Taxation in India and it's Constitutional History

The power to tax has been exercised by all sovereign entities that are traceable in the pages of History. And so is India as a sovereign republic entitled to collect taxes from its subjects. Taxes can be classified into various categories namely

• Income Tax
• Service Tax
• Wealth Tax
• Value Added Tax and many more

However there are two broad classification of taxation available to us in the forms of Direct Taxes and Indirect Taxes. The difference between these two forms of taxes can be enumerated in the following expression - "A direct tax is one that cannot be shifted by the taxpayer to someone else, where as an indirect tax can be." And even the Britannica corroborates this expression. In lucid language Direct Tax is what the tax payer pays directly to the Government whereas the indirect form of tax is collected by the government through the intermediaries and it is the intermediaries' responsibilty to file for the related Tax return. Income Tax and V.A.T. would be appropriate examples of the direct and indirect tax respectively.

The primary subject of this composition is to deal with the historical background and constitutional madate of the Income Tax policy in India.

The  present Income Tax Act of 1961 came into being after replacing the 1922 Act which was utilised for almost 40 years. The present act came into being on the 1st of April 1962. The new act had its base in the twelfth report of the Law Commission of India which was published in the year 1958 and the direct Taxes Administration Enquiry committee's report which was published in 1959. both the reports recommended the enactment of a new statute and replacing the old one for the former one was rendered messy and shapeless after numerous number of amendments. However it would be worthwhile to note at this juncture that the present Act too has failed the expectations of it miserably. Within the first forty two years itself the Act of 1961 has been amended ninety-three times.

Now in the United Kingdom where the legal framework lacks the presence of a written Constitution, the legislature as the legitimate house of representative of the people is empowered to carry on the sovereign responsibility of enactment of statutes in the name of the Queen. However in countries like India the presence of a Constitution mandates every enactment to pass the test of constitutionality. The Legislatures can pass an enactment subject to the assent of the President of the Nation as the head of the Union. But even after it comes into force the judiciary can strike down any act on grounds of it being ultra vires to the Constitution.

So the Income Tax Act also requires a Constitutional mandate to sustain its existence. Article 265 is one such constitutional provision that necessitates the requirement of a law validating taxation policy. However both the levy as well as collection of taxes must have assent of the legal authorities. The Supreme Court  in Ghulam Hussain v State of Rajasthan[AIR 1963 SC 379] noted that "Law" in this Article would mean Law passed by a competent legislature. And it is obvious that the Income Tax Act,1961 was passed by the Lok Sabha. 

Another important area to be considered is Article 246 of the Constitution. This Article empowers the legislatures to enact laws. But further this article devides the zne of consideration for legislative policies between state and central legislations in three categories. The categories are known as:

• Union List( Central Parliament)
• State List( State Legislations)
• Concurrent List( Both State and Central legislations can legislate on the subjects dealt under the concurrent list however in case of a confilct the central legislation would be preferred over that of the State legislation)

This list is mentioned in the Seventh Schedule of the Constitution of India.The Parliament is empowered to enact on taxation matters subject to entries 82-97 of List I. The parliament also has residuary powers of Taxation under Article 248(2). The corresponding provisions with regard to the State Legislatures has been enumerated in entires 45-68 of list II.

Federation of Hotel and Restaurant Assn vs UOI [178 ITR 97 SC] saw the Supreme Court lay down the principle stating that the courts have been vested with the duty of ascertaining to what extent and to what degree the authority to levy tax exists in each legislature. Since then the Courts could also define the limits of the respective legislative powers.

The Hon'ble Supreme Court of India in the case law of UOI vs Sanyasi Rao[219 ITR 330 SC] laid down that the word "income" mentioned in entry 82 should be construed liberally with a wide perspective. Aboobacker vs UOI [177 ITR 358]; Sat Pal vs ETC [185 ITR 375]; Ashoka vs CIT [209 ITR 679]; Attar Singh vs ITO [191 ITR 667 SC] are Case laws that seconded the above mentioned principle laid down in Sanyasi Rao.


Refference:

1) Kanga, Palkhivala and Vyas, The Law and Practice of Income Tax, Lexis Nexis Butterworths, 9th ed, Vol 1.