HC Deb 03 May 1935 vol 301 cc746-58

(1) There shall be a Federal Revenue Board which shall be a body corporate by, and may sue and be sued in, that name.

(2) The Federal Revenue Board (in this section referred to as "the Board") shall consist of not less than three or more than five persons to be appointed by the Secretary of State with the concurrence of his advisers, and the Secretary of State shall appoint a member of the Board to be the president thereof.

(3) A member of the Board shall be appointed for five years, and shall at the expiration of his original term of office be eligible for re-appointment for a further term not exceeding five years.

The Secretary of State may terminate the appointment of any member if satisfied that that member is for any reason unable or unfit to continue to perform the duties of his office.

(4) A member of the Board shall be entitled to receive such salary and allowances as the Secretary of State may determine, and all such salaries and allowances Shall be deemed to be part of the cost of collection of the proceeds of every tax or duties collected by the Board. Provided that in each year a proportion of such salaries and allowances to be certified by the Auditor-General of India shall be deemed to be part of the cost of collection to the Board in that year of any tax or duty in which Provinces are interested. Further provided that the emoluments of a member shall not be reduced during his term of office.

In this section the expression "tax or duty in which Provinces are interested" has the same meaning as in the section of the Act of which the marginal note is "Prior sanction of the Governor-General required to Bills affecting taxation in which Provinces are interested."

(5) All acts of the Board and all questions before them shall be done and decided by a majority of the members present and voting at a meeting of the Board.

In the case of an equality of votes at any meeting the person presiding thereat shall have a second or casting vote.

(6) At any meeting of the Board a person deputed by the Governor-General to represent him may attend and speak but not vote.

(7) Subject to the provisions of this Act the Board may make standing orders for the regulation of their proceedings and business, and may vary or revoke any such order.

(8) The proceedings of the Board shall not be invalidated by any vacancy in their number or by any defect in the appointment of any member.

(9) The Board shall entrust all their money which is not immediately needed to the Reserve Bank of India.

(10) The functions to be exercised by the Board are—

  1. (a) To collect on behalf of the Federation or any Province all taxes, imposts, and duties of whatever kind levied by the Federation or any Province;
  2. (b) to collect or receive on behalf of the Federation or any Province any other moneys payable to or receivable by the Federation or any Province;
  3. (c) to disburse or distribute the net proceeds of all moneys received by them in accordance with the provisions of this Act, or in cases where this Act makes no 748 provision for the disbursement or distribution of any moneys in accordance with the provisions of the appropriate Act, whether Federal or Provincial, or any directions lawfully given to them by the Federal Government or the Governor-General, acting in his discretion, or by the Government of any Province or the Governor thereof, acting in his discretion.

In this section the expression "net proceeds" means in relation to any moneys received by the Board the amount of such moneys reduced by the cost (if any) of collection.

(11) The functions of the Board shall be exercised subject to rules to be made by the Secretary of State and any provision of any Act of tie Federal or any Provincial Legislature, or any direction given to the Board by any Government, body, or person which is inconsistent with any such rule shall be invalid and of no effect to the extent of the inconsistency.

(12) If any question arises—

  1. (a) as to whether any such inconsistency has arisen as is mentioned in the preceding sub-section;
  2. (b) as to whether any moneys in the hands of the Board can be lawfully paid to any Government, body, or person;
the Board shall refer that question to the Governor-General who shall refer it to the Federal Court for consideration under the provisions of the section of this Act of which the marginal note is "Power of Governor-General to consult Federal Court," and the Governor-General upon receiving the report of the Federal Court shall, acting in his discretion, but after consultation with the Advocate-General, issue such directions to the Board as appear to him to be necessary and in conformity with such report.—(Marquess of Hartington.)

Brought up, and read the First time.

2.6 p.m.

Marquess of HARTINGTON

I beg to move, "That the Clause be read a Second time."

The object of this Clause is to try to make workable the financial system of the Federation, which, without some provision of this kind, seems to me to be almost certain to break down. The subject is one of immense complexity, and without wishing in any way to detract from the immense labours of the Joint Select Committee, it does not seem to me that that Committee fully dealt with the immensely complicated question of the financial adjustments involved in Federation. Fully to realise the position it is necessary to read the Davidson Report, which goes into the matter very fully and illustrates the enormous complexities involved.

There are in India 215 States and 327 estates, with a population of 81,000,000, in hardly any two of which are the financial problems precisely similar. Thirteen maritime States have the right of collecting their own sea Customs and so enjoy an immunity from central Customs. The Davidson Committee estimated that immunity at £137,000 a year. Some 63 States which formerly produced or exported salt and enjoyed various rights in connection with the revenue arising therefrom now have special rights arising from the taking over of those revenues by the paramount Power, and there are different and varying compensations payable in almost every case. Five important States, including Hyderabad and Baroda, have from time to time ceded portions of their territories to British India in return for specific military guarantees, and it has still not been settled whether those territories should be restored under the Federation or paid for in money.

