the Government of Indiawhen, say, a war breaks out. This article show that the Constitution feel that under the provisions of article........

The Honourable Dr. B. R. Ambedkar: It has not been passed yet.

Pandit Hirday Nath Kunzru: That is why I am referring to it now otherwise there would have been no point in referring to it.

The Honourable Dr. B. R. Ambedkar: I have a right to withdraw it.

Pandit Hirday Nath Kunzru: Dr. Ambedkar says he has a right to withdraw I hope he will be wise enough to withdraw it.

The Honourable Dr. B. R. Ambedkar: No, it might be modified.

Pandit Hirday Nath Kunzru: But I understand that its purpose is to enable the Central Government to resume the whole or a part of that portion of the money that might generously have been made over to the provinces. Now the Government of India Act, 1935, also envisaged a position when the Central Government might be unable to make over to the provinces the prescribed share of the taxes on income and authorised the Governor-General to delay the process of transferring to the provinces their share of the net proceeds of these taxes. But this article 277 goes far beyond that. I suggest, that in order to remove the possibility in view Of which article 277 has been inserted in the Constitution, the Finance Commission should have nothing to do with the allocation of the shares of the Central Government and the Provincial Governments in the proceeds of any tax. This is a matter that should be decided by the Central Government, Its I have already said, in consultation with the provinces. If this is done I am owe that the Central Government will be able to discharge their supreme responsibility and also to justify their position to the provinces. No situation will in that case arise which will compel the Central Government practically to the provisions of all the financial articles that we have so far discussed.

Sir, them Is a Finance Commission in Australia. It has been functioning for sixteen years, but its duty is to examine the demands of the provinces and scrutinise, their budgets and then recommend how much money should be given to them either in order to make up for their deficits or for any other purpose. It has, so far as I know. not been authorised to say to the Commonwealth Government that it should give, a certain proportion of the proceeds of a certain tax to the States. In Canada,very recently an attempt was made to induce the provinces -to agree to an argument like that prevailing, in Australia. During the war the Central' Government persuaded the provinces to vacate the income-tax field aid occasioned , its completely itself. Under the Canadian Constitution the provinces can levy taxes on income for purely provincial purposes. But the Dominion Government has levied such high taxes that there is hardly any possibility of the provincial Governments re-entering the field of income-tax.- The Dominion Government suggested that the Provinces should agree to the appointment of a Finance Commission which would recommend periodical grants to the Provinces. in consideration of their needs. But it was never suggested during the course of the discussion, either by the Dominion Government or by the Provinces that the proposed Finance Commission should have' the power to say to the Dominion Government that a certain proportion of the net proceeds of the income tax should be made over to the Provinces. All that was suggested was that the Finance Commission should, after considering what the legitimate needs of The Provinces were. make such recommendation as would satisfy their requirements. In Canada no agreement was arrived at, let me add. between the Centre and the Provinces.. But this does not In any way After the argument that I

have been using.Sir, I do not think that I need dwell any further on this subject. I think that I have said enough to show that it is not desirable that apart from the income-tax in respect of which we are committed under article 25 1, we should go further and allow the Finance Commission to decide how the proceeds of the Union Excise Duties should be divided between the Centre and the Provinces. Nor is it desirable, in my opinion, that the Finance Commission, after initially laying down what percentage of the net proceeds of the tax on income should be retained by the Centre-, and assigned to the Provinces, should have the power to review this percentage later. he needs of the provinces can be adequately met in -other and sounder ways.

Shri B. Das: Sir, very reluctantly I accept the amendment moved by my Friend Dr. Ambedkar. Sir, there is a Sanskrit adage:

Sarvanashe Samapanne ardluani tyajati panditah. Mr. Kamath will correct my Sanskrit, if it is wrong, but it means that "wise men part with half of their just demands when there is prospect of annihilation". The Government of India, in their mad career from 1924 onwards up to now, In their self-centred financial policy. have annihilated the growth and development of the provinces. It is now said that within two years of the coming into effect of the Constitution, the Finance Commission should function. But this is also a departure from the recommendation of the Sarker Committee's Report where they recommend that the Finance Commission should be appointed immediately. Of course, Dr. Ambedkar has told us that an ad hoc committee, or some special officer is going to review the position of the Provinces and the Centre, as regards the resources and may, allocate something to the undeveloped provinces for their immediate development. Sir, apart from incidental expressions on the floor of the House, no declaration on this ad hoc committee has bee made. 1, therefore, hope that before we close the debate on these dealings with the distribution of finance between the Centre and (he Provinces, some sort of definite declaration would be made.

