Constitution of India
Article 285: Exemption of property of the Union from State taxation
Part XII — Finance, Property, Contracts and Suits (Chapter I — Finance, sub-heading: Miscellaneous Financial Provisions)
Clause (1)
WHAT IT SAYS: The property of the Union shall be exempt from all taxes imposed by a State or by any authority within a State, unless Parliament by law otherwise provides. WHAT IT MEANS: No State government or local body (municipality, panchayat, etc.) can levy any tax — property tax, house tax, land revenue, or cess — on Union-owned property without express Parliamentary authorization. KEY DOCTRINE: Doctrine of Inter-governmental Tax Immunity — derived from but narrower than the US doctrine of Immunity of Instrumentalities originating in McCulloch v. Maryland (1819). India limits it to 'property' only, unlike the US which extended it to functions and instrumentalities.
Clause (2)
WHAT IT SAYS: Despite Clause (1), any authority within a State may continue to levy a tax on Union property to which it was liable or treated as liable immediately before 26 January 1950, so long as that tax continues to be levied in that State — until Parliament by law otherwise provides. WHAT IT MEANS: This is a transitional/saving clause to prevent sudden revenue loss to States and municipalities that were already taxing Crown/federal property before the Constitution commenced. Pre-existing taxes survive until Parliament legislates otherwise. KEY DOCTRINE: Doctrine of Continuity of Pre-existing Liabilities — ensures fiscal stability during constitutional transition. No general enabling law has been passed by Parliament to date.
Constitutional Inspiration
SOURCE(S): 1. Government of India Act, 1935 — Section 154 (Exemption of certain public property from taxation) Original provision: Section 154 exempted Crown/Federal property from provincial and local taxation, with exceptions for pre-existing liabilities. What India kept: The same two-tier structure — general immunity in Clause (1) plus transitional saving for pre-existing taxes in Clause (2). 2. United States Constitution — Intergovernmental Tax Immunity Doctrine (judicially evolved from McCulloch v. Maryland, 1819) Original provision: States cannot tax federal instrumentalities; evolved via Supreme Court rulings, not express constitutional text. What India kept: The core principle of federal property immunity from state taxation, but codified it expressly rather than leaving it to judicial interpretation. INDIA'S SPECIFIC ADAPTATIONS: 1. Express constitutional codification — The Constituent Assembly decided not to rely on the broad US judicial doctrine but to specifically and narrowly provide limits of inter-governmental immunity in the text itself. 2. Narrower scope — India limits immunity to 'property' only; the US doctrine historically extended to functions, instrumentalities, and employees as well. 3. Parliamentary override power — Unlike the US model, Article 285 expressly empowers Parliament to lift the immunity by law, giving democratic control over taxation policy. 4. Reciprocal but asymmetric protection — Article 289 provides reciprocal immunity to State property from Union taxation, but with additional qualifications for trade/business activities — making the scheme deliberately asymmetric in favour of the Union.
Constituent Assembly Debate
DEBATED ON: 9 September 1949 (CAD Volume IX) Draft Article Number: Draft Article 264 KEY SPEAKERS: 1. Dr. B.R. Ambedkar (Chairman, Drafting Committee) — Opposed the amendment; argued that no property of a person whose interests are not represented in any particular organisation should be taxed by that organisation. 2. A Member (name not recorded in secondary sources) — Moved amendment to make Union property liable to all taxes imposed by local authorities, arguing local bodies render services to these properties. 3. A few other Members — Supported the amendment on grounds that local authorities deserve tax revenue for services provided to Union properties. MAJOR DISAGREEMENTS: 1. Should Union property be taxable by local bodies? — Some Members proposed that Union property should be subject to all local taxes like private property, since local authorities provide services (roads, drainage, sanitation) to these properties. FINAL OUTCOME: The amendment was withdrawn after Ambedkar's reply; Draft Article 264 was adopted without modification on 9 September 1949. AMBEDKAR'S KEY ARGUMENT: No property belonging to a person whose interests are not represented in a local body should be taxed by that body; the intent is not to exempt Parliament completely but to allow Parliament to examine the taxing power of local authorities before permitting such taxation.
Landmark Judgments
LANDMARK JUDGMENTS: 1. Union of India v. City Municipal Council, Bellary (1979) 2 SCC 1 — Exemption under Clause (1) applies to all forms of taxation by local authorities, including property tax; Clause (2) exception is narrow and does not survive State reorganization that alters jurisdictional context. 2. Union of India v. Purna Municipal Council & Others (1991) — Municipal service charges on Railway properties are fees for services rendered, not taxes under Article 285; Railways must pay such service charges. 3. New Delhi Municipal Committee v. State of Punjab (1997) — Property tax by municipal bodies is a 'tax' under Article 285; Union property cannot be subjected to it unless authorised by Parliamentary law. 4. Food Corporation of India v. Brihanmumbai Mahanagar Palika (2020) INSC 318 — FCI godowns on Central Government land are exempt under Article 285(1) since the property belongs to the Union; but entities with separate legal personality (e.g. Electronics Corporation of India Ltd.) cannot claim this exemption. 5. Union of India v. State of Uttar Pradesh (2007) — Water and sewerage charges on Railway properties are fees for services rendered and not taxes; Railways must pay such charges as Article 285 does not cover service fees. 6. Madurai Multi-Functional Complex Pvt. Ltd. v. Madurai Corporation (2025, Madras HC) — Union property enjoys absolute immunity under Article 285(1) regardless of commercial use; the provision creates an 'Iron dome' of protection sheltering all Union properties irrespective of utilisation. NOTABLE DISTINCTIONS: 1. Taxes vs. Fees — Courts consistently hold that Article 285 exempts Union property only from 'taxes', not from 'fees' or 'service charges' levied in return for specific services like water supply, sewerage, and conservancy. 2. Union property vs. PSU property — Entities with separate legal personality (government corporations, PSUs) cannot claim Article 285 exemption unless the property is directly owned by the Union (Electronics Corporation of India Ltd. v. Secretary, Revenue Dept., Govt. of AP, 1999). SCHOLARS & JURISTS: 1. Arvind P. Datar (Senior Advocate) — Analysed the doctrine of inter-governmental immunity; noted that in the Constituent Assembly, it was decided not to rely on the US doctrine but to specifically provide the limits of inter-governmental immunity in the constitutional text itself. 2. D.D. Basu (Constitutional commentator) — Observed that Article 285 read with Article 289 creates a limited and codified scheme of inter-governmental tax immunity, deliberately avoiding the expansive US judicial approach.