Then 49 States, under comparatively recent agreements, maintain State forces partly available for all-India defence and security purposes, and the question of what credit those States are to be given in respect of these forces is still unsettled. Yet other States enjoy rights and privileges or immunities, as they are called, of one kind and another by way of compensation for abandoning internal Customs, transit dues, postal rights, and so forth. Some again have a right of raising their own revenues from States that are tributary to them. Most of the 542 States and estates, covering nearly half the area of India, inextricably mixed up with British India, have their own Customs and insist on retaining them, Federation or no Federation. The Joint Select Committee deals with these questions, but merely expresses the pious hope that in the fulness of time what it describes as this anti-federal outlook may disappear. There is no suggestion, however, as to how it will disappear, and from what we have seen of Customs elsewhere, it seems extremely improbable that these internal Customs and duties ever will disappear.

I have only roughly sketched some of the difficulties, and hon. Members would have to read and re-read the Davidson Report as well at Chapter I of this Part of the Bill before they could get any clear idea of how immensely complicated these financial adjustments are. I have said enough, I hope, to show that this matter is one of immense complexity, and it is one on which constant friction will be very apt to arise. The Government entertain the hope that with the growth of responsibility in India good will may be introduced, but with these financial adjustments it seems to me that there is a tremendous risk, apart altogether from the complicated machinery in regard to the working of the finances of the Federation, of constant friction arising, and it is highly desirable, so far as it can be done, to get the machinery for the collection of taxes as far removed from party politics in India as possible.

That is the object of this Clause. The Board would not have anything to do with politics, but it would be purely administrative, collecting whatever revenues are lawfuly collectable and distributing them to the various authorities which are entitled to them under the Act. The Board would have nothing to do with policy, but it would be an All-India body charged with collecting revenues and distributing the appropriate portions in the appropriate quarters. It would be free from interference by politicians of whatever complexion, and it would be free from the party considerations which in other cases lead to very severe financial difficulties. I know it is not an exact analogy, and indeed it might be argued that it is no analogy at all, but I would remind the Committee of what has happened in the case of another country which has recently been given Home Rule, and that is the case of Ireland. That kind of situation might very easily arise in future in India.

There is no doubt whatever that the Irish Government have the duty of making certain annual payments to the Government of this country, but under the stress of party warfare in Ireland those payments were withdrawn, with the result that we had to enter upon an economic war with Ireland in the endeavour to collect our just dues by means of tariffs, which has done enormous harm to Ireland, and although it has benefited to some extent our own agriculture, it is certain that in the long run those duties have done very considerable harm to both countries. That kind of situation might very probably arise in India, when you would have these immensely complicated payments to be made. There would be a constant risk of dues and payments not being made, but if we set up this Board, the whole matter of the collection and distribution of money would be on a much sounder and safer basis than under any other method which has been proposed. I therefore hope the Government will accept this new Clause.

2.13 p.m.

Mr. D. D. REID

I should like to say a few words in support of this Clause and to touch on some of the aspects of the question. We have been told from the very beginning of the discussions on this Bill that for nearly everything, for nearly every possible contingency, there are safeguards. Safeguards in almost every case resolve themselves into a Governor or Governor-General exerting authority over the heads of the local government, and if we consider what is likely to happen on such occasions, we shall find that it is not likely that any Governor-General or Governor will exercise that authority very lightly. It is probable that a dispute will go on for some time and that attempts will be made to get other ministers. Therefore, the safeguards will only really be exercised in a case where practically the whole community are found against the Government, and the Governor-General when he endeavours to exercise that authority, has to make use of the Civil Servants. He simply steps into the place of the government, and, therefore, he has to make use of the Civil Service for the control of the people with whom he has disagreed, but it is not intended that the Governor-General should take over permanent control. Those Civil servants will know that the intervention is only temporary, and, therefore, they will have to consider their own future. I know we have in this country a Civil Service which loyally serves the country, but I do not think any Civil Service here has ever been put to such a trial as that to which the Civil Service in India is going to be put. I am using "Civil Service" in a general sense, and not speaking merely of the Indian Civil Service. The members of the Board would be appointed by the Secretary of State, and everybody acting under the Board would be acting in a purely administrative way. They would have no interest in any political controversies. The only interest any Member of the Board would have would be in seeing that there was legal authority for the collection of taxes. In that way a neutral body would be interposed, and difficulties with regard to the Civil Service and party considerations could not arise. That is one aspect of the case.

