HC Deb 18 January 1940 vol 356 cc273-300

Order for Second Reading read.

4.13 p.m.

The Under-Secretary of State for India (Sir Hugh O'Neill)

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

An Act of the magnitude and complexity of the Government of India Act, 1935, could hardly be expected to prove completely watertight, and certain defects and omissions have naturally come to light in the course of the working of the Constitution under the Act. I think it is rather remarkable, in view of the size of that Act of 1935, that more defects and omissions have not come to light, and it is a tribute to those who were responsible for the drafting of the principal Act. The main object of the present Bill is to cure these defects and omissions. There are, however, one or two Clauses which raise more substantial questions. A Bill was introduced in the House of Lords early last summer and passed through all its stages, and that Bill was awaiting consideration by this House when the outbreak of war made it necessary to enact the most important portions of it as an emergency Measure, which became law last September. This Bill represents the remainder of the original Bill, together with one or two extra Clauses.

I propose to refer, first, in a very brief outline to the Clauses dealing with defects in the principal Act and then to explain rather more fully those Clauses of somewhat wider import. The Clauses in the first category can, I think, conveniently be grouped with reference to financial, judicial, constitutional and general points. The financial Clauses are Clauses I, 3, 10 and 12. Clause r is designed to cure a faulty definition of "corporation tax" and also implements an incidental recommendation made by Sir Otto Niemeyer in his report on the Indian financial situation. I should like, however, to explain now, that since the Bill was introduced in this House the proposed revised definition has been reexamined in the light of the fact that we in this country have recently introduced an Excess Profits Tax as a war measure and that India may want to do the same. It has been noticed that the proposed new definition, contained in this Bill, goes unnecessarily and undesirably far towards excluding from the category of "corporation tax" a tax like Excess Profits Tax which though satisfying all the essentials in its application to companies, would not naturally be described as "Supertax." I shall therefore have to ask the House at a later stage to consider Amendments to Clause I which will be designed to restore in this respect the generality of the definition. Clause 3 is intended to remove doubts as to the power of the Provinces to raise revenue by taxing motor vehicles and makes it clear that a tax on the consumption of electricity is a Provincial and not a Central tax.

Mr. Sorensen

May I ask the right hon. Gentleman whether he will refer to Clause 2?

Sir H. O'Neill

I have already divided the Clauses of the Bill into categories, and I am now dealing with the first of those categories. Clause 10 alters by 12 months the date on which the balances, representing the assets of four family pension funds of members of the public services, were to be transferred as sterling funds to the charge of commissioners in this country; and Clause 12 enables persons appointed from the home Civil Service to high appointments in India such as those of Governor, or member of the Governor-General's Executive Council, to count their Indian service as service for pension.

Clauses 5 and 6 refer to judicial matters. Clause 5 enables the Governor-General to appoint a high court judge to act temporarily as a judge of the Federal Court, in place of any of the three judges of that court who may be incapacitated, and Clause 6 removes an unintended defect in the Act of 1935 the wording of which has made it impossible for the Government of Sind to convert the Judicial Commissioners' Court in that Province into a Chief Court, as they are anxious to do. Clause 4 deals with a minor constitutional point. It corrects the principal Act in connection with the issue by the Governor of Ordinances made on the advice of his Ministers. By some oversight, those Ordinances do not stand in precisely the same position, if their provisions conflict with those of a Central Act, as Ordinances issued by the Governor in his discretion, or as Acts of the legislature or as Governors' Acts, and the purpose of this amendment of the principal Act is to rectify that omission and place those Ordinances on the same footing as the others.

Clauses 7, 8, 9 and 11 deal with various points of a general character. Clause 7 makes it clear that legislation with regard to universities is within the power of a Provincial Government. Clause 8 substitutes a new definition of "Indian State" for the definition now in the principal Act which has been found to be defective. Clause 9 revises the requirements which are necessary before a subject of an Indian State can be employed in Government service in British India; and Clause II validates certain increases in the strength and salaries of the staff employed at the India Office and by the Auditor of Home Accounts.

I now come to the Clauses which deal with matters of somewhat greater interest and importance than those which I have just mentioned. First, I refer to Clause 2. The purpose of this Clause is to place beyond dispute the distinction which it was always intended should be drawn between taxes on income on the one hand, and taxes on professions, trades, callings, and employments on the other. Taxes on income, other than agricultural income, are a Central source of revenue, whereas taxes on professions, trades, callings and employments are a Provincial source of revenue. It was never intended, of course, that taxes under these Provincial heads should be imposed on such a scale as to trespass on the Central field of taxes on income. Indeed, the main purpose in view when these headings were included in the Provincial list was to keep alive the right which Provincial Governments had exercised in the past of empowering local authorities, such as municipalities and district boards, to levy rates for local purposes which were commonly described as taxes on professions and taxes on circumstances and property. It was, of course, a characteristic of those taxes that their incidence upon the individual taxpayer was very small. Experience has shown, however, that it might be possible to levy taxes under these heads which are, in fact, substantial taxes on income. Some little time ago the Legislature of the United Provinces passed a taxing Bill under the heading of an Employment Tax which was in fact nothing but a very substantial Income Tax. It would have imposed on the incomes concerned of all those deriving incomes from employment, a graduated tax which, in respect of a large part of the incomes concerned, would have amounted to as much as 10 per cent. It is clear that this would have constituted a serious invasion of one of the more important sources of revenue which had been assigned to the Central Government, and it is equally clear that if it were to be permitted on a large scale, it would have the effect of seriously upsetting the balance between Central and Provincial taxation.

Mr. Wedgwood Benn

Was that Measure actually enacted or is it still in the form of a Bill; and can the right hon. Gentleman state the estimated yield in the United Provinces of such a tax?

