“IMMUNITY OF INSTRUMENTALITIES”

THIS ROUGH DRAFT IS SUBMITTED IN THE PARTIAL FULFILLMENT OF COURSE

TITLED CONSTITUTIONAL LAW-II FOR THE ATTAINMENT OF B.A., LL.B (HONS.)
DEGREE.

2020 - 2025

SUBMITTED BY
Name- Rahul kumar
Roll no. – 2345
Semester- 6th [B.A., LL.B (Hons.)]

SUBMITTED TO
Dr. Anirudh Prasad
(Faculty of Constitutional Law)

DATE:-

CHANAKYA NATIONAL LAW UNIVERSITY

PATNA, BIHAR, 800001

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 TABLE OF CONTENT
 INTRODUCTION.......................................................................................................
 CONSTITUTIONAL PROVISIONS.................................................................................
 EMERGENCE OF THE CONCEPT OF DOCTRINE OF IMMUNITY OF
INSTRUMENTALITIES.............................................................................................
 WHY NEED FOR THIS DOCTRINE? .............................................................................
 POSITION IN INDIA
 EXEMPTION OF PROPERTY OF THE UNION FROM STATE TAXATION IN
INDIA
 WHAT IS THE MEANING OF PROPERTY INCLUDED IN THIS ARTICLE ...
 WHAT KIND OF PROPERTY FALLS OUTSIDE ARTICLE 285? ............
 LIABILITY OF RAILWAY PROPERTY TO LOCAL TAXATION
 EXCEPTION TO THE DOCTRINE................................................
 EXEMPTION FROM STATE TAXES ON WATER AND ELECTRICITY
CONSUMEDBY GOVERNMENT OF INDIA...................................
 EXEMPTION OF PROPERTY AND INCOME OF A STATE FROM UNION
TAXATION.......................................................................................................................
 WHAT KIND OF PROPERTY AND INCOME FALLS OUTSIDE ARTICLE 289? 
 GOVERNMENTAL FUNCTIONS V. TRADE OR BUSINESS CARRIED OR BY THE
GOVERNMENT....................................................................................................... 
 WHAT IS THE MEANING OF BUSINESS BEING INCIDENTAL TO THE
FUNCTIONS OF THE GOVERNMENT
 CONCLUSION..........................................................................................................
 BIBLIOGRAPHY....................................................................................................

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 INTRODUCTION
 Doctrine of Immunity of Instrumentalities

 It means, the State and Central (Federal) Governments have immunity from paying taxes
imposed by the other. The immunity is applicable to the instrumentalities set up by the
Governments i.e. Statutory Corporations setup by them. The concept of Doctrine of Immunity of
Instrumentalities originated in the USA as a judicial interpretation but was not mentioned in the
American constitution. In a federal system of government where the federation and the units are
given independent and limited legislative powers it is necessary that each refrain from interfering
with the activities of other, or from destroying the other’s existence by the exercise of its
taxing powers.

 This principle of mutual tolerance and non-interference is called immunity of instrumentalities.

It is also described as doctrine of implied prohibitions as the power of each should be construed
as subject to such an implied limitation.

CONSTITUTIONAL PROVISIONS IN INDIA

The scope of the Inter-governmental tax immunities in India is very restricted. Such immunities
are dealt with mainly in Articles 285, 287, 288 and 289.Article 285

Clause 1, of the Indian Constitution states that the property of the Union shall be exempted from
all taxes imposed by State or by any authority within a State.

Clause 2, however creates an exception by saying that State can levy tax on those properties of
the Union which were liable or treated to be liable for taxation by the State immediately before
the commencement of the Constitution, so long as that tax continues to be levied by that State
and Parliament does not create any law otherwise regarding the same.

 Article 287-8 constitutes a partial importation of the doctrine of immunity of instrumentalities in

relation to the Union. They ensure immunity of certain functions carried on by the Union, as
distinguished from property. These two articles exempt the consumption or sale of electricity or
water by the Union agencies, from any State tax.

 Article 289 under clause 1 limits the taxing power of Union by exempting from its purview
State property and income. Article 289(2) however creates an exception by providing that
the business operations of State, State property being used or occupied for trade or business, or
income accruing there from, may be taxed if parliament provide so. Under Article 289(3), if a
trade or business is declared as incidental to the ordinary governmental functions, it would then
be exempted from taxation.

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 AIMS AND OBJECTIVE
The aim of this research paper is to find out various public sector along with their expenditure
and immunities granted to them.

