HISTORY II

HISTORY-II

A PAPER ON:

TAXATION SYSTEM UNDER THE BRITISH RULE IN INDIA

SUBMITTED TO:

Dr. Nazima Munshi

Assistant Professor, Kirit P Mehta School of Law

SUBMITTED BY:

Sarthak Jain

FY BA LLB-Division A

Roll no: A038

SAP ID:81012019143

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HISTORY II

Table of Contents
ABSTRACT...............................................................................................................................3

INTRODUCTION......................................................................................................................4

RESEARCH METHODOLOGY...............................................................................................5

TAXATION SYSTEM UNDER THE BRITISH RULE IN INDIA (1825-1835)....................8

COMPARITIVE STUDY WITH U.K.....................................................................................10

CURRENT SCENARIO..........................................................................................................12

FINDINGS AND SUGGESTIONS.........................................................................................15

CONCLUSION........................................................................................................................17

BIBLIOGRAPHY....................................................................................................................18

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HISTORY II

ABSTRACT

Through this research paper, the author seeks to examine the various aspects of taxation
system such as the evolution of income concentration to interpret the economic changes
during British India. The researcher has also made a comparative analysis wherein a
comparison has been shown between the taxation system of India under British rule and UK
in the time period 1825 to 1835. The research paper further elaborates on as to how the
present taxation system through analysing the laws regulating taxation in both the countries.
In doing so, the paper will first introduce the chosen topic, then it includes the review of
literature wherein the referred books will be mentioned, a comparative analysis and then it
will highlight the present systems of both the countries. Then the paper will include
conclusion and findings.

Key Words: - Colonial India, taxation system, UK, economic changes, income concentration

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CHAPTER 1:

INTRODUCTION

Governments impose taxes on individuals and organizations to raise cash for public works
projects that provide the greatest amenities and infrastructure. It is then utilized to support a
variety of government spending projects. Tax evasion or refusal to pay taxes will have
significant consequences under the pre-defined law.

On behalf of the government, taxes are collected on the inhabitants of a nation in order to
enhance the quality of life for its population. The Constitution of India gives the Central and
State governments the right to tax. An accompanying statute enacted by the Parliament or the
State Legislature is required for all taxes in India.

Sovereign nations have taxed their citizens since antiquity. Ashoka's Lumbini pillar
inscription is the first archaeological evidence of taxes in India. According to the inscription,
the residents of Lumbini received a tax break.

During the 19th century, Britain established its authority over India. There was a severe
financial crisis in the British government after the Mutiny of 1857. Sir James Wilson (British
India's first finance minister) proposed the first Income Tax Act in February 1860 to help fill
the treasury. In 1860, the legislation was signed by the governor general and became law on
July 24. 259 sections were split into 21 segments.

Between 1939 and 1956, the 1922 legislation was modified 29 times, resulting in the current
version. This tax was introduced in 1946, and the idea of capital gains has been modified
several times since that time.

Its report was submitted on 30 November 1959, and its suggestions were included into the
Income-tax Act of 1961. The Indian Income Tax Legislation of 1922 was repealed by the act,
which took effect on April 1, 1962. It contains 298 parts and four schedules.

The finance minister introduced the Direct Taxes Code Bill in Parliament on August 30, 2010
to replace the Income Tax Act of 1961 and the Wealth Tax Act. It was unable to pass,
however, and expired in 2015 when the Wealth Tax Act was repealed.