Sir H. O'Neill

The Bill was never enacted. It was reserved by the Governor for the consent of the Governor-General and that is the position in which it is now. With regard to the revenue from the tax, I understand that the amount of revenue affected is 30 lakhs of rupees which is considerably over £200,000. The effect of Clause 2 will be (by limiting the amount which may be levied on any one individual in any one year, under the heading of a tax on professions, trades, callings or employments, to a specified sum which, in the Bill, is placed at 50 rupees), will be to restrict the tax imposed to the character which it originally possessed and from which it was never intended that it should depart.

There are now only two further points in the Bill which I need mention. Both refer to Burma. Clause 15 is due to the discovery of a defect in the India, Burma and Aden (Transitory Provisions) (Taxation) Order, whereby the Burma Government could legally, though not equitably, claim a substantial sum representing the proceeds of duty on motor spirit produced in Burma before the separation but consumed in India after the separation. The Order itself cannot be amended, as it was made under a Section of the Act which is no longer operative, but the matter can be rectified by an Order made under Section 134 of the Government of Burma Act, if that Section is amended as proposed by this Clause. The House will, of course, be asked later to approve of the draft Order which will be framed for the purpose indicated, in pursuance of the powers conferred by this Clause. The other point relating to Burma is contained in Clause 16, the effect of which will be to enable the Burma Legislature to apply with such modifications as may be necessary, the provisions of the Naval Discipline Act to naval forces raised in Burma. The need for this provision is the result of the decision to raise in Burma a naval volunteer force for the local defence of the approaches to Rangoon. As far as I know, there is nothing controversial in this Bill. I have already mentioned the reasons for its introduction and when we come to the Committee stage I shall, of course, be ready to give such fuller explanations of any of the separate Clauses as hon. Members may desire.

4.26 p.m.

Mr. Benn

I am sure that everyone ho has listened to the right hon. Gentleman has admired the great clarity with which he expounded this Bill. It is a very complicated Bill, but nothing could surpass in clearness the method adopted by the right hon. Gentleman in presenting it to the House. It is, as he said, a Bill which deals with a number of defects which have become apparent in the Government of India Act, or with new difficulties which have arisen in connection with the working of that Act. As he also said these matters are, in many cases, obviously substantial. To give an example, there is the power not only to redefine—because that is what it is—the right of a provincial Assembly to impose taxes, but to take a Bill which has, I understand, been passed by a Provincial Assembly, and has reached the Governor-General and by coming to this House to make it illegal for the Legislative Assembly even to pass such a Bill. This matter concerns a considerable sum of money-£300,000 I am informed—but when one remembers that the Congress Ministries are very anxious to find new sources of revenue to replace the revenue which they have lost in pursuing their own policy by imposing prohibition, it is obvious that this may be more than a mere matter of money. It may cut right across the power of the Congress Party to carry out the programme in which they believe.

Apart from that, some of the Clauses of the Bill deal with charges upon the Indian revenues and some with charges upon the revenues of this country. I understand for instance, as regards the pensions of the staff of the India Office that that is a matter purely for the home Treasury, but, in other parts of these underlined Clauses of the Bill, we find that charges are imposed upon the Indian revenues. These are matters which can be raised and no doubt will be raised during the Committee stage of the Bill when, as the right hon. Gentleman has indicated, he himself intends to move Amendments, but there are two observations which ought to be made at this moment. This is a bureaucrats' Bill. It is produced by the Government of India and by the extremely efficient India Office. It is a Bill intended to clear up and to remedy defects which, as the right hon. Gentleman truly said, were bound to be found in such a complicated Statute as the Government of India Act.

It is one thing to produce a neat piece of work, but it is another thing to make it palatable, I do not say fair, because I am sure those who drafted the Bill desired it to be fair; and it is another thing to make it acceptable to the people who will be affected. The astonishing thing about this Bill is that, here we are this afternoon, considering this Bill, a handful of Members of Parliament who would not claim for ourselves the right to be able to decide all the details as to the merits of these proposals which may affect the daily lives of 350,000,000 to 360,000,000 people. It shows the extremely weak position in which we stand here as attempting to govern India without a proper responsible Assembly in India to do the work for us. If this Bill was laid before the Legislative Assembly in India, I have no doubt Members would rise in all parts of the House and point to the real specific difficulties it would create for them. There will be some Members in this House, no doubt, who will attempt to speak on behalf of India, but none could do the job as well as India could do it for itself. Therefore, the general observation I would make on the Bill is that it should act for us as a reminder that, in the interest of India and of good government in India, and in the interest of the stability of the structure of the British Commonwealth of Nations, the Government should do everything in its power to hasten the day when matters of this kind can be dealt with by the Indian people themselves.

4.32 p.m.

Mr. Wilfrid Roberts

The right hon. Gentleman the Member for Gorton (Mr. Benn) showed very clearly that the fact that we have to deal with such detailed questions does emphasise the importance of having in India a responsible Government which would deal with these problems itself. I would like to ask what are the opinions of responsible politicians and statesmen, and parties in India, with regard to some of the provisions of this Bill. Has any consultation, or discussion, taken place with those who are entitled to speak for Indian public opinion, as they have been elected by a democratic system under a constitution approved by this House? Is the Government able to tell us whether in particular Clause 2 of this Bill has been discussed with those who can speak for Indian opinion, and does it meet with the approval of either the Congress party or of other parties representative of public opinion in India? It does seem to me unfortunate that at this date we should ourselves have to deal with matters of such detail, although they may be of very great importance, as has been pointed out, to the Provincial Governments and to the Central Government of India. The Under-Secretary in explaining the Bill, which he certainly did very clearly if I may add my word of praise. said it had never been the intention that any form of Income Tax should form part of the revenue of a Provincial Government. I wonder whether this question has been tested in any way in the Indian courts, or whether it has merely had the approval of the Governor himself. It does seem to me that it might be, I do not know whether it could be, a subject which could be tested in the courts. That might have been a better procedure than a rather autocratic overruling of the Provincial Government of the United Provinces without apparently any consultation or consideration.

