Vol. 6 · pages 276–280

261 THE NATURE OF THE CHANGE (a) Taxes included in the schedules to the scheduled taxes Rules, or ( b) Taxes, not included in those schedules, which are imposed by or under provincial legislation which has received the previous sanction of the Governor-General. 49. Borrowing of money on the sole credit of the Province, subject to the provisions of the Local Government (Borrowing) Rules. 50. Imposition by legislation of punishment by fine, penalty, or imprisonment, for enforcing any law of the Province relating to any provincial subject; subject to legislation by the Indian Legislature in the case of any subject in respect of which such a limitation is imposed under these rules. 51. Any matter which, though falling within a Central subject, is declared by the Governor-General in Council to be of a merely local or private nature within the province. 52. Matters pertaining to a Central subject in respect of which powers have been conferred by or under any law upon a Local Government. The second task that of allocating the revenue resources between the Central and provincial Governments was a comparatively difficult one. As the problem was conceived in the main as one of making the Provinces independent of the Government of India in matters in which it was proposed that they should acquire an authority of their own acknowledged by law it was natural for the authors of the Report on constitutional Reforms to hold that “Our first aim……has been to find some means of entirely separating the resources of the Central Government from those of the Provinces.” The first step in that direction was therefore to abolish the system of “divided heads” or budget by shared revenues, for there was a concensus of opinion that this coparcenary system, in so far as it gave a handle to the Central Government to interfere in the domestic affairs of the Provinces, was a source of friction and was incompatible with provincial independence. But such a system of complete separation was fraught with two main difficulties. The first difficulty was in connection with the disposal

262 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES of dividend heads. To whom should they be handed over ? At the time the scheme of complete separation was contemplated the heads of revenue which were divided in all or some of the Provinces were land revenue, stamps, excise, income tax and irrigation. The authors of the Report on Constitutional Reforms proposed1 “……that the revenue from stamp duty should be discriminated under the already well-marked sub-heads General and Judicial; and that the former should be made an Indian and the latter a provincial receipt. This arrangement will preserve uniformity in the case of commercial stamps where it is obviously desirable to avoid discrepancies of rates ; and it will also give the provinces a free hand in dealing with court-fee stamps and thus provide them with an additional means of augmenting their resources. Excise is at present entirely a provincial head in Bombay, Bengal, and Assam, and we see no valid reason why it should not now be made provincial throughout India…… Land revenue, which is far the biggest head of all, is at present equally shared between the Indian and all the provincial Governments, except that Burma gets rather more than one-half and the United Provinces get rather less…… Now land revenue assessment and collection is so intimately concerned with the whole administration in rural areas that the advantages of making it a provincial receipt are obvious…… Moreover, famine expenditure and expenditure on major irrigation works are for obvious reasons closely connected with land revenue, and if the receipts from that head are made provincial it logically follows that the Provinces should take over the very heavy liability for famine relief and protective works……We were told that in the days of dawning popular government in the Provinces it would be well that the provincial government should be able to fall back on the support of the Government of India (as, if the head were still divided, it would be able to do) when its land revenue policy was atttacked. 2 But it is just because divided heads are not 1 Report, pp. 165-7. 2 The land revenue policy of the Government has always been looked upon by the popular leaders, rightly or wrongly, with a certain degree of suspicion, and is always in danger of being attacked. For fear that the policy may be subverted under a popular Provincial Legislature to whose control land revenue as a provincial subject was subjected it provided by the Reservation of Bills Rules under Section 12 (1) of the Government of India Act, 1919, that—The Governor of any Governor’s province shall reserve for the consideration of the Governor-General any Bill, not having been previously sanctioned by the Governor-General, which has been passed by the legislative Council of the Province and

263 THE NATURE OF THE CHANGE regarded as merely a financial expedient but are, and so long as they survive will be, viewed as a means of going behind the provincial government to the Government of India, that we feel sure that they should be abolished. We propose therefore to make land revenue together with irrigation wholly provincial receipts. It follows that the Provinces will become entirely liable for expenditure on famine relief and protective irrigation works……The one remaining head is income tax. We see two very strong reasons for making this an Indian receipt. First, there is the necessity of maintaining a uniform rate throughout the country. The inconveniences, particularly to the commercial world, of having different rates in different Provinces are manifest. Secondly, in the case of ramifying enterprises with their business centre in some big city, the Province in which the tax is paid is not necessarily the Province in which income is earned. We have indeed been told that income tax is merely the industrial or professional complement of the land revenue ; and that to provincialize the latter, while Indianizing the former, means giving those provinces whose wealth is more prominently agricultural, such as the United Provinces and Madras, an initial advantage over a Province like Bombay, which has very large commercial and industrial interests. Another very practical argument is that the tax is collected by provincial agency and that if Provincial Governments are given no inducement, such as a share of the receipts or a commission on the collections which is only such a share in disguise, there will be a tendency to slackness in collection and a consequent falling off in receipts. We admit that these arguments have force; but we are not prepared to let them stand in the way of a complete separation of revenues. Equality of treatment as between one Province and another must be reached so far as it is possible in the settlements as a whole, and it is is presented to the Governor for his assent, if the Bill appears to the Governor to contain provisions— ( e) affecting the land revenue of a Province either so as to (i) prescribe a period or periods within which any temporary settled estate or estates may not be re-assessed to land revenue, or (ii) limit the extent to which the assessment to land revenue of such an estate or estates may be made or enhanced, or (iii) modify materialy the general principles upon which land revenue has hitherto been assessed, if such prescription, limitation or modification appears to the Governor to be likely seriously to affect the public revenues of the province.

