Part XII of the Constitution of India (Articles 264–300A)

Part XII of the Constitution of India (Articles 264–300A) governs the financial relations between the Union and the States, including taxation, borrowing, property, contracts, and the right to property.

Chapter I – Finance (Articles 264–291)

Article 264 – Interpretation

Defines terms such as “Finance Commission” and “State” within the context of this Part.

Article 265 – Taxes not to be imposed save by authority of law

Mandates that no tax shall be levied or collected except by authority of law.

Article 266 – Consolidated Funds and public accounts of India and of the States

Establishes the Consolidated Fund of India and the States as the central accounts for all revenues and expenditures.

Article 267 – Contingency Fund

Allows for the establishment of a Contingency Fund to meet unforeseen expenditures.

Article 268 – Duties levied by the Union but collected and appropriated by the States

Specifies certain duties levied by the Union but collected and appropriated by the States.

Article 269 – Taxes levied and collected by the Union but assigned to the States

Details taxes levied and collected by the Union but assigned to the States.

Article 270 – Taxes levied and distributed between the Union and the States

Outlines taxes levied and distributed between the Union and the States.

Article 271 – Surcharge on certain duties and taxes for purposes of the Union

Empowers Parliament to impose a surcharge on certain duties and taxes for the purposes of the Union.

Article 272 – Taxes on income other than agricultural income

Allows Parliament to levy taxes on income other than agricultural income.

Article 273 – Grants-in-aid from the Union to certain States

Provides for grants-in-aid from the Union to certain States.

Article 274 – Previous recommendation of President required to Bills affecting taxation in States

Requires the previous recommendation of the President for Bills affecting taxation in States.

Article 275 – Grants from the Union to certain States

Specifies grants from the Union to certain States.

Article 276 – Taxes on professions, trades, callings and employments

Imposes taxes on professions, trades, callings, and employments.

Article 277 – Taxes on goods and passengers carried by railways, sea or air

Imposes taxes on goods and passengers carried by railways, sea, or air.

Article 278 – Expenditure defrayed by the Union but charged on the Consolidated Fund of a State

Specifies expenditure defrayed by the Union but charged on the Consolidated Fund of a State.

Article 279 – Finance Commission

Establishes the Finance Commission to recommend the distribution of taxes between the Union and the States.

Article 280 – Finance Commission

Outlines the composition and functions of the Finance Commission.

Article 281 – Recommendations of Finance Commission to be laid before Parliament

Requires the recommendations of the Finance Commission to be laid before Parliament.

Article 282 – Power of Union and States to grant money for any public purpose

Empowers the Union and States to grant money for any public purpose.

Article 283 – Custody, etc., of Consolidated Funds, etc.

Specifies the custody and management of the Consolidated Funds.

Article 284 – Custody of suitors’ deposits and other moneys received by public servants and courts

Details the custody of suitors’ deposits and other moneys received by public servants and courts.

Article 285 – Exemption of property of the Union from State taxation

Exempts property of the Union from State taxation.

Article 286 – Restrictions as to imposition of tax on the sale or purchase of goods

Imposes restrictions on the imposition of tax on the sale or purchase of goods.

Article 287 – Exemption from taxes on electricity

Exempts electricity from certain taxes.

Article 288 – Exemption from taxes on water or electricity in certain cases

Exempts water or electricity from certain taxes in specific cases.

Article 289 – Exemption of property and income of a State from Union taxation

Exempts property and income of a State from Union taxation.

Article 290 – Adjustment in respect of certain expenses and pensions

Provides for adjustment in respect of certain expenses and pensions.

Article 290A – Annual payment to certain Devaswom Funds

Specifies annual payments to certain Devaswom Funds.

Article 291 – Privy purse sums of Rulers

Repealed by the Constitution (Twenty-sixth Amendment) Act, 1971.

Chapter II – Borrowing (Articles 292–293)

Article 292 – Borrowing by the Government of India

Empowers the Government of India to borrow upon the security of the Consolidated Fund of India.