4.35 p.m.

Earl Winterton

When I came down to this House this afternoon I had no intention of taking part in this Debate, but having been a student, if I may say so, or I might say a graduate in Indian affairs for many years past in this House, and having been a member of the Round Table Conference and the Joint Committee, I feel I must say a word or two in answer to the point put by the right hon. Gentleman the Member for Gorton (Mr. Benn). He is a former Secretary of State, a man well-known in India and Indian political circles, and, while no doubt not much interest may be taken in this matter in the House to-day, his words will be reported in India. I should like to controvert one point of principle he made. Although one would not object to the general tone in which he welcomed this Bill, he did suggest that the mere fact that this Bill has been produced is evidence of the need for a complete change in the constitution of India. I do not think it is evidence of anything of the kind.

I should like to say, as one who took a prominent part in the discussions in this House on the Government of India Bill and who was a member of the Joint Committee and of the Third Round Table Conference and of the Burma Round Table Conference, that never has Parliament, in my opinion, shown itself to greater advantage in dealing with a big subject than when it dealt with the Act which this Bill seeks to amend. Extreme care was taken to ascertain every point of view. We spent weeks and months, as the House is aware, in the Committee, and though questions of very acute controversy arose, for instance between the present First Lord of the Admiralty and some other Members on this side of the House, and there were very prolonged Debates, on no single occasion was the closure once put on the discussion. The Act was in fact the greatest achievement that I think this House has ever achieved in the way of providing a written constitution for a great Territory of the Empire. As the Under-Secretary said, and as. indeed, the right hon. Member for Gorton admitted, it was admirable work on the part of the draftsman, as is shown by the fact that this is the first amending Bill which has been necessary since the principal Act was passed. I think it is a tribute to the labour of this House in the past, and the administration of the India Office, and of the officials responsible for drawing up the Act.

Regarding the only Clause which has been the subject of animadversion, namely, Clause 3 of the Bill, it is clear to me, speaking from my knowledge of the details of the principal Act, that it purports, and all in fact that it does is, to make clear what was obviously intended in the principal Act, in, I think, the Seventh Schedule and in items 54 and 46, respectively, of the Provincial and the Central Legislative List, that is of the financial powers of the Central Government of India and Provincial Governments, respectively. The Under-Secretary is completely right in saying that this particular Amendment merely carries out the intention of Parliament in respect of that Seventh Schedule to the Act.

The Act which was passed by this Provincial Assembly will, when this Bill passes into law, be invalidated. That Act goes quite outside what was intended to be the spirit of the List in the Seventh Schedule. I repeat that this Act shows the wisdom of Parliament, the then Government and of the draftsmen and officials in passing what I maintain was one of the greatest Acts ever passed by Parliament, the Government of India Act, 1935.

4.40 p.m.

Mr. Sorensen

The Under-Secretary gave a very clear exposition of this Bill this afternoon. It was like clarified honey, for the words that flowed from his lips were smooth, enticing, sweet and attractive; nevertheless they failed to disclose the fact that there is, in Clause 2, a very significant, if not a sinister proposal, regarding the present powers enjoyed by the provincial legislatures in India. One might think from what was said that all this Bill is designed to do is to accomplish a little spring-cleaning, a little patching and plastering here and there, and a few pipes mended, and that is all. One would have no objection to any kind of renovation to a Bill of the magnitude of the Government of India Act but surely there must be objections to renovations which carry away a main cistern, and Clause 2 is somewhat in that respect. Actually, here we have a regrettable and significant exclusion which needs very serious and considerable consideration. This afternoon we, in this Bill, are certainly not increasing the powers granted to India. We are actually decreasing them, and there can be no doubt about that.

It may be said that all we are doing is to transfer certain powers that have been held ambiguously by certain of the Provinces to the Central Government, but it means that we are re-stressing and emphasising the Imperialistic and autocratic power of Central Government, as distinct from the relatively democratic power of the Provinces. In that respect I, therefore, very much regret that this particular Clause happens to be in this Bill. I go further than that and suggest there may be an ulterior motive. Certainly I will assure the House, and the Minister in particular, that this Bill, and Clause 2 especially, is viewed with very great resentment and suspicion by politically-conscious people in India, and this is by no means confined to what is called the Left Wing. They look upon it as a blow at the hopes which they had been cherishing in their breasts. There has been a redistribution of power, and this amending Bill is aimed in favour of a more autocratic control and of a less democratic control. In other words, Parliament, if it passes this Bill, is engaged in a U-boat campaign against the existing powers of provincial autonomy, and I venture to submit evidence to prove that point. Certainly, we would not dream of making the proposals in this Bill apply to our Dominions; we would not dream of bringing in a Bill into this House suggesting we should drastically change certain important factors in regard to the legal and constitutional nature of our Dominion Government. But we do it here in regard to India, I suggest, because we are not inclined to look upon India as a potential Dominion, but we are in fact inclined to treat India as a colony which can be told and expected to do what we say.

The Bill is aimed, in respect of Clause 2, at the United Provinces which have been getting into difficulties in the past few months. The Government of India Act demarcated the legislative spheres of the Central Governments and the Provincial Governments. The power to impose taxation on income was conferred on or reserved by the Central Government, whereas the power to impose taxation on professions, callings, trades or employments was expressly conferred on the Provinces. The United Provinces desired earnestly to improve the lot of Government establishments and decided also to follow the general line of politically conscious opinion in India by progressively applying prohibition. I am sorry that the Noble Lady the Member for the Sutton Division of Plymouth (Viscountess Astor) is not here. If she were she might join with me in protesting against what might be interpreted as an attempt to prevent the abolition of the drink traffic in India.