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RESEARCH METHODOLOGY

REVIEW OF LITERATURE

 Abhijit iV. iBanerjee iand iLakshmi iIyer iin itheir ijournal, i“History, iInstitutions,
iand iEconomic iPerformance: iThe iLegacy iof iColonial iLand iTenure
iSystems iin iIndia”, ianalyse ithe icolonial iland irevenue iinstitutions iset iup iby
ithe iBritish iin iIndia, iand ishow ithat idifferences iin ihistorical iproperty irights
iinstitutions ilead ito isustained idifferences iin ieconomic ioutcomes. iAreas iin
iwhich iproprietary irights iin iland iwere ihistorically igiven ito ilandlords ihave
isignificantly ilower iagricultural iinvestments iand iproductivity iin ithe ipost-
independence iperiod ithan iareas iin iwhich ithese irights iwere igiven ito ithe
icultivators. iThese iareas ialso ihave isignificantly ilower iinvestments iin ihealth
iand ieducation. iThese idifferences iare inot idriven iby iomitted ivariables ior
iendogeneity iproblems; ithey iprobably iarise ibecause idifferences iin ihistorical
iinstitutions ilead ito ivery idifferent ipolicy ichoices. i
 Latika iChaudhary iin iher iresearch ipaper, i“Taxation iand iEducational
iDevelopment: iEvidence ifrom iBritish iIndia”, iuses ia inovel idistrict-level
idataset ito istudy ithe ieffects iof ipublic ieducational iexpenditures ion iliteracy
ioutcomes iacross idistricts iof iBritish iIndia iin ithe iearly i20th icentury. iUsing ian
iinstrumental ivariables istrategy, ithe iauthor ifound ithat i1911 icolonial ipublic
iinvestments ion iprimary ieducation ihad ipositive iand istatistically isignificant
ieffects ion i1921 iliteracy irates iin ithe ipopulation iaged i15 ito i20 icontrolling ifor
iprovince ifixed ieffects iand iother iobservable idifferences iacross idistricts. iA i10
ipercent iincrease iin iexpenditures itranslates iinto ia i2.4 ipercentage ipoint iincrease
iin ithe iliteracy irate iamong ithe ipopulation iaged i15 ito i20 iwith ilarger ieffects
ifor imale iliteracy. iThe iresults iare irobust ito ia ivariety iof irobustness itests iand
ian ialternate iestimation istrategy, iwhich iexploits ithe ivariation iin iexpenditures
iwithin idistricts.
 The ibook i“The iCambridge iEconomic iHistory iof iIndia”, iedited iby iDharma
iKumar iand iMeghnad iDesai, iaims iat itracing ithe ichanges iin ithe ieconomy iof
iIndia ifrom ithe ithirteenth ito ithe imiddle iof ithe ipresent icentury iand ibeyond.
iThe isecond ivolume icovers ithe iperiod i1757–1970, ifrom ithe iestablishment iof
iBritish irule ito iits itermination, iwith iepilogues ion ithe ipost-Independence
iperiod. iPart iI iopens iwith ia ibroad idescription iof ithe ieconomy iin ithe imiddle
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HISTORY II

iof ithe ieighteenth icentury, ithen idescribes igeneral ieconomic itrends iin ifour
imain iregions iup ito ithe imiddle iof ithe inineteenth icentury, iand iincludes ia
idiscussion iof ichanges iin ithe iagrarian istructure iup ito ithe iend iof i1947. iPart iII
itakes iup ivarious ithemes ifor ithe ieconomy ias ia iwhole, iwhile iPart iIII ideals
iwith ipost-Independence idevelopments iin iIndia iand iPakistan. i

 Thangellapali iVijay iKumar iin ihis ibook, i“Colonial iLand iTax iand iProperty
iRights: iThe iAgrarian iConditions iin iAndhra iUnder ithe iBritish iRule:
i1858-1900”, ianalyses ithe iimportance iof iproperty irights ion iland iwhich iwere
itransformed iby ithe iBritish iin ithe iform iof icolonial iland irevenue isystem iin
iAndhra iregion iof iMadras iPresidency. iIt iinitiates ia idiscussion iof ithe
itraditional iproduction isystems ilike iirrigation, iagricultural imethods, ietc., iwhich
iwere ireplaced iby ithe icolonial iones. iIt ifurther ishows ihow ithe ismall ipeasantry
isuffered iunder ithe inew isystem. iThis ibook ialso ideals iwith ithe irelations
ibetween ithe icolonial istate, irich ipeasants, izamindars iand ipeasants iunder ithe
iryotwary iand izamindary isettlements, iwhich iwere iintroduced iat ithe ibeginning
iof ithe inineteenth icentury. iIt ifurther iexamines ihow ithe ipeasantry ilost itheir
irights ion ilands iand ihow iit iwent iunder ithe icontrol iof imerchants iand irich
ipeasant imoneylenders. iConsequently, ide-peasantization, iwage ilabour iand
igeneral iagrarian iimpoverishment ifollowed. iThe icolonial ilegal isystem ifavoured
izamindars, ilandlords iand irich ipeasants iagainst ismall ipeasants, iwho icould inot
igo ito icolonial icourts idue ito iheavy ilegal icosts. iThe ivolume ianalyses iin
iminute idetail ivarious iActs, iwhich iaffected ithe iproperty irights iof ipeasants ion
itheir ilands. iThe ivolume icritically iexamines ithe imarket isystem iof ithe itimes,
iin iwhich ithe icolonial itransportation inetwork ihelped iintegrate ithe ilocal imarket
iwith ithe iworld imarket ifor ithe ibenefit iof ithe icolonial istate iand iBritish
iEmpire.