There is another aspect which, I think, ought to be considered. In Clause 33 of the Bill, and some other Clauses, sums are charged upon the revenues of the Federation. I think it will be admitted by anyone with any experience that the charge on a fund while that fund remains in the hands of a person who is interested in it and can dispose of it, is a very different thing from a person being in charge of a fund in the hands of a third party. All this fund will come, in the first instance, into the hands of the Federal Revenue Board, whose duty it will be to pay due regard to the discharge of the sum charged on the revenue by this Bill when it becomes an Act. Therefore, the security of everybody who has any charge on the revenues of India will be very much increased. I would like to point out one other thing. This cannot be called in any sense of the word a wrecking Clause, because it in no way interferes with the structure of the Bill. All the different authorities constituted by the Bill are left absolutely intact. It only interposes here a hand to receive the moneys levied for the purpose, and to distribute them in accordance with the Act.

Therefore, I suggest that this Clause has a double effect. First of all, it renders a great deal more valuable the safeguards provided in the Bill. Take, for instance, defence Suppose there is a dispute between the Governor-General and the Federal Government with regard to the provision of money for defence. His position under this Clause would be very much more simple. It would be the duty of the Board, out of moneys which came into their hands, to pay the money over to the Governor-General. The Federal Government would not get any money of which it could dispose for its own purpose until prior charges were paid. That is no derogation of their rights, because that happens in any country which remains solvent. The Chancellor of the Exchequer in this country frequently tells us of the amount levied which is earmarked, as, for instance, charges on the National Debt and other services, which have to be met before he can consider any question of expenditure on new items of policy, or matters of that kind. Therefore, it is in no way a derogation from the authority or dignity of government. It is merely the interposition of a piece of machinery which, we believe, will greatly improve the Bill, and greatly strengthen the safeguards under it.

2.21 p.m.


I should like to support the new Clause which has been moved by my Noble Friend. There is very great danger in this Committee of falling into the same error as they fall into in the Legislative Assembly of India, in discussing financial affairs in an atmosphere of unreality. I believe that if a Board of this kind be set up with the function of collecting all the taxes and paying them to the properly constituted authority, there is quite a prospect that certain parts of the new Constitution will work slightly better than we otherwise would imagine. One of the duties of this Board would be to pay the Governor-General all money required for Indian defence. A good many stages have been won by the Congress politicians in India in their campaign for complete responsibility, but up to the moment defence remains a reserved subject. I believe that very nearly 80 per cent. of the central expenditure is allotted to subjects, including defence, which are outside the control of the Indian politicians, and I would suggest very seriously that it is unlikely the Indian politicians would facilitate the collection of this vast revenue, over the expenditure of which they have little or no control, but a Board of this kind would provide the absolute certainty that the fund required to keep the defences of India in good and proper order would be raised and paid to the Governor-General.

Another point about which many of us feel very strongly is that a Board of this kind would go some way to meet the grave fears of the thousands of Indian pensioners. There have been one or two victories achieved by the body of Indian pensioners. They secured a statutory obligation on the part of the Federation and Provinces to provide the Secretary of State with adequate funds to pay pensions, which is more or less secured by Clause 153; and they secured from the Secretary of State, by Clause 260, an undertaking that he is responsible for the payment of pensions in this country. There is, however, no machinery established to secure that the money is collected and paid, but if there is a Board of this kind, with the prospect of the money being duly paid to the pensioners, the position is more hopeful. This Board would be very much like the Chinese Customs Board in the position of stakeholders who would collect money and pay it out. It would be entirely free from political pressure, or any grave danger of conflict arising in the future between the Governor-General and the Ministers being followed by a refusal to collect revenue on the part of the Ministers. I hope, therefore, that the Chancellor of the Duchy will give some indication that he, at any rate, appreciates the fears which have inspired us to put this new Clause upon the Order Paper.

2.25 p.m.

The CHANCELLOR of the DUCHY of LANCASTER (Mr. J. C. Davidson)

I shall respond at once to my hon. Friend the Member for Mid-Bedfordshire (Mr. Lennox-Boyd), and I hope that I shall succeed in allaying his fears. It is only fair to the Committee to make it clear at the outset that, although the speeches have been extremely interesting, they have really not impinged upon the main difficulty of the new Clause, which contains the suggestion that there should be set up a Secretary of State's revenue board to operate in the Provinces and a board to operate at the Centre. The Government are unable to accept any suggestion of a revenue board appointed from home to operate in the Provinces. Finance in India is, after all, nothing but administration in terms of figures and those who know anything about Indian administration realise that the key man in provincial administration is the collector, who is both the revenue officer and the district magistrate.

We cannot, therefore, in the view of the Government, adopt a proposal which would divorce one set of executive functions from the other. If this proposal, so far as it affects the Provinces, were adopted, it would mean a complete recasting of the whole administrative system in India, about which I have understood my hon. Friends have always had words of praise rather than of blame. They have quite rightly taken great credit to this country for the system of administration which has grown up and has been worked successfully for so long in India. This proposal would mean the complete destruction of that form of administration and the recasting of it. Therefore, so far as the provinces are concerned, it would be impossible. It would, too, be immensely resented in India, for it would be a complete denial of what is known as provincial autonomy.