Article 293 – Borrowing by States

Empowers States to borrow upon the security of their Consolidated Funds.

Chapter III – Property, Contracts, Rights, Liabilities, Obligations and Suits (Articles 294–300)

Article 294 – Succession to property, assets, rights, liabilities, and obligations in certain cases

• On the commencement of the Constitution, all property and assets vested in His Majesty (British Crown) for the purposes of the Government of India or any Province became vested in the Union of India or the respective State.
• All rights, liabilities, and obligations of the Government of India or any Province also transferred accordingly.

Purpose: Ensures a smooth transfer of governance and continuity in legal and administrative operations.

Article 295 – Succession to property, assets, rights, liabilities, and obligations in other cases

• Deals with property and assets of Indian States (Princely States) that were not part of British India but later acceded to the Indian Union.
• The rights and liabilities related to these States also vested in the Union or the relevant successor State.

Article 296 – Property accruing by escheat or lapse or as bona vacantia

• Property that falls to the government by default (escheat, lapse, or as unclaimed) shall vest in the State where it is located, if not otherwise provided by law.
• Escheat: Reversion of property to the state when a person dies without legal heirs.
• Bona vacantia: Property with no apparent owner.

Exception: Parliament may make a law to alter this rule.

Article 297 – Things of value within territorial waters or continental shelf

• All minerals, natural resources, or things of value found in:
  • Territorial waters
  • Continental shelf
  • Exclusive Economic Zone (EEZ)

Belong to the Union of India.

Includes: Petroleum, natural gas, minerals, etc.

Important Case: ONGC v. Association of Natural Gas Consuming Industries – Held that Union has exclusive rights over offshore natural resources.

Article 298 – Power to carry on trade or business

• Empowers the Union and the States to:
  • Carry on trade or business
  • Acquire, hold, and dispose of property
  • Make contracts

Note: This article enables the government to function as a legal person in business matters.

Article 299 – Contracts

• All government contracts must be:
  • Made in the name of the President (Union) or the Governor (State).
  • Executed properly (signed by an authorised person).

Key Point: If these conditions aren’t met, the contract is not enforceable against the government.

Landmark Case:

• K.P. Chowdhary v. State of Madhya Pradesh (1966) – If a government contract isn’t made as per Article 299, it is void even if acted upon.

Article 300 – Legal proceedings

• The Government of India or a State may sue or be sued in the name of the Union or the State.
• The legal liability of the Union or States is the same as it was under the British Crown before independence.

Significance:

• Ensures continuity of legal responsibility.
• Citizens can bring suits against the government under ordinary law.

Article 300A – Right to Property (Added by the 44th Amendment, 1978)

Although technically placed after Article 300, it’s still functionally related.

• “No person shall be deprived of his property save by authority of law.”
• Property is no longer a Fundamental Right (it was under Article 31) but is now a constitutional legal right.

Important Cases:

• K.T. Plantation Pvt. Ltd. v. State of Karnataka (2011): Held that deprivation of property must meet the standard of public purpose and compensation.

• Summary Table

 Key Constitutional Amendments Impacting Articles 264–300A

44th Amendment Act (1978) – Transformation of the Right to Property

• Reclassification of Property Rights: The 44th Amendment Act removed the right to property from the list of Fundamental Rights under Article 19(1)(f) and Article 31. It introduced Article 300A, stating, “No person shall be deprived of his property save by authority of law.” This change aimed to balance individual property rights with the state’s power to acquire property for public purposes.
• Impact on Legal Recourse: Previously, individuals could directly approach the Supreme Court under Article 32 for the enforcement of property rights. Post-amendment, such cases are to be addressed under Article 226 in High Courts, potentially affecting the speed and accessibility of legal remedies.

