Article 274

Article 274 of the Constitution of India establishes a critical procedural safeguard in the legislative process of the Union Parliament. It mandates that certain Bills or amendments relating to taxation or financial matters affecting the States cannot be introduced or moved without the prior recommendation of the President of India. This provision reflects the federal character of the Indian Constitution, ensuring that the financial interests of the States are not adversely affected by unilateral actions of the Union Legislature.

Scope and Purpose of Article 274

The principal objective of Article 274 is to protect the fiscal autonomy and financial stability of the States. It achieves this by requiring executive oversight before Parliament considers any legislative proposal that could alter the financial relations between the Union and the States.
The Article applies exclusively to Bills and amendments concerning:

1. The imposition or variation of any tax or duty in which the States have a financial interest.
2. Changes to the definition of agricultural income for the purposes of income-tax law.
3. Any alteration in the principles governing the distribution of revenue between the Union and the States under Chapter I of Part XII.
4. The imposition of any surcharge for Union purposes, as provided under Article 271.

This procedural requirement ensures that the Union Executive, through the President, acts as a constitutional gatekeeper, preventing Parliament from enacting laws that could disrupt the financial equilibrium of the federal structure.

Requirement of the President’s Recommendation

Under Clause (1) of Article 274, no such Bill or amendment may be introduced or moved in either House of Parliament without the prior recommendation of the President. The recommendation must precede both the introduction of the Bill and any subsequent proposal to amend it.
This requirement is mandatory rather than discretionary. It upholds the principle that taxation and fiscal distribution, being matters of national and intergovernmental importance, must be subject to executive consultation and consent before legislative action.
The President’s recommendation is therefore not a ceremonial formality but a substantive constitutional control ensuring coordination between the Union Executive and Legislature in financial policymaking.

Definition of “Tax or Duty in Which States Are Interested”

Article 274(2) defines a “tax or duty in which States are interested” to mean:

• Any tax or duty the whole or part of whose net proceeds are assigned to any State; or
• Any tax or duty by reference to whose net proceeds payments are made from the Consolidated Fund of India to any State.

This definition extends the scope of Article 274 to cover a broad range of taxes, both direct and indirect, that affect the States’ revenue entitlements under the Constitution. Examples include taxes distributed under Articles 269 and 270, and surcharges imposed under Article 271.

Relation to Other Constitutional Provisions

Article 274 functions in conjunction with several key constitutional provisions in Part XII:

• Article 268 to 273: Deal with the distribution and assignment of Union and State taxes.
• Article 271: Empowers Parliament to impose surcharges for Union purposes.
• Article 270: Specifies the sharing of Union taxes with States.
• Article 117(1): Requires the President’s recommendation for the introduction of Money Bills, which include taxation matters.
• Article 110: Defines a Money Bill, encompassing taxation and fiscal measures.

Together, these Articles reinforce the constitutional balance between legislative power and executive oversight in financial matters, maintaining the cooperative nature of India’s federal fiscal structure.

Legislative Procedure and Practice

In practical terms, before the introduction or movement of any Bill or amendment covered by Article 274, the concerned Ministry—usually the Ministry of Finance—must obtain the President’s formal recommendation.
In Parliament, the Speaker of the Lok Sabha or the Chairman of the Rajya Sabha ensures compliance by demanding proof of such recommendation before permitting introduction or debate. This verification ensures constitutional compliance and upholds procedural integrity in financial legislation.

Judicial Interpretation and Case Law

Although relatively few cases have directly concerned Article 274, several landmark decisions have clarified its scope and importance:

• K.C. Gajapati Narayan Deo v. State of Orissa (1953) – The Supreme Court held that where the Constitution requires the President’s recommendation for the introduction of a Bill, such recommendation is mandatory and cannot be dispensed with.
• M.P.V. Sundararamier & Co. v. State of Andhra Pradesh (1958) – The Court elaborated upon the meaning of “tax or duty in which States are interested,” reinforcing the view that such taxes include those whose proceeds are wholly or partially shared with the States.
• State of West Bengal v. Union of India (1963) – The Court underscored the significance of maintaining a federal balance in financial relations between the Union and the States.
• Union of India v. H.S. Dhillon (1972) – Discussed the division of taxing powers between the Union and the States, confirming the relevance of the President’s recommendation in fiscal legislation.

These rulings collectively affirm that Article 274 operates as a constitutional safeguard, not merely a procedural requirement, ensuring that the Union’s financial powers are exercised with due regard to State interests.

Interaction with Article 271: Surcharges for Union Purposes

Article 271 empowers Parliament to levy surcharges on certain duties and taxes for Union purposes. If such surcharges affect the financial interests of States, Article 274 mandates that the Bill proposing them must also receive the President’s recommendation. This ensures that any additional financial burden or alteration in the distribution of revenue is examined and approved at the executive level before legislative consideration.

Significance and Constitutional Rationale

The constitutional rationale for Article 274 lies in maintaining fiscal federalism and executive-legislative harmony. By requiring the President’s recommendation:

• It prevents Parliament from unilaterally altering the fiscal rights of States.
• It ensures that the Union Executive—responsible for national finance and intergovernmental fiscal relations—reviews all proposals that may affect State revenues.
• It upholds the principle of cooperative federalism, central to India’s constitutional design.

This mechanism reflects the balance between legislative initiative and executive responsibility, a hallmark of responsible governance in a quasi-federal polity.

Key Features of Article 274

• Applies only to Parliament, not to State Legislatures.
• Requires prior, not post facto, recommendation of the President.
• Covers both Bills and amendments affecting taxation and revenue distribution.
• Extends to direct and indirect taxes alike.
• Operates as a mandatory constitutional condition for the validity of such legislation.