New Delhi: Finance Ministry Monday asked RBI to reverse the Rs 1,274.21 crore income tax deductions it had made from the account of Telangana government saying the action was not in consonance with the "Principle of Cooperative Federalism".
Reserve Bank has also been advised to keep a "Note" that Money from the Consolidated Fund of any State shall be Transferred/ Withdrawn only after following the Constitutional and Legal Requirements, the Ministry said in a statement.
"After careful examination and consideration of issues connected, it has been decided that the deductions made by the RBI of an amount of Rs 1,274.21 crores on account of State of Telangana in response to the Income Tax Notice, are not in consonance with the Principle of Cooperative Federalism and RBI has been asked to reverse the entry," it said.
It said that since, the money in the principal account of Telangana held by the RBI, formed part of the Consolidated Fund of Telangana, Article 204 (3) of the Constitution of India mandates that the consolidated fund of a State can be debited only after the due process of appropriation.
"Any decision to debit the cash balance of any State by RBI should be based on some executive order issued by the Competent Authority after following the legislative process of appropriation," it added.
The statement further said the deduction from the account of Telangana, towards income tax liability of Andhra Pradesh Beverages Corporation, was considered by the Ministry and the RBI was advised to reverse the same "without any prejudice" to the rights of Income Tax.
"Further, RBI may keep a note that money from the Consolidated Fund of any State shall be transferred/withdrawn only after following the constitutional and legal requirements," the statement added.
A letter has been issued by the Ministry to a Deputy Governor of RBI and Chief Secretary of Government of Telangana in this regard.
Earlier on Sunday, Union Minister for Urban Development M Venkaiah Naidu had taken up the initiative in this regard and had requested Finance Minister Arun Jaitely to ensure that this money is returned to the state government.
Naidu has been maintaining that this may not be the way to recover tax from a government body and said that there was a dire need of funds for the state of Telangana for the implementation of welfare schemes and programmes.
The minister had said that the move was against the spirit of cooperative federalism and urged the Finance Minister to direct Income Tax department to release the money.
Accordingly the issue was considered by the Ministry of Finance and the RBI was advised to reverse the same without any prejudice to the rights of Income Tax, Naidu's office said in a press release.
Naidu was assured by the Finance Minister yesterday that that steps would be taken to release the amount. The Urban Development Minister had talked to Jaitley even today.
The Telangana government had earlier urged Centre to intervene and direct RBI to credit back Rs 1,274 crore to the state's account as the money was transferred "illegally" to the income tax department.