264 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES not possible to extend the principle of equality to individual heads of revenue. If it should be found that receipts ‘fall off, it may be necessary to create an allIndia agency for the collection of the tax, but this we should clearly prefer to retaining it as a divided head. To sum up : we propose to retain the Indian and Provincial heads as at present, but to add to the former income tax and general stamps, and to the latter land revenue, irrigation, excise and judicial stamps. No head will then remain divided.” However, when all the existing sources of revenue were completely distributed between the Central and Provincial Governments as proposed, it was inevitable that there should be a deficit in the Budget of the Government of India. How to make up this deficit was therefore the second difficulty that was involved in replacing the system of divided heads by a system of separate heads of revenue. The authors of the Report on Constitutional Reforms were presented with many a plan for the solution of this knotty problem, lathe course of their survey they observed : 1 “One way of meeting it would be to maintain the basis of the present settlements, but to allot to the Government of India a certain proportion of growing revenue instead of its share of the divided heads. But this device would stereotype all the existing inequalities between the Provinces which by reason of the permanent settlement in some of them are considerable ; while it would also introduce an element of great uncertainty into the Indian Government’s finance. A second was that we should take an all-round contribution on a per capita basis. But this expedient also would not obviate very undesirable variations between Provinces in the rate of levy owing to the inequality of provincial resources and of provincial needs. A third plan was to take an allround percentage contribution based on gross provincial revenue. This is open, inter alia, to the objection that it would leave several of the Provinces with large deficits. Fourthly, we considered but rejected the proposal that Provinces which had a surplus should temporarily help others as being cumbrous and impracticable.” 1 Report, p. 168.

265 THE NATURE OF THE CHANGE The plan recommended by the authors of the Report was 1 “to assess the contribution from each Province to the Government of India as a percentage of the difference between the gross provincial revenue and the gross provincial expenditure”; in other words, a levy on the surplus of the estimated gross revenue of the Province when all divided heads are separately allotted over its estimated normal expenditure, including expenditure on famine relief and protective irrigation. On the basis of the Budget figures for 1917-18 it was found that it would require a levy of 87 per cent.2 on the provincial surpluses to make up the deficit of Rs. 1363 lakhs in the Budget of the Government of India found likely to be caused by the abolition of the system of divided heads. 3 1 Report, p. 169. 2 The suggested imposition of an equal rate of levy is somewhat strange, for the authors of the Report had in para. 206 protested that “equality of contribution was impracticable,” etc. Para. 206 of the Joint Report makes a confusion. It protests against equality of contributions, which is what it adopts in the plan it recommends. 3 The way in which the proposed plan would have worked out in practice can be gathered from the following figures given in the Report, Cal. Ed. (p. 134), and based on the Budget figures for 1917-18:— (In Lakhs of Rupees) Province Gross Prov. Revenue Gross Prov. Expenditure Gross Prov. Surplus Contribution (87 per cent. of Col. 4) Net Prov. Surplus 1 2 3 45 6 Madras … 13,31 8,40 4,91 4,28 63 Bombay … 10,01 9,00 1,01 88 13 Bengal … 7,54 6,75 79 69 10 United Provinces … 11,22 7,47 3,75 3,27 48 Punjab … 8,64 6,14 2,50 2,18 32 Burma … 7,69 6,08 1,61 1,40 21 Bihar and Orissa … 4,04 3,59 45 39 6 Central Provinces … 4,12 3,71 41 36 5 Assam … 1,71 1,50 21 18 3 Total … 68,28 52,64 15,64 13,63 2,01 N.B.—The Punjab figures in column 5 should be reduced and those in column 6 raised by 3 1/2, lakhs in each case to allow for the continued compensation which the province is entitled to receive for the cession of a crore of its balances to the Government of India in 1914.