Article 289 of the Costitution of India with Case law
📘 Article 289 of the Constitution of India – Exemption of Property and Income of a State from Union Taxation
🔹 Text of Article 289:
(1) The property and income of a State shall be exempt from Union taxation, unless used or occupied for purposes not connected with the government functions of the State.
(2) Nothing in clause (1) exempts the State’s income from Union taxation if such income is derived from:
Commercial activities, or
Other activities not connected with government functions.
(3) Parliament may, by law, declare which activities shall be deemed as being carried out for purposes of the government, and such declaration is conclusive.
🧾 Explanation:
Article 289 grants tax immunity to State governments from Union taxation.
However, if the State earns income from business or commercial activities, that income can be taxed by the Union.
This balances federal autonomy with the Union's power to tax commercial income.
⚖️ Important Case Laws on Article 289:
🔹 **1. State of West Bengal v. Union of India, AIR 1963 SC 1241
The Court ruled that the Constitution is based on federal principles, and Article 289 protects States from Union taxation on sovereign functions.
This case upheld the autonomy of States, especially regarding their governmental income and property.
🔹 **2. New Delhi Municipal Council v. State of Punjab, (1997) 7 SCC 339
Issue: Whether property of the State of Punjab (used as a guest house in Delhi) is exempt from Union taxation (like property tax by NDMC)?
Held: If State property is used for commercial purposes, then Article 289 exemption does not apply.
Reinforced that use of property is key in determining tax exemption.
🔹 **3. State of Punjab v. Union of India, (1986) 4 SCC 335
Concerned income earned by the State from a cement factory.
Court held that business income from commercial undertakings is not immune under Article 289.
Such activities are outside the scope of “governmental functions”.
🔹 **4. State of Gujarat v. Union of India, AIR 1974 SC 1417
Reiterated that property and income used for governmental functions are protected under Article 289.
However, if they are for trading or commercial purposes, they can be taxed.
📝 Key Takeaways:
| Clause | Provision |
|---|---|
| 289(1) | States are exempt from Union tax on property/income used for government functions |
| 289(2) | No exemption for commercial/trading income |
| 289(3) | Parliament can define what qualifies as “governmental functions” |
📊 Summary Table:
| Scenario | Exempt under Article 289? |
|---|---|
| Income from taxation department | ✅ Yes |
| Rent from State-owned hotel | ❌ No |
| Property used for State secretariat | ✅ Yes |
| State-run power company income | ❌ No |
| Income from forest produce trade | ❌ No (unless solely for non-commercial purpose) |
🏛️ Related Articles:
Article 285 – Exemption of Union property from State taxation
Article 265 – No tax without authority of law
Entry 46, List II – State’s power to tax land and buildings
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