So far as the Centre is concerned, I do not think that my noble Friend has quite grasped what will happen before the Federal Government comes into operation. The complications of the relations between the States and the Federation in matters of finance are immense, and, if anyone wants to understand those complications, they ought to read the report which bears my name. When the results of the report and when the details have been actually worked out as between the States and the Government, their financial relations will be included in their treaties of accession. We hope that those complicated difficulties will be successfully solved before a State accedes. Those complications ought not to blind us to the fact that the Revenue Board which exists already in India has the duty of collecting the revenue and not the duty of dealing with these complicated difficulties. The Federal Revenue Board will have only two heads of taxation to deal with—income tax and Customs—because these are, broadly speaking, the two main sources of Federal revenue. Take the case of a State which comes to an arrangement by which it keeps the Customs on the goods it consumes in its own State, and by which the rest of the duty which is levied on goods which pass into the Federal area goes to the Federation. The machinery by which that allocation and division will proceed will, I imagine, be very little different from that which exists to-day. It may be that the actual details of the amounts will alter, but the machinery which at present exists doing precisely the same thing will, no doubt, continue, and the Revenue Board which exists to-day in India will, as a department of the central Federal Government, be able to create or continue the machinery for the collection of taxes.

There are two safeguards. It is difficult to foretell the future, but I am told that on the existing Central Revenue Board there are two very senior Indian Civil Service officers; and, if there be any danger of deterioration in the machinery of collection, which it is, after all, in the interests of both the Provincial and Federal Governments to maintain, there is always in the background the essential responsibility of the Governor-General to maintain the financial stability and credit of the Federation. Therefore, I suggest that, much as I realise the fears which have exercised the minds of my hon. Friends, it would not be possible for the Government to accept this new Clause for the two reasons I have given: in the first place, so far as the Provincial Revenue Board is concerned, it would destroy any idea of provincial autonomy and the whole method of administration which has run so successfully in the past; and, so far as the Centre is concerned, it would be unnecessary and would not be a very welcome safeguard.

2.32 p.m.


I have listened to my right hon. Friend with the greatest interest, because he always presents his case in such a pleasant and attractive manner. I was not impressed, however, when he said that this proposal would be contrary to any conception of provincial autonomy on the ground that the collector performs another function.


I am afraid I telescoped my arguments and did not make the matter clear. If you take finance out of the sphere of provincial autonomy and put it in the hands of the Secretary of State, what is there left?


We are not handing finance over to the Secretary of State. The whole matter of policy remains with the Provincial Governments. There is no challenge on the question of policy at all, because it is made clear that this Board is to take orders from the Federal Government where necessary and from a Provincial Government where necessary, and it has to act on the orders given. If there should be any conflict where such orders are properly given, there are provisions in the Clause for dealing with the doubts as to whether any orders given are valid or not. This is a purely administrative body. The Federal Government make their laws with regard to taxation, and the Provincial Governments make their laws, and the contents of these Acts are communicated to the Federal Revenue Board, which then proceeds to collect the revenue. Part of their task may be to make assessments, but the other is to collect the money. When they have collected the money they are to bank it and in due course hand it over to the respective recipients, the Central Government or the Provincial Government, in accordance with the Acts of the respective legislatures; so there is no challenge to autonomy in the sense of autonomy meaning a right to make laws and a right to see them carried out.

All that the Clause provides is that the mechanism for the collection of the revenue shall be one with which there cannot be any interference, with guarantees for honesty of assessment and the avoidance of peculation so far as possible. It is not the case that people cannot do a job properly merely because they are requested to do it by somebody who is not, strictly speaking, their master. There is the analogy of the Metropolitan Police and the local government authorities in the Metropolitan Police area. The Metropolitan Police are solely under the jurisdiction of the Home Secretary, but the London County Council, the Metropolitan Borough Councils and the Croydon Borough Council never have the slightest difficulty in getting assistance from the police. Even the Royal Borough of Kingston has not control of its own police, but I am sure my hon. Friend the Member for Kingston (Sir G. Penny) will agree that the Metropolitan Police do whatever the Kingston council call upon them to do, so far as they are entitled to do it. The idea that a man cannot take directions from one person on one occasion and another person on another occasion is a delusion. I have always had respect, affection and admiration for my right hon. Friend, but I suggest that on this occasion his arguments are not as sound as the arguments with which he has frequently convinced me on other subjects, and if this motion is taken to a Division I shall find myself in a different Lobby from him.

Marquess of HARTINGTON

I beg to ask leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.