KSLU Solved Question Papers
Law of Taxation
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 7
2020 Nov Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2020 Nov Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2020 Nov examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2020 Nov examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 15 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Explain the meaning and scope of doctrine of immunity (tax) of state instrumentalities.[16]
Answer
For full marks, cover: the meaning of the doctrine and the federal reason for it; its American origin and later narrowing (McCulloch v. Maryland, Collector v. Day, as described by the Supreme Court of India); the Indian text: articles 285, 289, 287 and 288; the scope of the immunity, tested by five questions: who is protected (Governments, not their corporations: Andhra Pradesh State Road Transport Corporation, Dum Dum Municipality), what is protected (property and income), against which taxes (direct, not customs or excise: the Sea Customs reference), where (municipal taxes in Union territories: New Delhi Municipal Committee), and the exceptions (trade or business, Parliament's law); a comparison table; the GST position; an assessment.
Meaning
In a federation, two levels of government each have the power to tax. The doctrine of immunity of State instrumentalities asks whether one government may tax the other. In its full form, it says neither may tax the property, income or operations of the other. Its basis is that the power to tax can be used to cripple. If one government could tax the other freely, it could weaken the other's ability to function. The doctrine protects each government's independence in its own sphere.
The American origin
The doctrine began in the United States, as the Supreme Court of India has described in New Delhi Municipal Committee v. State of Punjab. In McCulloch v. Maryland, Chief Justice Marshall held void a State tax on a Federal Bank. The decision mainly asserted the supremacy of the Federal Government. More than fifty years later, Collector v. Day (1871) made the immunity reciprocal, so that States too were protected from federal taxation. That reciprocal rule was never applied widely and was much modified. In South Carolina v. United States (1905), a State was held bound to pay a national excise tax on liquor dealers.
The Indian text
India did not borrow the doctrine as an unwritten principle. The Constitution sets out specific, limited immunities:
- Article 285: Union property. The property of the Union is exempt from all taxes imposed by a State or by any authority within a State, unless Parliament provides otherwise. Taxes to which such property was liable before 1950 may continue until Parliament provides otherwise.
- Article 289: State property and income. The property and income of a State are exempt from Union taxation (clause (1)). But Parliament may tax a trade or business carried on by or for a State, and its property and income (clause (2)). Parliament may also declare a trade or business incidental to the ordinary functions of government, and that stays exempt (clause (3)).
- Articles 287 and 288: electricity and water. States may not tax electricity consumed by the Government of India or used in railways, except as Parliament allows. Nor may they tax water or electricity of authorities set up under Union law for inter-State rivers, except as the President allows.
The scope, in five questions
1. Who is protected? Only the Union and the States themselves. A corporation set up by statute, even if owned and controlled by a government, is a separate person.
Andhra Pradesh State Road Transport Corporation v. Income Tax Officer, (1964) 7 SCR 17, as described by the Supreme Court in the Dum Dum case below. Road transport in Andhra Pradesh had been run as a government department, and its income was the State's and exempt. In 1958 a statutory Corporation took it over. The Corporation argued that its net income went to the State, so it was still State income. A Constitution Bench rejected this. The Corporation had its own fund and could borrow, contract and own property, so it was a distinct entity. State ownership and control did not bring it within article 289.
Municipal Commissioner of Dum Dum Municipality v. Indian Tourism Development Corporation, (1995) 5 SCC 251, decided on 1 August 1995. Municipalities taxed airport properties vested by statute in the International Airports Authority of India. The Authority claimed immunity under article 285 as Union property. The Supreme Court held that the Authority was a statutory corporation distinct from the Central Government. Once vested in it, the properties were no longer the Union's. Municipal tax could therefore be levied.
The same case explains whom article 285 binds. A municipality or municipal corporation is "an authority within a State". So, while property remains the Union's, no municipality may tax it unless Parliament allows.
2. What is protected? Only property under article 285, and property and income under article 289. Article 285 mentions only property because a State cannot tax income, other than agricultural income, at all.
3. Against which taxes? Only taxes on property and income, which are direct taxes.
In re the Bill to amend Section 20 of the Sea Customs Act, 1878, (1964) 3 SCR 787, opinion of 10 May 1963. The Union proposed to charge customs and excise duties on all goods belonging to States, not only those used in trade. The President referred the question to the Supreme Court under article 143. A nine-judge Bench answered by majority, Sinha CJ writing. It held that the immunity of the States "does not extend to duties of customs including export duties or duties of excise". Those duties fall on import, export or manufacture, not on property as such.
4. Where? The protection runs wherever the Union taxes.
New Delhi Municipal Committee v. State of Punjab, (1997) 7 SCC 339, decided on 19 December 1996. The New Delhi Municipal Committee levied house tax on buildings owned by several States in New Delhi. A nine-judge Bench held that "Union taxation" in article 289(1) covers every tax the Union may levy. In a Union territory, that includes municipal property tax. The States' buildings were therefore immune. The Court also confirmed that the Sea Customs reference remains good law.
5. What are the exceptions? Parliament may remove the Union's immunity by law (article 285). It may tax a State's trade or business, unless it declares the trade incidental to government (article 289(2), (3)).
India and the United States compared
| Point | United States | India |
|---|---|---|
| Source | judge-made, implied | written articles |
| Scope today | narrow, after later decisions | property and income only |
| Taxes covered | varied over time | direct taxes; not customs or excise |
| Point | United States | India |
|---|---|---|
| Corporations | separate | outside the immunity (APSRTC, Dum Dum) |
| Balance | reciprocal | uneven: Union may tax State trade |
The position under GST
GST is a tax on supplies, not on property or income. Following the Sea Customs reasoning, article 289 does not shield a State's supplies from it. Supplies by governments are dealt with in the GST law itself. For example, many services supplied by a government to a business entity bear GST. The recipient pays it under reverse charge (Notification No. 13/2017-Central Tax (Rate), as first issued).
Assessment
The Indian scheme is narrower and clearer than the American doctrine. It protects only the core: a government's own property and income from direct taxes. Two forces have reduced its reach further. Governments now act through corporations, which are outside the immunity. And the main revenue taxes, customs, excise and now GST, are indirect. The scheme is also deliberately uneven: the Union's property is safe from State taxes, but the Union may tax a State's trade. New Delhi Municipal Committee records the reason given when the Constitution was drafted. When the Federation taxes the units, it taxes its own constituents. When a unit taxes the Federation, it acts on people over whom it has no control. In any problem, therefore, first ask whether the taxpayer is the government itself. Then ask whether the tax falls on its property or income.
Conclusion. The doctrine of immunity of State instrumentalities protects one government from taxation by another. India adopted it only in the limited, written form of articles 285 and 289, with articles 287 and 288 for electricity and water. The immunity covers the Union's property and a State's property and income, against direct taxes only, as the Sea Customs reference holds. It runs to municipal taxes in Union territories (New Delhi Municipal Committee). It does not cover statutory corporations (APSRTC, Dum Dum), a State's trade or business, or indirect taxes such as GST.
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