Part XII: Finance, Property, Contracts and Suits

Article 285: Exemption of Property of the Union from State Taxation

Original Article:

(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.

Explanations:

Article 285 establishes that the property of the Union is exempt from state taxation, ensuring fiscal sovereignty of the Union government. This exemption underscores the distinction between Union and State powers, fostering a balanced federal structure.

Key Provisions:

Tax Exemption for Union Property

Clause (1) exempts Union properties from state-imposed taxes unless specified otherwise by parliamentary legislation, protecting Union fiscal interests.

State Taxation Continuity for Certain Properties

Clause (2) allows states to continue taxing Union properties that were liable to taxation before the Constitution's commencement, until Parliament legislates otherwise.

Real-Life Example:

An example is the exemption of central government buildings, such as post offices and military installations, from state property taxes, reflecting the application of Article 285.

Historical Significance:

Article 285 emphasizes the financial autonomy of the Union by exempting its property from state taxes. This principle of sovereignty has been integral to maintaining the federal balance envisioned by the Constitution's framers.

Debates and Deliberations:

During the Constituent Assembly debates, members discussed the necessity of exempting Union properties from state taxes to ensure smooth functioning of central administration. Dr. B.R. Ambedkar explained that this provision was crucial for delineating fiscal responsibilities and avoiding conflicts between Union and State governments.

Shri K.T. Shah expressed concerns about local governments potentially losing revenue due to exemptions and suggested safeguards. He emphasized that local services such as water and sanitation provided to Union properties should be compensated in some form to avoid financial strain on municipal bodies.

Shri Alladi Krishnaswami Ayyar countered these concerns by pointing out that the Union’s ability to legislate exceptions to this rule ensured flexibility in addressing unique circumstances, thus protecting local interests when necessary.

The Assembly ultimately concluded that Article 285 was necessary for a cohesive federal structure, with sufficient provisions for Parliament to address any unintended inequities in its application.

References:

• Constitution of India: Primary text for understanding fiscal relations between Union and State governments.
• Judicial Interpretations: Supreme Court rulings interpreting Article 285 and its implications for federal structure.