The attempt on the part of the United Provinces progressively to abolish the drink traffic and establish prohibition meant that they would lose a revenue of something like £300,000, a considerable amount. Therefore, they had to find some other method of raising the revenue. They then turned to see how they could secure the revenue to improve what is admitted to be the low level of Government establishments. The scope of the Provincial Legislatures respecting revenue is very limited and it is not unnatural that they should experiment by trying to secure from employments, trades, callings and professions a certain amount of revenue. They estimated that by a tax on employments they could secure some £200,000 towards the £300,000 they would lose. There was a certain amount of objection to it, as there is bound to be whenever prohibition is likely to come into existence. The objections were made largely by a minority of the population, but in course of time they were overcome and the Bill passed by a substantial majority. In any case, it was made clear that if there were any technical or legal objections to the tax on employment it could be settled in the same way as similar objections are settled in our Dominions. They could be taken to the law courts for legal definition and then on to the Privy Council. If there is any difference of constitutional interpretation between the Central Government and the Provincial Government in Canada, South Africa or Australia it is settled legally by reference to the courts and then to the Privy Council. Could not this have been done in this case? Those who objected to this Bill could have said that they were not satisfied, that the interpretation given by the United Provinces Government was inaccurate and that it was transgressing the law, and they could have insisted that the question should go to the appointed authority to discover legal opinion on the matter. The Provincial Government would have abided by the result.

The Bill was passed and submitted to the Governor for assent. The Governor withheld his assent and referred it to the Governor-General. The resignation of the Legislature was offered on 3rd October and accepted on 3rd November. On 6th December the Governor-General intimated that he had suspended consideration of the Bill as the Secretary of State had intimated his desire to amend the Government of India Act, and that, therefore, assent would only be considered after the passage of the amending Bill. I am not a suspicious person, but I am entitled to agree that there was room for suspicion when that statement was made. The only reason for withholding assent was obviously because it was believed that the amending Bill would place the Governor-General in a different position and enable him no longer to get into difficulties, but to say that the Bill could not be passed because the amending Bill made it null and void. I am glad to see the Noble Lady the Member for the Sutton Division of Plymouth, here now.' I trust that she will not only whisper inspiring remarks to those on the Front Bench, but pay attention to the important Clause to which I have made reference. It is designed to prevent prohibition spreading in the Indian Provinces and I am hopeful that the Noble Lady—although she may at the moment be too embarrassed to pay attention to what I am saying—will join with me in protesting against it.

Viscountess Astor

Do I understand that the Clause is designed to impede the spread of prohibition in India?

Mr. Sorensen


Viscountess Astor

Then, of course, I will protest against it.

Sir Stanley Reed

I cannot allow that statement to go unchallenged. This has nothing whatever to do with impeding or expediting the spread of prohibition in India. It is giving expression to a fundamental principle in the Government of India Act, 1935.

Mr. Sorensen

The fact remains—and I will say this particularly for the edification of the Noble Lady who, with her characteristic restlessness is wandering all over the benches—that this problem arises because prohibition had been brought in in the United Provinces and was leading to a substantial loss in revenue. The Noble Lady, however, is obviously determined not to listen to my remarks, and I will proceed to more pertinent observations. This amending Bill provides for such a serious limitation of the powers of the Government of India Act that hon. Members on this side will do well not to allow it to pass easily and will propose some amendment on the Committee stage which will eliminate Clause 2 or, at least, succeed in considerably modifying it. Incidentally, other Clauses in the Bill require more clarification than they have received. I am not clear, for instance, what Clause 4 means. Perhaps the Under-Secretary will give a clear explanation of Sub-section (1), particularly the last few lines. We might also perhaps have an explanation of paragraph (b) of Clause 9. What does it mean when it says that a person who at the end of March nineteen hundred and forty is in the permanent service of the Crown in India shall not be ineligible to hold any office under the Crown in India by reason that he is not a British subject"? Does that mean that provision is being made for aliens to control the people of India? But to refer again to Clause 2; it proposes that any tax on employments shall be limited so that no tax exceeding 50s. can be imposed. This nullifies the Bill passed by the United Provinces, and it is estimated that if this Clause passes all that will be collected is about £30,000 to £40,000, which is about one-tenth of the original estimate. Surely the whole intention of that Clause is either to cut clown the revenue or indirectly to inspire abolition of any attempt to limit the drink traffic in the United Provinces. The Under-Secretary said that it was not intended originally to trespass on the main fields of income and that the money which the United Provinces desired to secure in the Bill which they introduced was money that should more properly be collected and assigned to the Central Government. What does that mean but that the Central Government became apprehensive lest certain revenues in a very small sphere were going into Provincial funds rather than into their own funds? Income Tax cannot be imposed by the Provincial Governments, but only by the Central Governments. The United Provinces Government thought they had some means by which they could augment their funds legitimately under existing legislation, and secure the relatively substantial amount of £200,000. According to the remarks of the Under-Secretary, it was not intended that the Provincial Governments should gain so substantial an amount and that they must not trespass on that field of taxation.

The Central Government is uncontrolled by the people of India, and we are indirectly, if not directly, helping to substantiate the very principle which this war is designed to destroy. That is why I suggest that the amending Bill is neither just nor fair. I suggest that it should be reconsidered by the Government with a view to its withdrawal. Clause 2 has given rise not only to misunderstanding and apprehensions in India, but to definite resentment. It will impose severe financial limitations on the United Provinces and other Provinces, for, although other Provinces may select other means of trying to raise revenue, sooner or later they may be in the same position as the United Provinces. In its considerable and retrospective powers this Bill is designed to limit the taxable scope of the Provincial Legislatures, and I am certain that many of those in India who desire greater understanding between India and this country look upon Clause 2 as a stab in the back.

