Article 285

Article 285 of the Constitution of India establishes the principle that property belonging to the Union Government is exempt from taxation by States or local authorities. This provision safeguards the financial independence and administrative autonomy of the Union, preventing States from imposing taxes that could interfere with the functioning of central institutions or assets.

Constitutional Background and Objective

The framers of the Constitution introduced Article 285 to ensure that the Union’s property and operations are not hindered by fiscal measures imposed by States or local bodies. As India is a federal polity with a clear distribution of powers between the Union and the States, the article provides immunity to Union property from State taxation unless Parliament decides otherwise.
This provision maintains the principle of fiscal federalism and prevents overlapping of financial powers. It mirrors a similar protection given to State property under Article 289, which exempts State property and income from Union taxation.

Exemption from State Taxation under Article 285(1)

Clause (1) of Article 285 explicitly states:“The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.”
This clause establishes a general immunity for all property belonging to the Union. It includes both movable and immovable assets—such as land, buildings, vehicles, machinery, and infrastructure—owned or controlled by the Union Government or its departments.
The exemption applies to all forms of State and local taxes, including:

• Property tax or house tax imposed by municipalities.
• Land revenue levied by States.
• Other local taxes or cesses that target ownership or occupation of property.

The primary objective is to prevent any level of subnational government from restricting or burdening the Union’s functions by imposing taxes on its property.

Parliamentary Power to Modify the Exemption

The immunity under Article 285(1) is not absolute or unconditional. Parliament has the authority to legislate and permit States or local authorities to impose taxes on Union property to a specified extent. This power provides flexibility in fiscal relations, allowing Parliament to balance the needs of local bodies with the financial interests of the Union.
To date, no comprehensive law has been enacted by Parliament to authorise such taxation, which means that Union property continues to enjoy general exemption across India.

Transitional Provision under Article 285(2)

Clause (2) of Article 285 provides a transitional arrangement:“Nothing in clause (1) shall, until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such tax was immediately before the commencement of this Constitution lawfully leviable.”
This means that if any property belonging to the Union was subject to a State or local tax before 26 January 1950, such taxation could continue temporarily until Parliament decides otherwise. The purpose of this clause was to prevent sudden loss of revenue to States and municipalities that were already dependent on such taxes during the transition from colonial administration to constitutional governance.

Scope and Limitations of the Exemption

The scope of Article 285 extends broadly but is subject to important qualifications:

• Taxes vs. Fees: The exemption applies only to taxes and not to fees or charges levied in return for specific services. For instance, water charges, sanitation fees, or service-related levies are not covered by the exemption.
• Extent of Immunity: The exemption covers only those taxes imposed by States or local authorities. It does not extend to taxes levied by the Union Government itself.
• Definition of Property: The term “property” encompasses all forms of assets—movable, immovable, tangible, or intangible—owned by the Union Government.
• Applicability to Government Undertakings: The exemption applies directly to property belonging to the Union, but not necessarily to property owned by government corporations or public sector undertakings (PSUs) with separate legal personalities, unless explicitly recognised as Union property.

Judicial Interpretations and Case Law

The judiciary has played a pivotal role in interpreting the scope and meaning of Article 285. Several landmark judgments have clarified the extent of the Union’s exemption from State taxation:

• Union of India v. State of Uttar Pradesh (1961): The Supreme Court held that Parliament retains the power to authorise taxation on Union property and that the constitutional immunity is subject to such parliamentary legislation.
• Union of India v. City Municipal Council, Bellary (1979): The Court ruled that the exemption applies to all forms of taxation by local authorities, including property tax, unless Parliament enacts a law permitting such taxation.
• New Delhi Municipal Committee v. State of Punjab (1997): The Supreme Court reaffirmed that property tax imposed by municipal bodies constitutes a “tax” under Article 285, and Union property cannot be subjected to it unless authorised by parliamentary law.
• Municipal Commissioner of Dum Dum Municipality v. Indian Tourism Development Corporation (1995): The Calcutta High Court held that water tax and conservancy charges are fees for services rendered, not taxes, and therefore do not fall under the exemption of Article 285.

Through these rulings, the courts have consistently maintained the distinction between taxes and fees and reinforced the constitutional protection accorded to Union property.

Related Constitutional Provisions

Article 285 forms part of a broader framework of fiscal provisions designed to maintain a balanced financial relationship between the Union and the States. Related articles include:

• Article 287: Exempts the Union from State taxation on electricity consumed by the Union or by its agencies.
• Article 289: Provides reciprocal protection by exempting State property and income from Union taxation.
• Article 265: Prohibits taxation except by authority of law, ensuring that no tax can be levied without legislative sanction.

These interconnected provisions establish a comprehensive structure for fiscal federalism and mutual financial respect between the two levels of government.

Practical Implications

The practical effect of Article 285 can be observed in several areas of governmental functioning:

• Union properties, such as railway premises, defence establishments, post offices, and central government offices, are generally immune from State and municipal taxes.
• Municipal authorities cannot impose property or house tax on Union-owned buildings without explicit parliamentary authorisation.
• No general enabling law has been passed by Parliament to date allowing such taxation, which means that local bodies continue to forgo tax revenues from Union properties.
• Public utilities and service charges, however, may still be recovered as fees for services rendered, ensuring operational sustainability for local authorities.

Significance of Article 285

Article 285 plays a vital role in preserving the financial autonomy of the Union Government. It ensures that the Union can operate across all States without fiscal interference or administrative hindrance. By conferring constitutional immunity on Union property, it prevents conflicts between the two tiers of government and fosters smooth intergovernmental functioning.