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HISTORY II

RESEARCH QUESTIONS

1. What is the meaning of taxation system?

2. What taxation system was followed under the British rule in India?
3. How was it different with the taxation system in U.K. in the same time period?
4. What is the current scenario of the taxation system in both the countries?

RESEARCH OBJECTIVES

1. To study the meaning of taxation system

2. To examine the taxation system that was followed under the British rule in India
3. To analyze the difference with the taxation system in U.K. in the same time period
4. To study the current scenario of the taxation system in both the countries

HYPOTHESIS

H01: Taxation is one of the government's primary sources of income. Regulation of all types
of consumer disposable incomes impacts inflation, demand, and supply in the economy.

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HISTORY II

CHAPTER 2:

TAXATION SYSTEM UNDER THE BRITISH RULE IN INDIA (1825-

1835)

The zamindari system was one of the Company's two primary income settling systems in
India. As governor of Madras, Thomas Munro supported the ryotwari system in southern
India, where the government paid land income directly to peasant farmers, or riots. Anglo-
Mysore War-related turmoil prevented the emergence of a class of wealthy landowners. In
addition, Munro and others felt that the ryotwari system adhered more closely to traditional
practices in the region and was therefore more progressive, allowing Company rule to reach
the lowest strata in rural society

According to James Mill, who developed the Indian revenue policy between 1819 and 1930,
the ryotwari system's core principle was a specific economic rent theory based on David
Ricardo's Rent Law. He thought the government was the ultimate landowner and should not
give up its right to 'rent,' i.e. the profit left over after salaries and other expenditures was paid.
“According to soil type and production, agricultural areas were also classified under the new
system, with average rent rates established for the duration of the settlement. In Mill's view,
taxing land rent would promote efficient agriculture and prevent "parasitic landlord class"
from emerging. According to Mill, official measurements and assessments of each plot (valid
for 20 or 30 years) were followed by taxation based on the soil's fertility. Nine-tenths of a
rent payment was taxed at the beginning of the 19th century and steadily decreased
thereafter.1 Although the abstract ideas behind the ryotwari system were appealing, class
structures still existed in southern Indian communities — village headmen, for instance —
and peasant farmers occasionally found themselves struggling to satisfy tax demands. Some
Company Indian revenue agents used torture to collect tax in the 1850s, sparking a
controversy.

Under Company control, land revenue settlements were a key administrative activity for
India's different administrations. A significant part of the job of Indian Civil Service officials
working for the government was land settlement work in all areas other than the Bengal
Presidency, which entailed surveying and measuring plots and documenting land rights.

1
Banerjee, Abhijit and Lakshmi Iyer. “History, Institutions and Economic Performance: The Legacy of Colonial
Land Tenure Systems in India,” American Economic Review 95, no. 4 (2005)1190- 1213
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HISTORY II

Although India's government racked up debts in 33 years between 1814 and 1859 after the
Company lost its commercial rights.

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CHAPTER 3:

COMPARITIVE STUDY WITH U.K.

Most working adults in the UK pay income tax now, which is a direct tax. On a wide range of
commodities and consumables, there are additional 'indirect' taxes to be considered.

However, the tax system in the 1800s was considerably different. According to the amount of
their landholdings, only landowners paid direct tax.

"Land Tax" was paid by the wealthier members of society, from the wealthiest duke to
tradesmen, shopkeepers and innkeepers. According to a 'Land Tax Act', Parliament
established the tax rate each year, which ranged from 2 to 4 pence per pound, depending on
the value of each individual's land or property.

Local gentry were appointed by Parliament as 'commissioners' to administer the levy. Their
names were published in the yearly Land Tax Acts. Local males with limited resources, such
as farmers or shopkeepers, were often the ones who collected the levy.

Excise charges were the most frequent indirect taxes paid by most individuals in the 19th
century. These taxes were collected by the Parliament on fundamental items, such as salt,
candles, leather, beer, soap, and flour, which are domestic needs in many households.