We have to realise that in these days particularly, if we are to substantiate our belief in democracy, we have to demonstrate our convictions. Instead of reaction, we should be progressing; instead of contraction, we should be expanding, and as far as India is concerned, we ought to be doing all we can at this time to encourage the people to believe that we mean what we say when we declare that we are in favour of freedom, liberty and democracy and the rights of small nations. India has rights even though she is a teeming country of some 350,000,000, just as much as Poland or Finland. While we are rightly concerned with these countries in Europe, ought we not to be concerned with a country for which we have great responsibility? If this Bill is passed it will give rise to grave misgivings in India, and I hope that even at this late hour the Government will reconsider it, withdraw Clause 2 and allow the United Provinces to settle the matter, if necessary, by getting a legal judgment in the law courts or the Privy Council.

We who have such a great responsibility for India, we who want to see free co-operation between the Indian peoples and ourselves, we who want to show the world an example of democracy, should surely demonstrate our sincerity this time not by so subtly introducing this Clause, which is in the nature, at least, of reaction, but, instead, do all we can to make proposals in the direction of freedom, progress and greater confidence in the right of the Indian peoples to govern themselves.

5.1 p.m.

Sir S. Reed

I do not suppose that from any side of the House there will be any criticism of the Government for introducing this Measure at this time, because with so vast and complex a Measure as the Government of India Act, 1935, we should not be surprised that there are a few ambiguities to be cleared up; we should rather admire the skill of those who drafted an Act which now requires so little amendment. On the main point of the brief discussion this afternoon I want to express my absolute concurrence with the principle underlying Section 2, and I think the speeches which have been made from the other side are based on a most complete misapprehension. This has no more to do with prohibition than the man in the moon. Those who have followed the course of Indian finance, and whose business it has been to study the relation of Federal finance to Provincial finance, and those no understand the complicated Sections of the Act of 1935, can be under no possible doubt whatsoever that taxes on incomes are a Federal source of revenue, and that without those taxes the Federal Government could not function and could not discharge the immense responsibilities remitted to it. There are two ways of impinging upon a Federal source of revenue, direct and indirect.

For some years, as a student of Indian finance, and even before the passing of the Act of 1935, I have warned the Government of India that unless they jealously watched the progress of Provincial taxation they would find the foundations of their main sources of revenue undermined and would be facing very serious difficulties; and if an Act of the United Provinces Government does directly or indirectly undermine those main sources of revenue it should not be allowed. There is in such action no weakening of the democratic systems of Government established in the Provinces, for the purpose of the Amendment is to maintain the whole foundation of the principle and structure of the financial Sections of the Government of India Act itself. I am rather sorry that the "red herring" of prohibition should have been dragged into a purely financial discussion. Prohibition has been introduced and developed in several Provinces of India. It has been carried far in the Province of Bombay,where the revenue which will be sacrified is not a matter of £200,000 or £300,000 but of £200,000, or £3,000,000. Neither in Bombay, where this great and courageous experiment is being undertaken, nor in the Province of Madras, where great progress has been made, has there been any attempt to undermine or inpinge upon the essential sources of the revenues of the Government of India. If therefore the effect of this Act of the local legislature of the United Provinces is to impinge on those revenues I say it is right and proper that it should not be sanctioned, in order that we may maintain the essential structure of the financial Sections of the Act of 1935.

Mr. Sorensen

If the hon. Member asserts that it was not intended to allow this tax to operate, why is it that the Bill still allows it to operate up to 15s.? Is not the principle the same?

Sir S. Reed

It allows this tax to operate to a degree, but only to a degree which does not materially affect the revenues of the Government of India. My hon. Friends on the other side have not really studied the Act. They have talked about an appeal to the courts and to the Privy Council. There is no appeal to the courts and the Privy Council. If this Measure is not in entire consonance with the principles of the Act of 1935 the appeal goes to the Federal Court in India, which was set up for that purpose and has nothing to do with the Privy Council. As I understand the argument of my right hon. Friend, it is because there is an ambiguity in the Act that this House is now requested to amend it. Although I agree with the principle of this Amendment, if in Committee my hon. Friend opposite can show that it reduces, or derogates from, the true autonomy of any Provincial Government, whilst maintaining the main financial structure of the Government of India I will join with him in any Amendment which he likes to put forward. What is the moral and the economical basis of prohibition? Surely it is this: That the drink traffic is so bad, so deleterious in its effects, that if you sweep it away you should render available Provincial sources of taxable revenue not only equal to those which you are destroying but in excess of them. It is those sources of revenue which should finance the prohibition campaign as it is being financed in several parts of India.

I have only two or three more words to say, because we shall have the advantage of discussing this Measure in Committee. This Bill does add to certain charges of the India Office, and I tell my right hon. Friend, in all friendliness, that those on this side who have studied the developments of the Indian governing system view with the greatest anxiety any increase whatsoever in the expenditure of the India Office. They hold strongly that with the development of the work of the High Commissioner, who now discharges so much of the work formerly done by the India Office, the expense of the India Office should rapidly decline. There is another point which, though perhaps a minor point, does touch the revenues of the Government of India, and that is the proportion of the pension charges of those members of the Civil Service who serve in India in high capacity, either as members of Council, or as Governors. No one who has served in India will have anything but profound admiration for the services rendered to India by some of the Civil servants who there held high office; but they cannot disguise the fact that in those offices they drew very large salaries, and sometimes very large allowances in addition; so though as I read this Clause it only validates an existing practice and does not create a new practice, we view it with some diffidence and with some regret.

