CLAUSE 138.—(Taxes on Income.) (Hansard, 27 May 1935)

§ The CHANCELLOR of the DUCHY of LANCASTER (Mr. J. C. Davidson)
I beg to move, in page 84, line 40, to leave out "other than a corporation tax."
This Amendment and two subsequent Amendments are really only drafting ones. There was never any intention to include corporation tax among taxes on income. The last Amendment, in page 86, line 4, will make that clear by inserting the definite statement that taxes on income do not include a corporation tax.

§ Mr. DAVIDSON
I beg to move, in page 85, line 10, after "that," to insert: (a) the percentage originally prescribed under this Sub-section shall not be increased by any subsequent Order in Council; (b). 885 This and the two subsequent Amendments on the same subject are moved in order to remove some doubts which the legal advisers of the Princes hold. The States have represented to us that there is a possibility that they may be called upon to pay a surcharge because the percentage of Income Tax which may be paid over by the Federal Centre to the Provinces may be so great as to impair the financial stability of the Centre. Therefore, they have suggested, and we have accepted their suggestion, that as regards the Order in Council respecting the periods during which the tax is to be paid over the fixing of the periods, should be left until after the expert committee has gone into the matter. As regards this Order in Council which follows settling the percentage of tax on the one hand which is to be paid over to the Provinces and also the length of the two periods referred to in Sub-section (2) of this Clause, the percentage shall not be increased and the periods shall not be reduced by any subsequent Order. Once the Order in Council has been passed, it shall not be altered.

§ Sir H. CROFT
With regard to this matter, which appears to make considerable change, will the representative of the Government tell us whether all the parties who originally agreed to the scheme have given their consent, whether the Secretary of State has been able to get into touch with those various bodies in British India, and whether they also agree to this proposal, otherwise we may be running round in a vicious circle, agreeing to a principle and then coming up against a bump, with Sir Tej Bahadur Sapru, who represents the central body of opinion, holding up his hand and saying, "No further.".

§ Sir S. HOARE
These Amendments make a change in form rather than in substance. It was never contemplated, at any rate in our recent discussions, that the Provinces should at any time within measurable distance receive more than 50 per cent. of the taxes on income. It was on that calculation that the States made their estimates as to the liability which they might be called on to pay in surcharge in the event of a financial emergency. The States were anxious therefore that we should put into the Bill the 886 actual maximum that the Provinces were likely to receive. They were anxious to see quite clearly before they acceded what was their ultimate liability for surcharge. We are not putting in in so many words the actual percentage, but we are saying "You shall see what it is that the Order in Council sets out as the Provincial contribution before you are called upon to execute your Instrument of Accession. In this Clause therefore the Princes will see quite clearly what is their ultimate liability, and they will see also that that ultimate liability cannot be altered by subsequent Orders in Council. The Order in Council will be laid once and for all. The Princes will see the Order in Council and it can therefore not be urged in future that they entered the Federation on one assumption as to the allocation of taxes between the Centre and the Provinces and that from the very beginning they did not see the position quite clearly. The House will therefore see that this is much more a change of form than substance. I do not think that there is the least likelihood that any of the various interests in India have any substantial objection to it.

§ Sir H. CROFT
Will it be possible to tell us what the ultimate liability will be? Will it be possible to give any such assurance?

§ Sir S. HOARE
The Order in Council will have to lay down provisions as to the allocation of Income Tax. No doubt they will have to be flexible. There will be a period of time during which the allocation can be made. We have always assumed that before the Federation could be brought into being the allocation of Income Tax, which is one of the vital features in the problem, will have to be laid down definitely and clearly.

§ Mr. DAVIDSON
I beg to move, in page 85, line 32, to leave out "and Provincial," and insert "Provincial and State."
This Amendment is to meet a small point which was brought to our notice by 887 the legal advisers of the Princes. They ask that where the Governor-General holds consultations before handing over the Provincial share of taxes, he should also consult the States as well as the Federal and Provincial Governments.

§ Mr. DAVIDSON
I beg to move, in page 85, line 43, after the second "the, "insert "net."
This is a drafting Amendment and is to make it clear that the Federal surcharge on the States is net.