Wine, silks, gold and silver thread, silver plate, horses, coaches, and hats were among the
'luxury' commodities that were taxed. As needed, Parliament raised or decreased tariffs, as
well as added or removed goods. Although these taxes were levied on dealers, consumers
were usually ignorant of them.

Aside from that, there were other "assessed taxes" such as Window Duty. As part of William
III's battle with France, Parliament initially imposed this tax in 1696.2 Up to ten windows
were taxed at two shillings, whereas buildings with between ten and twenty windows were
taxed at four shillings. In 1778, the tariff was changed to one that was based on the value of
the land.

Robert Peel's government approved the Income Tax Act of 1842, which reintroduced income
tax in Britain at a rate of 7 pence in the pound on all yearly incomes above £150. First income
tax imposed in Britain outside of wartime. The income tax was originally intended to be a
temporary measure, but it has been in place in Britain ever since. The Income Tax Act of
2
Tinker, Hugh. The Foundations of Local Self-Government in India, Pakistan and Burma. New York
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1803, passed by Henry Addington during the Napoleonic Wars, was very similar in its details
to the Act of 1842.

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CHAPTER 4:

CURRENT SCENARIO

 INDIA

Taxes are the government's greatest and most important source of revenue. The government
utilizes the money it collects through taxes to fund a variety of programs that contribute to the
nation's growth. A three-tier federal framework underpins the Indian tax system, which is
well-structured.

The national government, state governments, and local municipal authorities make up the tax
system. Direct and indirect taxes exist in India. Direct taxes include income tax, gift tax,
capital gains tax, etc., whereas indirect taxes include value-added tax, service tax, Goods and
Services Tax, customs duty, etc., etc.

There are several types of taxes levied by the Indian government, including customs duties,
excise duties, income taxes, and service taxes. Land revenue and stamp duty are among the
taxes that are levied by the state governments. The local bodies are allowed to collect octroi,
property tax, and other taxes on various services like water and drainage supply.

Indian constitutional law grants the Centre and States powers to impose taxes. Article 265 of
the Constitution limits this power by stating that "no tax shall be levied or collected unless by
legislation". [3] Parliament or the State Legislature must approve an associated statute for
each tax imposed or collected. It is still an enormous problem in India, one that has many
detrimental consequences for the country. CBDT announced direct tax revenues of around
INR 12.33 trillion in 2019-20.

Skill Loto Solutions v. Union of India: 3

Writ Petition (Civil) No. 961 of 2018 by Justices Ashok Bhushan, R Subhash Reddy, and MR
Shah, delivered on December 3, 2020, explicitly, elegantly, and effectively held that a
person's right to privacy is protected by the Constitution of India. Article 32 is intended to
guarantee that the rule of law is observed.

3
Skill Loto Solutions v. Union of India ,WRIT PETITION (CIVIL) NO.961 OF 2018
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HISTORY II

As a powerful weapon, Article 32 allows for the enforcement of basic rights. Unquestionably,
this is the case. The petitioner had filed a writ petition under Article 32 of the Constitution
challenging the constitutionality of the levy of GST on lotteries.

 UNITED KINGDOM

Each country’s tax code is a multifaceted system with many moving parts, and the United
Kingdom is no exception Tax payments to at least three distinct levels of government in the
United Kingdom are required. Primarily, the central government's revenues are derived from
income and social security taxes as well as value-added tax, corporate tax, and fuel duty
Businesses in England pay business rates to the local government. In addition, Council Tax
and taxes and levies such as those for on-street parking are becoming more important sources
of revenue for local government. It was predicted that government income would reach £648
billion in fiscal year 2014—15 – a figure that represents 37 percent of GDP.4

Individual income taxes, corporate income taxes, social insurance taxes, taxes on goods and
services, and property taxes are all used to collect tax revenue in countries like the United
Kingdom. Mixing tax regimes can make a system more or less distorting. Consumption and
property taxes can cause greater economic damage than income taxation. Each country's
reliance on these levies, however, varies widely.

 Zipvit Ltd v Commissioners for Her Majesty’s Revenue and Customs5:

The case concerned whether Zipvit, a mail-order vitamin and mineral retailer, is entitled to
deduct input VAT (the tax paid by the retailer on goods and services purchased in connection
with its business, as opposed to output VAT, which is the tax charged to the consumer by the
retailer on its goods or services) from the price of postal services.