Another point is really a Committee point, but I mention it now in the hope that my right hon. Friend may deal with it when it comes up in Committee. It is found in Clause 3 and is rather a curious point. To put it bluntly, it says that where an electricity duty is imposed the Federal Government shall not pay it in respect of any of its activities within that area. It does not say who shall make up the difference between the standard charge and the standard charge plus the duty. W2 may take it that in every Province the Government of India has an Income Tax office and, as is the case in some provincial towns in this country, the greatest public building is the Income Tax office. The Federal Government say that in respect of that building, or the Customs office, they shall not pay the electricity duty. What is to happen if the Provincial Government charges electricity duty to the local supplier? Where is the difference to come from? That is a matter which I feel will have to be cleared up in the Debate.

Further, I want to say only this: My right hon. Friend the Under-Secretary for India will not, I hope, regard us as in any way unfriendly because in Committee we shall subject this Bill to a very careful scrutiny, line by line and Clause by Clause. We shall do it for reasons which have been briefly put forward by my right hon. Friend who spoke from the Opposition Front Bench. This Bill deals with the lives and welfare of hundreds of millions of people; it deals with immense interests which are not represented here; and the position of trusteeship which this House holds in relation to India is even more important now than when the Constitution is functioning normally. We shall endeavour to discharge that trusteeship, so far as we see it, by the most careful scrutiny and examination of this Bill, in order to ensure that in no part of it is there a departure from the principles of the Act of 1935 and that in no part is there any provision which may be construed into an injustice to the land we are here to serve.

5.13 p.m.

Major Milner

I had not the advantage of hearing my right hon. Friend the Member for Gorton (Mr. Benn), but if he made any reflection on the way in which the Act of 1935 was passed through this House I am bound to say that I should have to agree with the Noble Lord the Member for Horsham (Earl Winterton). In my experience of some 10 years in this House I know of no Measure over which such great care was taken and upon which so many Members spent so much time. It is true, and I regret it, as I am sure the whole House does, that we have not the advantage of my right hon. Friend's knowledge and experience in these Debates, but I can hardly think he did make the criticism which the Noble Lord led us to think he did.

Mr. Benn

I did not make any such observation, and I would beg my hon. Friend not to go to critics opposite for his sources of information.

Earl Winterton

I do not want to be doubly contradicted by both the right hon. Gentleman and the hon. Gentleman. The right hon. Gentleman's argument was that it was unfortunate that we had to discuss these matters, which really ought to be discussed in India. I said, on the contrary, that the fact that this Measure was an amendment in so small a degree of the original Act was evidence of the great care which Parliament devoted to the principal Act, and that it was rather an advertisement of the value of the principal Act than otherwise.

Major Milner

I do not need to carry the question further, in view of what my right hon. Friend has said. The argument of the Noble Lord was directed to showing the care taken over the Government of India Act, 1935, which was ceded by a great number of conferences, commissions and inquiries of all kinds, and I say that indicates the danger of introducing, almost by a side wind, as this Bill is proposing to do, what appears to me to be a very radical change in the intentions of the House at the time it passed that Act. I understand that, in regard to the Clause to which my hon. Friend in front of me particularly referred, no consultation of any kind has taken place with anyone in India.

Here, it is proposed by a short amending Bill, and in the course of an hour or two's Debate in the House of Commons, to deal with a matter which was presumably the subject of discussion over a period of many months, if not, indeed, of years, and which passed through all the various stages through which the Government of India Act passed. Yet we now propose to pass this matter to-night with not one-tenth of the consideration which was given to the matter on that former occasion. As I understand the matter, Clause 2 takes away from Provincial Legislatures, without question, an existing right which was conferred on them by the Government of India Act, 1935. It obviously restricts the taxation rights of the Provincial Legislatures and must, of necessity, hamper their activities. Those who took part in those Debates in 1935 agree that very great care was taken to demarcate those subjects which were appropriate for taxation by the Central Authority and those which were appropriate for taxation by the provincial authority. I regard with very serious disquiet indeed the intention exhibited in the Bill to make what I regard as a radical change in the decision which the House came to at that time.

I am bound to say that I have no knowledge of how far the question of prohibition enters into this matter, but it cannot be right to make a change of this sort, and to take away existing rights without at any rate some preliminary examination or consideration and, above all, without consultation in some form or another with the people of India. For that reason I regard the proposal as very unsatisfactory and not likely to lead to that happier state of affairs which we all want to see brought about in India at the present time.

There is only one other matter to which I desire to refer and I do not propose to deal with it in detail. If the Under-Secretary of State will be good enough to obtain the information I may perhaps ask for it on the Committee stage. There is a proposal in Clause 12 in regard to charging certain proportions of pensions of members of the Civil Service in this country who serve in India in part on the Indian revenues and in part on the revenues of this country. I should be grateful if the hon. Gentleman could give us a little more information on the point. I do not recollect it being discussed when the Government of India Act was in operation. I should like to know what period of service is necessary in India on the part of home civil servants in order to ensure the accruing of pension rights, and on what basis the distribution would be made as between Indian revenues and the revenues of this country in regard to them. What is the amount of the pension? I notice that no information is given on that point in the explanatory memorandum, but there ought to be no doubt about it, having regard to the fact that there is only one such pension payable when individuals finally retire from the Service. I should be glad if the hon. Gentleman would obtain that information for the Committee stage if he cannot give it now.

I entirely agree with my right hon. Friend in front of me that it is a matter for regret that further progress has not been made in regard to greater self-determination for India. It is evident that the present Government of this country do not intend to assist in that process. Opportunity has been revived by this Bill whereby consultation could easily take place on an extremely important matter, to which very great regard will be paid in India. It is a matter for great regret that no consultation has taken place and that the Bill has been brought before the House without the consideration which ought to have been given to the proposals contained in it.

5.20 p.m.

