Doctrine of Immunity of Instrumentalities | Important Acts and Laws for Judiciary Exams PDF Download

Introduction

• Origin of the Doctrine of Immunity of Instrumentalities: The immunity of instrumentalities concept originated in the United States as a judicial interpretation, not explicitly stated in the American Constitution.
• Principle of Mutual Tolerance and Non-interference: In a federal system, both the central and state governments should avoid encroaching on each other's activities or jeopardizing their existence through tax imposition.
• Interpretation of Authority: The doctrine of immunity of instrumentalities implies limitations on the authority of each government entity.
• Meaning of the Doctrine of Immunity of Instrumentalities: This doctrine grants immunity from taxation to properties, functions, and instrumentalities of one government level when operating within another government level in a federal system.

Evolution of Doctrine of Immunity of Instrumentalities

• Origins of the Doctrine:
  • The doctrine of immunity of instrumentalities originated in the United States through judicial interpretation.
  • It was not explicitly stated in the United States Constitution but developed through legal cases.
• Landmark Case: McCulloch v. Maryland:
  • In this case, Maryland's attempt to tax a federally chartered bank was prohibited.
  • The ruling established that Federal Government properties, functions, and instrumentalities were exempt from State taxation.
• Purpose of the Doctrine:
  • To protect the central government from potential State encroachments via excessive taxation.
  • Prevent States from hindering national authorities' functions within their designated sphere.
• Expansive Interpretation:
  • Initially, the doctrine was broadly interpreted to protect not only government instrumentalities but also private individuals interacting with the government.
  • For instance, private suppliers, contractors, or creditors enjoyed immunity from certain taxes.
• Narrowing of Scope:
  • Over time, the broad interpretation was reconsidered due to its favoring of private individuals over the government.
  • The doctrine now focuses on preventing discriminatory taxes between governments, protecting their autonomy.

Why Doctrine of Immunity of Instrumentalities is Necessary?

• The doctrine of immunity of instrumentalities is essential in a federal system where both Union and State Governments coexist and govern the same population within the same geographical boundaries.
• Both tiers of government have distinct functions and taxing powers, leading to potential overlaps and intersections in their operations.
• To ensure smooth functioning, it is crucial that the property of one government is protected from being taxed by the other.
• This principle avoids redundant efforts in tax assessment and calculation, simplifying administrative processes.
• Granting mutual immunity streamlines tax-related complexities and prevents conflicts over tax liabilities between governments.

Doctrine of Immunity of Instrumentalities in India

• Scope of Immunities in India:
  • The scope of inter-governmental tax immunities or the doctrine of immunity of instrumentalities is limited in India.
• Constitutional Provisions:
  • In India, these immunities are primarily addressed in Articles 285, 287, 288, and 289 of the Indian Constitution.
• Comparison with the United States:
  • Unlike the United States, the Indian Constitution does not have a broad and general doctrine of immunity of instrumentalities.
  • Any immunity in India is derived from the specific constitutional provisions mentioned.

For example, consider a scenario where a state government entity is involved in a commercial activity. In India, this entity may not necessarily enjoy blanket immunity from taxes or legal actions unless explicitly provided for in the Constitution.

Constitutional Provisions for Doctrine of Immunity of Instrumentalities

• Article 285 of the Indian Constitution:
  • Property owned by the Union is generally exempt from State taxation.
  • An exception exists allowing States to tax Union properties previously taxable by the State before the Constitution's enactment, provided the State continues such taxation without contradictory Parliament legislation.
• Articles 287 and 288:
  • These articles offer immunity to specific Union activities rather than its property.
  • They specifically exempt Union agencies' electricity and water consumption or sale from State taxation.
• Article 289 of the Indian Constitution:
  • Clause 1 limits the Union's power to tax State property and income.
  • However, under Article 289(2), States can tax State business operations, property used for trade, or income from such activities if Parliament authorizes.
  • Article 289(3) states that trade or business incidental to government operations is tax-exempt.

Exceptions to the Doctrine of Immunity of Instrumentalities

• The phrase "Save in so far as Parliament may by law otherwise provide" in Article 285 of the Indian Constitution indicates that Parliament has the authority to pass laws allowing a State or any authority within a State to levy taxes on Union property.
• The main aim of Clause (1) in Article 285 is not to completely prevent State or local taxation of Union Property but to bring such taxation under the control and regulation of Parliament.

Empowerment of Local Bodies

Clause 2 of Article 285 empowers local bodies to tax Union properties that were previously liable for taxation before the Constitution's commencement, unless Parliament legislates otherwise.
To benefit from Clause 2, local authorities such as municipal bodies must meet two conditions:

• The tax they seek to impose must align with the tax previously levied on Union property.
• The local authority making this claim must be within the same State where it is asserting the right to continue the tax levy.

Legal Case Analysis: "Governor-General of India in Council v. Corporation of Calcutta"

• The Calcutta Corporation, operating under Section 141 of the Calcutta Municipal Act, assessed premises, including land and buildings, for taxation.
• The central issue revolved around whether buildings constructed post-April 1, 1937, were exempt from taxation.
• The court ruled that the valuation should be based on the property's composition as of March 1, 1937. Buildings constructed after that date should be excluded from assessment.
• Properties treated as liable before April 1937 would not enjoy the exemption provided by the main provision of the section.
• New buildings that did not exist on March 31, 1937, were not subject to taxation on that date and were to be excluded from subsequent valuation.

Conclusion

• The Doctrine of Immunity of Instrumentalities is a foundational principle in federations like India, designed to maintain the autonomy of both the federal government (Centre) and state governments (States/Provinces). This doctrine prevents one sovereign entity from imposing taxes on another, thereby safeguarding their respective powers and independence.
• In India, this principle is enshrined in Articles 285 and 289 of the Constitution, each with its nuances. Article 285 provides complete immunity to Union property from state taxation, except when Parliament expressly allows it. Additionally, Article 285(2) permits existing taxes to continue temporarily until Parliament decides otherwise.
• Article 289, on the other hand, addresses the taxation of State property. Clause (1) exempts State property and income from Union taxation. However, Clause (2) introduces a condition, allowing taxation if State property is used for commercial purposes related to trade and commerce, subject to Parliament’s decision. Clause (3) grants Parliament the authority to determine whether a function conducted through trade and commerce is incidental or not, emphasizing the federal nature of the Indian Constitution with a unitary bias.