Sixtieth Amendment Act (1988) – Taxation on Professions, Trades, Callings, and Employments

• Increase in Tax Ceiling: This amendment increased the ceiling for taxes on professions, trades, callings, and employments from ₹2,500 to ₹2,500 per person per annum. It also omitted the proviso to clause (2) of Article 276, providing more flexibility to states in imposing such taxes.

Ninety-fourth Amendment Act (2006) – Appointment of Minister for Tribal Welfare

• Tribal Welfare Provisions: This amendment provided for the appointment of a Minister in charge of tribal welfare in the states of Chhattisgarh and Jharkhand, ensuring focused attention on the development and welfare of tribal communities in these regions.

One Hundred and Fourth Amendment Act (2019) – Extension of Reservation for Scheduled Castes and Scheduled Tribes

• Extension of Reservation: The amendment extended the reservation of seats for Scheduled Castes and Scheduled Tribes in the Lok Sabha and State Legislative Assemblies by another 10 years, up to 25th January 2030. This extension aimed to continue the inclusive character of the Indian Parliament and State Assemblies.

Judicial Interpretations of Article 300A

• Kohli Brothers Colour Lab Pvt. Ltd. v. Lucknow Nagar Nigam (2024): The Supreme Court held that the right to property under Article 300A extends to individuals who are not citizens of India. The Court emphasized that property rights are not confined to citizens but are a broader constitutional and human right.
• Kolkata Municipal Corporation v. Bimal Kumar Shah (2024): The Supreme Court identified seven sub-rights under Article 300A, including the right to notice, the right to be heard, the right to a reasoned decision, and the right to restitution or fair compensation. Non-compliance with these sub-rights can render the deprivation of property unlawful.
• Supreme Court Ruling on Temporary Land Acquisition (2023): The Court ruled that temporary land acquisition lasting for 20 years is violative of the right to property under Article 300A. It emphasized that landowners have the right to question prolonged temporary acquisitions.

Key Supreme Court Judgments Interpreting Articles 264-300A

K.T. Plantation Pvt. Ltd. v. State of Karnataka (2011) 9 SCC 1

• Issue: Whether the right to property under Article 300A includes intangible property rights.
• Ruling: The Supreme Court held that the term “property” under Article 300A is not limited to tangible property but extends to intangible property rights, such as copyrights and other intellectual property.The Court emphasized that deprivation of property must be in accordance with law, and the expression “authority of law” includes both substantive and procedural law.

Hindustan Petroleum Corporation Ltd. v. Darius Shapur Chenai (2005) 7 SCC 627

• Issue: Whether the State’s interference with an individual’s property rights requires compensation.
• Ruling: The Court reiterated that under Article 300A, the State can interfere with an individual’s property rights only by authority of law, and such interference must be for a public purpose and accompanied by reasonable compensation.The obligation to pay compensation, though not expressly included in Article 300A, can be inferred from the provision.

N. Padmamma v. S. Ramakrishna Reddy (2008) 15 SCC 517

• Issue: Whether the right to property under Article 300A can be divested without following due process.
• Ruling: The Supreme Court held that the right to property is a human and constitutional right under Article 300A and cannot be taken away except in accordance with law.The provisions seeking to divest such rights must be strictly construed to ensure compliance with constitutional safeguards.

Delhi Airtech Services Pvt. Ltd. v. State of U.P. (2011) 9 SCC 354

• Issue: Whether the right to property under Article 300A is a fundamental right.
• Ruling: The Court recognized the right to property as a basic human right under Article 300A, emphasizing that while it is no longer a fundamental right, it remains a constitutional right that protects individuals from arbitrary deprivation of property.

Vidya Devi v. State of Himachal Pradesh (2020) 2 SCC 569

• Issue: Whether delay in payment of compensation for land acquired affects the right to property under Article 300A.
• Ruling: The Supreme Court held that the delay in payment of compensation does not violate the right to property under Article 300A. However, it emphasized that the State must ensure timely payment of compensation to uphold the constitutional rights of individuals.