Sir William Jowitt

I shall occupy the attention of the House for only a very few minutes. There are two good excuses for doing so. In the first place, owing to regrettable circumstances over which I had no control, I have not occupied the attention of the House for the last few years to the extent I should have liked, or at all; and, in the second place, I was a. member of or delegate to the original Round Table Conference. I did preside over two of the committees of that Conference and I got to know and to understand the Indian colleagues who sat with me. I got to know something of their hopes, their aspirations and their fears. During the years which have passed, my communications with those gentlemen have been but few, but I admit that I have been surprised to find that, in regard to this Bill, and to Clause 2—which is the only Clause that matters—I have had a considerable number of communications from India from Congress members, no doubt, but Congress members whom we have to gain and win over, if we are to make the Government of India the success for which we all hope.

I have no doubt that Clause 2 has given rise to considerable misgiving. May I pose quite simply the question which we have to consider? The Government of India Act, which—I entirely agree with the Noble Lord—was most carefully considered, every word being debated, if not it this House then by commissions, committees and so on, contained two lists, one being the appropriate matters for the Provincial Legislatures and the other being the appropriate matters for the Central Legislature. There was a third list which does not here arise. Number 54 in the Central Legislature list is: Taxes on income other than agricultural income. Number 46 in the Provincial list is: Taxes on professions, trades, callings and employments. It is a fact that, if you impose a graduated tax on employment, you may, so far as that employment is concerned, have something which is indistinguishable from a graduated Income Tax. Had I been here when the Schedules were being considered in 1935, and had the point occurred to me, I should have suggested that that possibility should be borne in mind. It might have been well to make it quite plain that the field of Income Tax was to be reserved in its entirety to the Central Legislature.

With very great respect to the speech which has been made, it seems to me a profound mistake to discuss this matter as though we were now debating it for the first time. What we may, in fact, be doing is making a very fundamental change in the powers conferred upon provincial legislatures. It is not for me to express any opinion as to whether the Bill passed—for it never received the assent of the Governor-General and the United Provinces—was or was not constitutional. I apprehend a very serious question about it. It might have been said: "This is nothing other than a tax on income." The Bill in question imposed a graduated tax. If your employment brought you in a salary of 3,000 rupees it proposed that you should pay 75 rupees. If your employment brought you in a salary of 30,000 rupees, 10 per cent., namely, 3,000 rupees, was to be the employment tax. If your employment brought you in 100,000 rupees, then more than 10 per cent., 11,000 rupees, was to be the amount of the tax. I can well understand that the point might have arisen whether that was or was not constitutional.

All those who have written to me from India have said: "We quite understand that that point might have arisen, and are quite prepared to have a decision taken on it by the courts; and are perfectly prepared, without any grievance at all, to accept loyally, as we must, what the decision of the courts may be." If the opinion of a private Member is of the slightest value my own impression would be that it is probable that the Act would have been held to be constitutional, but it is a question which, as the hon Member pointed out, could be raised before the Federal courts. He did not point out that it could be raised by way of appeal, if necessary, from the Federal courts to the Privy Council. I would not have the slightest objection to that point being determined by litigation. What we are doing is, without determining that point and having conferred these powers upon provincial legislatures, powers which may justify this type of legislation, without asking the opinion of anybody in India or consulting anybody there at all, proceeding to take away those powers which they have.

In the letters, the writers frankly feel a grievance. It appears, on considering the matter for the first time, that Clause 2 tidies up the machinery and prevents a most unfortunate overlapping; but it has the danger, has it not? of altering the powers which you have already conferred —subject to the opinion of the courts, and I assume that—upon the Provincial Legislatures. The test which we should apply to any legislation or proposed legislation concerning India to-day is, will it or will it not help to resolve the existing difficulties? I believe that the existing difficulties are in the main psychological. I believe that they depend in the main upon trust and confidence. I believe that if the Congress leaders had the same trust and confidence that I have in the opinions and the aspirations of His Majesty's Government much of the difficulty would disappear. Therefore, anything which you do to increase that feeling of trust and confidence is good, and anything which diminishes trust and confidence, even though it brings about tidier machinery and better administration, is bad.

I ask myself, will this proposed legislation increase the trust and confidence which the Congress leaders feel towards us to-day? Putting that question to myself, I can only answer it in one way. What they feel is this: "You have settled the rules of the game; we are playing the game according to the rules which you laid down in your very carefully considered Act of Parliament, and directly you find the rules are a bit awkward for you, you change them." That does not make for trust and confidence. The Noble Lord said one thing. He said that some such provision as is in the Bill was always intended. If at some stage—the Committee stage for instance—that is made out, then I think the fears I have been expressing will be largely dissipated.

Earl Winterton

Perhaps I was not very happy or precise in my language, but what I intended to say was that while it was not a legal term I believe this Amendment of the Act did carry out the spirit and intention of the Seventh Schedule.

Sir W. Jowitt

That is precisely what I understood the Noble Lord to say and the sense in which I desired to repeat it. There were committees and innumerable documents concerned with this, and I would ask the right hon. Gentleman to look into the matter and see whether he can point to something definite in writing —something not legal at all but a report of some committee, for instance—making it plain that this was intended; he would then have a satisfactory answer to those who say, "This is not playing the game; you are altering the rules." He said, "I am altering the rules in a legal form to bring about what we always intended," but, after all, if there is nothing of that sort I would suggest to the right hon. Gentleman that we can only judge people's intentions by what they have said, and if the words they have used do confer upon the Provincial Parliament the power to pass an Act such as the United Provinces Parliament did pass, and if there is nothing in the innumerable committees or commissions dealing with that, then I am afraid we shall have to face the fact that it is true we are altering the rules after the game has started. I am afraid we shall have to face the fact that that may do us harm, and I would urge the Government between now and the Committee stage to consider it, realising as I do that if we were considering this for the first time they would have a strong case. I ask them to consider the overriding question, Will this Bill help to solve Indian difficulties as they exist today? If it will, then God speed the Bill; but if it will not solve those difficulties and if it will accentuate and exacerbate those difficulties then, notwithstanding all the improvements in the machinery, the Bill will do more harm than good.

