KSLU Solved Question Papers
Law of Taxation
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 7
2026 Jan (100 marks) Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2026 Jan (100 marks) 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 2026 Jan (100 marks) examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2026 Jan (100 marks) 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 · 13 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 term 'Tax' and state the different types of taxes.[16]
Answer
For full marks, cover: the meaning of tax (article 366(28), article 265, the Shirur Mutt definition); its essential features; the canons of taxation (Adam Smith's four maxims and later ones); the types of taxes classified by incidence, rate, base, method of levy, authority and purpose, with Indian examples and constitutional entries; the cases Shirur Mutt, Navinchandra Mafatlal, Moopil Nair and Hoechst; where the law stands now.
The term "tax"
Every State needs money to defend the country, keep order, build roads and run schools. Its main source is taxation. The Constitution does not define "tax" in full. Article 366(28) says "taxation" includes "the imposition of any tax or impost, whether general or local or special". Article 265 adds the basic rule: "No tax shall be levied or collected except by authority of law."
The Supreme Court gave the working definition in Shirur Mutt. A tax is "a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered". The Income-tax Acts define "tax" only for themselves. Section 2(43) of the 1961 Act and section 2(106) of the 2025 Act mean income-tax chargeable under the Act.
Essential features of a tax
- Compulsory. The payer has no choice, and the law can recover it by force.
- Imposed by law. Only a legislature competent under the Seventh Schedule or article 246A can impose it.
- By a public authority. The Union, a State or a local body acting under a statute.
- For public purposes. The money goes into a public fund for the common good.
- No quid pro quo. The payer gets no special service in return. That separates a tax from a fee.
- A common burden. It falls on all who come within the law, according to their capacity or their dealings.
The leading case on meaning
Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282, decided on 16 April 1954 by seven judges. A Madras law made every religious institution pay the Government up to 5 per cent of its income. The law called it payment for services under the Act. The Supreme Court held it was a tax, not a fee, and beyond the State's power.
The Court drew the line in one sentence: "a tax is levied as part of a common burden, while a fee is a payment for a special benefit or privilege". So the name the legislature gives a levy does not decide its nature. Its substance does.
Canons of taxation
Adam Smith, in The Wealth of Nations, laid down four maxims:
- Equality. Subjects should contribute "in proportion to their respective abilities".
- Certainty. The tax "ought to be certain and not arbitrary". The time, manner and amount must be clear.
- Convenience. A tax should be levied at the time and in the manner most convenient to the payer.
- Economy. It should take from the people as little as possible beyond what reaches the treasury.
Later writers added four more. Productivity means a tax should yield enough. Elasticity means revenue should grow with the economy. Simplicity and diversity complete the list, since a mix of taxes spreads the burden. Indian income tax reflects these canons. Slab rates serve equality. Fixed due dates serve certainty. Tax deducted at source serves convenience. Electronic filing serves economy.
Types of taxes
1. By incidence: direct and indirect.
| Direct tax | Indirect tax | |
|---|---|---|
| Who bears it | The person who pays it | Shifted to the buyer through price |
| Examples | Income tax, securities transaction tax | GST, customs, central excise, State excise on liquor |
| Rate | Usually progressive | Usually uniform on the goods |
Impact is on the person who pays to the Government. Incidence is on the person who finally bears the burden. In a direct tax both are on the same person.
2. By rate structure.
- Progressive: the rate rises as income rises, as with income tax slabs. Under the new regime income up to Rs 4 lakh is free, and the rate climbs to 30 per cent above Rs 24 lakh.
- Proportional: the same rate on every amount, as with a flat rate on a company or a flat GST rate.
- Regressive: it takes a larger share of a poor person's income, as a uniform tax on necessities does in practice.
- Degressive: rates rise but at a slowing pace, becoming flat at the top.
3. By base or object.
- Taxes on income: income tax and corporation tax (List I entries 82 and 85).
- Taxes on wealth and property: land revenue and taxes on lands and buildings (List II entries 45 and 49). The Union's wealth tax ended from assessment year 2016-17.
- Taxes on consumption and transactions: GST, customs, excise, stamp duty and securities transaction tax.
- Taxes on persons and callings: profession tax (List II entry 60), capped at Rs 2,500 a year by article 276(2).
4. By method of levy.
- Ad valorem: a percentage of value, such as 18 per cent GST on the price.
- Specific: a fixed sum per unit, such as a duty per kilogram or per litre.
5. By the authority that levies it.
- Union taxes: income tax, customs, central excise on petroleum and tobacco, IGST on inter-State supplies.
- State taxes: agricultural income, land, State excise on liquor, sales tax on petroleum and liquor, stamp duty.
- Shared tax: GST, levied by both under article 246A.
- Local taxes: property tax and local entertainment tax, levied by municipalities and panchayats under State law.
6. By purpose.
- General taxes go into the Consolidated Fund for any purpose.
- Earmarked taxes, or cesses, are for a stated purpose, such as the 4 per cent health and education cess. Article 270(1) keeps them out of the pool shared with States.
- Surcharges are a tax on a tax for the Union's purposes (article 271).
Merits and demerits of direct and indirect taxes
| Direct taxes | Indirect taxes | |
|---|---|---|
| Merits | Based on ability to pay; certain; progressive rates reduce inequality; the taxpayer is aware of the burden | Wide coverage, so even the poor contribute a little; hard to evade at the point of sale; convenient, paid in small amounts with the price |
| Demerits | Can be evaded by concealing income; may discourage saving and investment; compliance is costly | Regressive in effect; raise prices; can cascade where there is no credit for tax already paid |
A modern system uses both. Direct taxes bring fairness, and indirect taxes bring a broad base. GST tries to cure the chief defect of the old indirect taxes, cascading, through input tax credit.
Cases on the types
Navinchandra Mafatlal v. Commissioner of Income-tax, Bombay City, AIR 1955 SC 58. The assessee said capital gains could not be "income" in the federal tax entry. The Court upheld the tax. Entries conferring legislative power are read in their widest sense, so a tax on income includes capital gains.
Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552. A Travancore-Cochin law charged a flat Rs 2 an acre on all land, fertile or barren. The Court struck it down under article 14. A flat tax that ignores the land's capacity to yield income makes no classification at all. So even a proportional tax must rest on a rational basis.
Hoechst Pharmaceuticals Ltd v. State of Bihar, AIR 1983 SC 1019. Bihar imposed a surcharge on large dealers and forbade them to pass it on. The Court upheld it under List II entry 54. An indirect tax is usually shifted, but the legislature may stop that.
Where the law stands now
Income tax is now charged under the Income-tax Act, 2025, from 1 April 2026, on a "tax year". GST, from 1 July 2017, replaced central excise on most goods, service tax, VAT and entry tax. Since 22 September 2025 most supplies bear 5 or 18 per cent GST.
Conclusion. A tax is a compulsory levy by law for public purposes, with no special return to the payer, as Shirur Mutt holds. Taxes are classified by incidence (direct and indirect) and by rate (progressive, proportional, regressive). They are also classified by base, by method (ad valorem and specific), by the levying authority and by purpose. A good tax follows the canons of equality, certainty, convenience and economy. It must also satisfy article 14, as Moopil Nair shows.
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