Sir, I wholeheartedly support the amendment moved by my Friend Pandit Kunzru, to the amendment of Dr. Ambedkar. Sir, this morning I observed Pandit Hirday Nath Kunzru is a man of princinles. He has pointed out the existences of a lacuna. These principles have to be put into practice. His speech definitely pointed out how the lacuna exists, and also how those principles must be given effect to. Of course something is better than nothing. Pandit Kunzru wants clause (3) (a) to be subdivided into (a) and (aa), and I hope the House will accept this in the interest of those undeveloped provinces about which the House has heard so much the other day and today.

What we have been trying to assert incidentally places before the House the fact that there is no initial distribution of the resources. We may have failed to emphaise and to convince others that an initial division of income-tax and other resources is necessary, for the development of the undeveloped provinces, such as Orissa, Assam, Bihar and to a certain exent Bengal. And I suppose Pandit Thakur Das Bhargava wants that East Punjab also should be included in the list of provinces of low resources, which want initial all(-,cation of resources for development. Sir,, I do very respectfully differ from my respected Friend Pandit Kunzru, that the President or the Cabinet or the Government of India in the Finance Department should hot think of apportioning initially all resources simultaneously with the. promulgation of this Constitution. In other aspects, such asExicise Duties and other duties, they have been recommended in the Sarker ReportI have occasionally differed from the recommendations of that Committee., especially that the distribution of income-tax should be on the collection basis. My objection still stands and I hope Pandit Kunzru has already advocated my stand, that the distribution of Income-taxes should be on a population basis.

My honourable Friend Pandit Hirday

Nath Kunzru referred to the system envisaged by the Grants Commission in Australia. We have, got some inkling of it in the Nehru-Adarkar Report. The tiling is that though Australia was not a sovereign Government, and it had a dominion system of Government, it could utilise its resources for the uplift of the undeveloped provinces.' Unfortunately in India for 150 years, up to 1947, we were a subordinate Government run under the colonial pattern of British system, whereby all the resources were concentrated at the Centre and were spent at the behest of the British Finance Member for good of Britain and not of India. Today we want to hear something to soothe our heart that the Finance Department of the Government of India is not following that colonial pattern of finance -administration in India. That is the crux of the situation. I do not mind my honourable Friend Dr. Ambedkar postponing the appointment of a Grants Commission or the Finance Commission for another two and a half years-perhaps it will be three years because if on 26th January, 1950 we accept this Constitution, in another place we will compel the Cabinet and the President to appoint the Finance Commission within two years of that date which means it will be four years after the Nalini Sarker Committee reported.

But, Sir, how are we to determine the principles of the distribution of revenoues ? I plead guilty I have given no amendment because we were left in a haze. The House at no stage; discussed the principles of finance allocation and today we authorise the President to appoint a Finance Commission and to lay down certain principles.

Sir, I am grateful to Pandit Hirday Nath Kunzru who referred to article 277. That the President of India should interfere in provincial resources in time of emergency shows a mentality which the Britishers had in 1937. Knowing that the war was coming, in 1937 they amended Section 126 of the Government of India Act in the House of Commons and called it Section 126-A, whereby all resources were placed in the hands of the Central Government. Not only all our leaders were placed in jail, but provinces worked under Section 93 to serve U.K. What happened was that India was bled white during the 2nd War, nearly Rs. 4,000 to 5,000 crores were mulcted out of us by the Allied Powers. in which the U.S.A. equally benefited along with the U.K. Everything was purchased at controlled prices, at pre-war level of prices, and if there is inflation today, if there are financial difficulties, poverty and starvation, inflation and high prices, it is due to that Section 126-A. I would have thought, Sir, a national Government, a democratic Government framing an independent Constitution would not think of acquiring financial powers under article 277 in time of emergency. is an evolution of mind of those of us who fought for the freedom of India. I cannot fathom why this power should be handed over to the President.

Whenever I examine any article of these financial provisions, I feel baffled. Sir, we have postponed article 258, but what does it aim at ? It aims at centralization of all sales tax so that there will be uniformity of basis in collection of sales tax. Sales-tax today is on a lower trend because our Finance Minister has agreed to spend less dollars and less sterling during his recent London visit. If we accept lower expenditure, how can Provinces like Madras who live on luxurious goods of foreign import, live when there is less sales-tax. There willperhaps be another debate on article 258 but I am looking at the picture as a whole. The Finance Commission would be faced with bigger problems than was originally visualised by the Drafting Committee.

Mr. President : Article 258 does not refer to sales-tax ?

Shri B. Das : Yes, Sir. it will refer to sales-tax.

Mr. President : It refers to agreement with States.

Shri B. Das : Yes, Sir, and there the Government of India comes in........