5.34 p.m.

The Solicitor-General (Sir Terence O'Connor)

My right hon. and learned Friend raised one point in connection with Clause 2, and possibly it might be desirable for me to attempt to outline the answer. May I say that we on this side of the House greatly welcome his reappearance among us and we are very glad to have the opportunity of listening once again to those mellifluous tones we loved long past and have not forgotten.

I do not think the House would wish me to cover the points that have been raised on the different Clauses of the Bill in particular by the right hon. and learned Gentleman opposite. I think he anticipated that it would be better to reserve an elucidation of the somewhat complicated and detailed later Clauses until we come to the Committee stage. Nor do I intend, as it is quite clear there will be a full discussion on Clause 2 in Committee, to do more than state at the earliest opportunity what the problem of the Government is, as it has always been. The right hon. and learned Gentleman with his usual clarity pointed out the distinction between the Federal and Provincial legislative lists. I would like to add a sentence from the governing Section, Section 100 of the Act, which gives those lists their being and operative power: Notwithstanding anything in the two next succeeding Sub-sections, the federal legislature has and the provincial legislature has not power to make laws with respect to List 1. When you turn to List 1 of the Act among the matters which the Federal Legislature has power and the Provincial Legislature has not power to deal with are taxes on income. If it stopped there, there could be no doubt whatsoever that a graduated tax upon the activities of people in professions would be outside the capacity of the Provincial Legislature and I think I should carry my right hon. and learned Friend with me in that matter. At that time there had existed in India for a considerable time past, as I understand, a power on the part of the municipalities and provincial authorities to levy taxes on employment which were insignificant in amount— not graduated, but something in the nature of a fee. It was to preserve that power that there was included the provision which appears as No. 46 in the Provincial List, taxes on professions, trades, callings and employment. May I say in the most emphatic way that it never was contemplated at any moment that power should be given to the Provincial Legislatures to introduce what were in the ordinary sense taxes on incomes? I have the authority of my right hon. Friend the Lord Privy Seal, who was then in charge of the Bill, to say that it was made clear over and over again—this is in answer to my right hon. and learned Friend—both in the Joint Select Committee and in the Committee stage in the House of Commons itself, that the imposition of Income Tax in the ordinary sense was a matter that was clearly reserved to the Federal Legislature, and that indeed the whole financial structure of the Government of India that was then contemplated was, as my hon. Friend the Member for Aylesbury (Sir S. Reed) has pointed out, based upon the Income Tax going to the support of the Federal Revenues and, as he pointed out, if you permitted an encroachment or a wedge to be driven into this very substantial source of revenue, you would undermine the whole foundations of federal revenue.

Sir W. Jowitt

I have made considerable researches and I have read many of the observations which the Lord Privy Seal is, I think, hoping to say.

The Solicitor-General

It certainly is our intention to try and substantiate by direct reference what I have said. All I desire to say and to make perfectly clear at this stage is that it has been the conception of the Government throughout that Income Tax in the true sense should have been a federal tax and not a provincial tax at all, and there is no desire in Clause 2 to do any more than give effect to what was the intention of the legislature at the time.

Mr. Benn

It was even within the realm of what may be a local tax or duty. It limits the power of a local authority to raise money within a fixed limit.

The Solicitor-General

I am not sure that I could agree as to the competence of a tax of the kind that was introduced in the United Provinces within the structure of the Government of India Act. It is not for us to say to-day whether that was intra vires or not. At any rate, it would be arguable that a tax of that kind was never intra vires at all, and the proposed Clause is to save the possibility of levying the type of tax that used to exist and which was in mind at the time that No. 46 of the Provincial List was brought in. As I said a moment ago, it was in order to save this comparatively minor tax that Item 46 was included. On the hypothesis that it is a tax on income there is an argument—I put it no higher than that—that it would be impossible for the Provinces to introduce any such tax and that is the reason for the form in which Clause 2 is drafted. Even if upon a strict construction they are Income Tax and therefore outside the power of the Provinces, then in order to limit those to the conception that they are small taxes in the nature of a fee the figure of 50 rupees is included. I am told that 50 rupees would more than cover the normal taxes that used to be within the power of the Provinces before the Government of India Act was passed.

Mr. Sorensen

Why could not the whole matter be considered by the courts in the ordinary way? What is the objection to that procedure?

The Solicitor-General

That is a very attractive proposition to a lawyer but we are at war at the moment and I would remind the hon. Gentleman that this Act of Congress in the United Provinces was, I think, held up many months before the war. Certainly it was held up before the war by the Governor-General under his general powers and, so far as I know —I may be wrong in this—no step was taken by those who were interested in getting the Act into force to find out whether it was an Act intra vires or not.

Mr. Sorensen

Surely the obligation rested not upon the United Provinces Government but upon those who challenged its interpretation.

Sir W. Jowitt

It is not an Act until the Assent is given.

The Solicitor-General

I should have thought it might have been possible to get a decision by the court as to the capacity to introduce legislation at a particular time. I should have thought it might have been possible in India if anybody was sufficiently interested to attempt it. The fact remains that the view of the Government is that taxes of this kind never have been within the contemplation of anybody as being within the powers of the Provinces, and in Clause 2 we are doing no more than giving effect to what Parliament all along intended and possibly to what Parliament actually said, and we are doing so without the long-drawn-out process of proceedings before the courts and ultimately before the Privy Council to obtain a decision.

Question, "That the Bill be now read a Second time," put, and agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House for Tuesday next.—[Mr. Grimston.]