Distribution of Financial Powers | Indian Constitution Download PDF
NO system of federation can be successful unless both the Union and Need for States have at their disposal adequate financial of resources to enable them to discharge their respective Resources. responsibilities under the Constitution.
To achieve this object, our Constitution has made elaborate provisions, mainly following the lines of the Government of India Act, 1935, relating
to the distribution of the taxes as well as non-tax revenues and the power of borrowing, supplemented by provisions for grants-in-aid by the Union to the States.
Before entering into these elaborate provisions which set up a complicated arrangement for the distribution of the financial resources of the country, it has to be noted that the object of this complicated machinery is an equitable distribution of the financial resources between the two units of t the federation, instead of dividing the resources into two watertight compartments, as under the usual federal system. A fitting introduction to this arrangement has been given by our Supreme Court,1 in these words:
“Sources of revenue which have been allocated to the Union are not meant entirely . for the purposes of the Union but have to be distributed according to the principle laid down by Parliamentary legislation as contemplated by the Articles aforesaid. Thus all the taxes and duties levied by the Union … do not form part of the Consolidated Fund of India but many of these taxes and duties are distributed amongst the States and form part of the Consolidated Fund of the States. Even those taxes and duties which constitute the Consolidated Fund of India may be used for the purposes of supplementing the revenues of the States in accordance with their needs. The question of distribution of the aforesaid taxes and duties amongst the States and the principles governing them, as also the principles governing grants-in- . aid are matters which have to be decided by a high-powered Finance i Commission, which is a responsible body designated to determine those matters in an objective way… The Constitution-makers realised the fact that those sources of , revenue allocated to the States may not be sufficient for their purposes and that the Government of India would have to subsidise their welfare activities… Realising the limitations on the financial resources of the States and the growing needs of the community in a welfare State, the Constitution has made… specific provisions empowering Parliament to set aside a portion of its revenues… for the benefit of the ‘ States, not in stated proportions but according to their needs … The resources of the Union Government are not meant exclusively for the benefit of the Union activities In other words, the Union and the States together form one organic whole for the purposes of utilisation of the resources of territories of India as a whole.”
Principles under lying distribution of Tax Revenues
The Constitution makes a distinction between the legislative power to levy a tax and the power to appropriate the proceeds of a tax so levied. In India, the powers of a Legislature in these two respects are not identical.