Mr. President : It has nothing to do with sales-tax.

Shri B. Das: Let me then give the information to the House that the Government of

India is in close correspondence with the Provincial Finance Ministers and others. They want uniformity of sales-tax in all the provinces and yet they are decided on reducing the volume of trade in the Provinces whereby the revenue, of the provinces will be reduced. I am not an advocate of the use of foreign goods, I do not use them if I can help it, but everywhere the Centre is using its arbitrary power to reduce the income of the provinces and yet it does not settle the fundamental issue that the initial basis of distribution of resources should be revised. I do not wish to harp on points on which I have spoken on so many occasions during the last three or four days, but I am baffled at the trend of events as regards the distribution of finances between the Centre and Provinces. I am not very happy that three years hence a Finance Commission will be appointed, but I see a ray of hope, I see a streak of light. If the principle advocated in Pandit Hirday Rath Kunzru's amendment is accepted wisdom may dawn on those who are in control of the Government of India today that the initial basis of allocation of resources should be revised. I do hope that Pandit Kunzru will not object if undeveloped provinces like Orissa, Assam and Bihar get a little more money than they would otherwise be given by the Finance Commission later.

Prof. Shibban Lal Saksena: Sir, this is a very important article in the Constitution. I am glad that Dr. Ambedkar has provided that a Finance Commission shall be appointed within the first two years of the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary. Dr. Kunzru has given notice of two amendments to clause 3(a) of this article. I personally feel that the amendments will make the position worse. In fact he proceeds on certain assumptions. I feel that this Commission shall be only a body to recommend to the President and not a body whose decision is binding. He wants a convention that whatever this Commission recommends should be binding on the President. He says that the President of course has the power but he should not exercise it : that he should impose on himself a sort of voluntary self-denying ordinance. We have recently had the report of the Experts Committee on. Finance and the other day Dr. Kunzru himself told us that it was wise that the report was not accepted. He must realise that there can be a Finance Commission which can make reports similar to the one which was made by the Sarker Committee and which the Central Government and the Drafting Committee thought fit to scrap. 1. therefore, say that the Finance Commission shall be a body of experts who shall examine the position of the Republic so far as finance is concerned and shall make their recommendations. They shall adduce their reasons for their viewpoint. 'but I do not think it could be a body which can take away the admitted responsibility of the Parliament to make final decisions in regard to finance. I am therefore opposed to any conventions being established that the Finance Commission's report shall be accepted.In the previous article I opposed the powers of the President to make allocations on the ground that I wanted the Parliament to do it by law. If Dr. Kunzru's assertion were accepted that there shall be a convention by which the recommendations of this Commission shall be accepted, I personally feel that this convention would be very unhealthy and harmful. It will detract from the authority of the Parliament to make allocations. In fact this Commission has been given power to make recommendations about distribution of the proceeds of the taxes, about grants-in-aid, about the continuance or modification of the terms of any agreement, etc., in fact on anything which is referred to it'. so that if the Commission's recommendations have to be accepted by convention it becomes more powerful than the Cabinet itself. The Cabinet will not be able to touch any of the recommendations of the Commission. I do not want to take away these

powers of the Parliament and give them over to the Finance Commission, howsoever wise a body it may be. Dr. Kunzru's objection to the Parliament interfering with the recommendations of the Commission is this. Suppose the Finance Commission makes a recommendation giving a larger proportion of the taxes to a particular State and the President or the Parliament reduces the amount to be given to that particular State or province, then the province will accuse the Centre of depriving it of the sum which the Finance Commission thought fit to allot to it. I personally feel that the Parliament will be a parliament of the whole nation and every. State will be represented on it. If Parliament after consideration of all the pros and cons of every proposal and after taking into consideration all the arguments of the Finance Commission, thinks in its supreme wisdom that a State should have a particular allocation, I think Parliament will be within its rights and nobody will make any accusation against it, because the members representing the particular State will also be there to give their opinion about the allocation. I therefore think that it will be a very dangerous principle to give authority to any outside body like the Finance Commission to dictate to the Parliament and to the Government that "this shall be the distribution of the finances of the country." I therefore feel that the fundamental assumption on which the two amendments of Dr. Kunzru are based is wrong. This Finance Commission as has been defined in the Constitution will be a Commission which will recommend to the President Is to how the distribution of the finances will take place between the Centre and the States. That should be its function. It should not have the authority to have the last word on the distribution. Dr. Kunzru gave the example of Australia where he said such a convention was prevalent. I think except for Australia no such convention exists anywhere else. I am not fully familiar with conditions in Australia to be able to say why they have adopted this convention. But so far as my own country is concerned I feet that Parliament should be the ultimate authority and nobody shall have the right to criticize Parliament in its allocations, since every part of the country sends its representatives to it. I therefore think that the recommendations of the Commission shall be only recommendatory as contemplated by this Constitution and according to the clause as framed by Dr. Ambedkar. If that goes, these two amendments become superfluous. Dr. Kunzru wants the distribution between the Union and the States of the net proceeds of the taxes on income which should be divided initially between them and that this allocation should be the function of the Finance, Commission. Article 251 says .