RESEARCH QUESTION

1. What is the constitutional provision pertains to the immunity granted to instrumentalities?

2. Is it good to have immunity to these instrumentalities?

RESEARCH AND METHODOLOGY

TOPIC- Application of the doctrine of immunity of instrumentalities under the Indian
Constitution. The method of research opted in this project was doctrinal research from both
primary and secondary sources. Majority of research work has been done via Articles, Case
Laws and Case Laws available in online databases. Other sources like various works and
treatises by learned authors have also been referred.

SCOPE
The project is an attempt to understand what the Doctrine of immunity of instrumentalities is and
how are its provisions being constitutionally provided in India. It aims to understand the
exceptions to the doctrine that are provided by the relevant articles itself. It also seeks to find out
the need for this doctrine and also how this doctrine reflects the feature of Indian Federalism
through its provisions.

HYPOTHESIS

The Indian constitution has granted immunities to the state’s property but there are many state’s
instrumentalities that are not protected under these provision.

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 CONCLUSION
A Federation Pre-supposes two coalescing units: the Federal Government/Centre and the
States/Provinces. Each is supposed to be supreme in the sphere allotted to it/them. Power to tax
is an incident of sovereignty. Basic premise is that one sovereign cannot tax the other
sovereign. Hence this doctrine of immunity of instrumentalities is laid down through
which both Centre and State are saved from mutual taxation on their respective property andinco
me.Articles 285 and 289 manifest this mutual regard and immunity but in a manner peculiar to
our constitutional scheme. While the immunity created in favor of the Union is absolute, the
immunity created in favour of the States is a qualified one. This shows the basic characteristic of
Indian Constitution which is federal in character with unitary bias. This could be elaborated by
interpreting Article 285 which says that "the property of the Union shall...be exempt from all
taxes imposed by a State or by any authority within a State" unless, of course, Parliament itself
permits the same and to the extent permitted by it. Clause(2) of Article 285 saves the existing
taxes until the Parliament otherwise provides, but this is only a transitional provision. The ban, if
it can be called one, is absolute and emphatic in terms. There is no way a State legislature can
levy a tax upon the property of the Union. All the properties of Union government irrespective of
whether put to commercial, residential or governmental use is immune from State taxation. So
far as Article 289 is concerned, the position is different. Clause (1), had it stood by itself, would
have been similar to Clause (1) of Article 285. It says that "the property-and income-of a State
shall be exempt from Union taxation". But it does not stand alone. It is qualified by Clause (2)
and Clause (3) is an exception to Clause (2). State property is qualified by exceptions saying that
if the State property is put to commercial use for the purpose of trade and commerce it can be put
to tax if parliament decides so. Also power to decide whether aState property or income
generated is through trade or commerce or from governmentalfunction rests the Parliament under
289(2). Also in 289(3), power to decide that a function carried out through trade and commerce
is an incidental function or not is with the Parliament, completely shows that State legislatures
have no role to play in and there exists Union bias. The similar was also discussed in the cases of
New Delhi Municipal Corporation

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 BIBLIOGRAPHY
 MP Jain’s Indian Constitutional Law, 7th Edition
 DD Basu’s Commentary on the Constitution
 Thomas M. Cooley’s A Treatise on Constitutional Limitation

Cases-

 APSRTC  v.  ITO , AIR 1964 SC 1486.

 Corporation of Calcutta  v. St. Thomas’ School  , (1950) 52 BOMLR 25.
 Damodar Valley Corpn .v. State of Bihar   AIR 1976 SC 1956.
 Governor-General of India in Council  v. Corporation of Calcutta, 52 CWN 173.
 G.G. in Council   v.  Murtizapur Municipality, (1953) 8 DLR 60 (Nag).In Re Customs
Act, AIR 1963 SC 1760.
 Kanpur Municipality  v. Dominion of India , AIR 1954 All 56.
 McCulloch  v. Maryland  , (1819) 17 US 316.
 New Delhi Municipal Committee v. State of Punjab , AIR 1997 SC 2847.
 State of West Bengal v. UOI  AIR 1963 SC 1241.
 Union of India v. City Municipal Council, AIR 1978 SC 1803.
 Union of India v. City Municipal Council  , AIR 2000 Kant 104.
 Union of India v. State of U.P,  (2007) 11 SCC 324.

Constitutional and Parliamentary Provisions-

 Article 285 of the Indian Constitution.

 Article 285 Article 287 of the Indian Constitution.
 Article 288 of the Indian Constitution.
 Article 289 of the Indian Constitution.
 Constituent Assembly Debates, Vol. IX.Entry 53 and 54 of List II of Seventh Schedule of
the Constitution. Entry 22 and 56 of List I of Seventh Schedule of the Constitution.
Railways( Local Authorities Taxation) Act, 1941.