Appeal court rules that legal position under directive is unclear. As a matter of general
knowledge, the Supreme Court is required to submit a question of EU law that is uncertain at
this stage of the UK's departure process to the CJEU for assistance. As a result, the Supreme

4
Baden-Powell, Baden H. A Short Account of the Land Revenue and its Administration in British India; with a
Sketch of the Land Tenures. Oxford: Clarendon Press, 1907

5
 Zipvit Ltd v Commissioners for Her Majesty’s Revenue and Customs, [2020] UKSC
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HISTORY II

Court issued an order for a reference and outlined the questions for the CJEU to respond to in
its ruling.

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HISTORY II

CHAPTER 5:

FINDINGS AND SUGGESTIONS

 FINDINGS

While researching on this topic, I got to learn about many unknown facts. The research paper
made me aware of the taxation system followed in India and the changes it had gone through
from the past generations. The paper is divided into 6 chapters.

The first chapter was related to the introduction of the topic. It gave a brief introduction about
the topic. It helped to get a crux of the topic as to what is the research about. This was
followed by the essentials of a research paper, which are research questions, objectives,
hypothesis and the research problem.

The second chapter talked about the taxation system in Indi which was present between 1823
to1835. At this time, India was under British rule. The chapter explained how British evolved
the tax system, in India from zamindari system to direct income tax.

The third chapter was about the comparative study done with UK comparing the taxation
system with India. UK was much developed than Indi even in the 1800S and had several
types of taxes in that time period.

The fourth chapter explained the taxation system followed in the present scenario with both
the countries with the help of case laws. The fourth chapter is followed by conclusion and
bibliography.

 SUGGESTIONS

Taxes are important because of the many ways in which their regulation impacts economic
activity. A well-regulated tax system and effective payment collection will allow
governments to spend in enhancing the general quality of life inside their boundaries with
sufficient cash available. Individuals and businesses benefit from tax deductions on certain
investments and services, such as life insurance, since they have more flexibility and
financial stability.

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HISTORY II

Taxation is one of the government's primary sources of income. Regulation of all types of
consumer disposable incomes impacts inflation, demand, and supply in the economy.

Public goods and services are paid for through taxes; they also provide the basis for the social
contract between citizens and the economy. What a government does with its tax revenue and
expenditures can determine its legitimacy.

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HISTORY II

CHAPTER 6:

CONCLUSION

Across the globe, taxation has long been the major source of revenue, and India is no
different. According to national and state governments, the country has a structured tax
system based on income as well as other criteria. A vast range of government services and
infrastructure projects may be funded through tax income. Taxes' primary purpose is to assist
the government in achieving its development goals.

The paper talked about the taxation system in India which was present between 1823 to1835.
At this time, India was under British rule. The chapter explained how British evolved the tax
system, in India from zamindari system to direct income tax. It also did a comparative study
with UK comparing the taxation system with India. The paper also explained the taxation
system followed in the present scenario with both the countries with the help of case laws

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HISTORY II

BIBLIOGRAPHY

1. Baden-Powell, Baden H. A Short Account of the Land Revenue and its

Administration in British India; with a Sketch of the Land Tenures. Oxford:
Clarendon Press, 1907
2. Banerjee, Abhijit and Lakshmi Iyer. “History, Institutions and Economic
Performance: The Legacy of Colonial Land Tenure Systems in India,” American
Economic Review 95, no. 4 (2005)1190- 1213
3. Basu, Aparna. The Growth of Education and Political Development in India 1898-
1920. New Delhi: Oxford University Press, 1974
4. Srinivas, M.N. Village, Caste, Gender and Method: Essays in Indian Social
Anthropology. Oxford University Press, 1996
5. Tinker, Hugh. The Foundations of Local Self-Government in India, Pakistan and
Burma. New York
6. Frederick A. Praeger, Publishers, 1968. Whitehead, Clive. “The Historiography of
British Imperial Education Policy, Part I: India”, History of Education 34, no. 3
(2005), 315-29
7. Kumar, Dharma, ed. The Cambridge Economic History of India vol. 2. Cambridge:
Cambridge University Press, 1982
8. Mincer, Jacob. Schooling, Experience and Earnings. New York: Columbia University
Press for National Bureau of Economic Research, 1974
9. Misra, Babu Ram. Indian Federal Finance. Calcutta: Orient Longmans, 1960.

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