"Such percentage, as may be prescribed, of the net proceeds in any financial year of any such tax...... shall be distributed."

Further it says that the word "prescribed" means "until it Finance Commission has been constituted prescribed by the President by order and after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations -of the Finance Commission." Dr. Kunzru wantsthat this Finance Commission should not have the power to make a recommendation about the distribution of income-tax proceeds on each occasion on which the matter is referred to it but only wants that initially on the first occasion it should -be permitted to do so. It may be that according to conditions today the proceeds of income-tax may be distributed in a certain manner; but tomorrow the finances,of the Centre may get worse and they may not be able to spare those allocations, while the finances of provinces may be better and they may not need that amount. So if the amendment is accepted, the Finance Commission cannot change the allocation. I think it is better that,the Commission should be able to report to the President every time how the taxes should be divided, according to conditions then existing. Laying down a fixed percentage for

all time will defeat the very purpose of this Commission. I therefore do not think the first amendment of Dr. Kunzru is at all proper. He wants that the power of the Government and the President should not be taken away by this Commission so far as any change in the distribution of percentage is concerned. He wants that the recommendation of the Commission should be sacrosanct, but I want them to be recommendatory They should not be binding and on every occasion the Finance Commission's advice should be sought as to the distribution between the provinces and the Centre. If the recommendations are not to be treated as binding on the President, the first clause becomes meaningless and the amendment therefore has no significance.

The second clause of the amendment refers to allocation between the States, but article 260 refers to distribution between the Union and the States. Therefore this amendment would deny to the Commission the power to say that so much of the proceeds of an excise duty should go to the Union and so much to the States; he wants the President to be the final authority to determine the allocation between the States and the Centre. That is to say, the President will say that 20 per cent. will go to the provinces and then the Finance Commiswon will say how it will be distributed. This means that the Finance Commission will be useless, if it has no power to determine the percentage of allocation as between the Union and the States. Therefore I think this second amendment is even more. dangerous. What I am really afraid of is the devolution of responsibility from Parliament to an outside authority, whether it be the President or the Finance Commission. I want Parliament to be the ultimate authority, in which case these amendments are out of place. Parliament must know the financial state of the country. The Finance Commission must have full authority to so into every aspect of every duty and the condition of provinces as weil as the Centre, so'that its report may enlighten Parliament. The second amendment is more dangerous because it makes the Finance Commission a useless body. In fact during discussions on articles 253 and 254, each province wanted a share of the duties that are raised in that particular province. So the President here should not be given the power to make allocations; Parliament must be the authority to allocate the shares. But this amendment of Dr. Ambedkar really wants that the allocation shall not be made by the Commission or by Parliament but by the President in his discretion, who will decide the percentage to 'be distributed and the Commission will report as to the manner of distribution. I think these two amendments are based on the supposition that the recommendations of the Finance Commission are to be binding. 'I do not think these recommendations should be sacrosanct. In the next article I will move an amendment that whatever decision is taken will have to be approved by Parliament which will decide whether the clarifications made by the President are proper. Ile ultimate authority must be the Parliament which will decide according to the state of the country. Sir I hope my points will be borne in mind and considered.The Honourable Dr. B. R. Ambedkar: Sir, the House must have realised that my honourable Friend Dr. Kunzru's amendment referred to clause (3) of article 260 where the functions of-the Finance Commission are laid down. But, in order to understand the exact significance of the amendments he has moved, I personally feel that it is desirable to know the method of allocation of revenues already provided for in the two articles we have already passed, namely, 251 and 253. It will be realised that the Draft Constitution separates the distribution and allocation of the income-tax from the distribution and allocation of central duties of excise. With regard to income-tax the distribution and allocation of the proceeds is a matter which is left to the President to decide. That will follow from reading article 251(2) with clause (4) (b) (i) and (ii). On the other hand with

regard to the distribution and allocation of the proceeds of the central duties of excise the matter is left entirely to be determined by law made by Parliament, which you will find set out clearly in article 253.

As it is one o'clock I will continue my speech tomorrow.

The Assembly then adjourned till 9 of the clock on Wednesday, the 10th August, 1949.