Press Information Bureau

Government of India

Ministry of Finance

31-August-2015 19:19 IST

RBI Advised by the Ministry of Finance, Government of India to Reverse the Deductions Made by it of ₹ 1274.21 Crores from the Principal Account of the State of Telengana in Response to the Income Tax Notice as the same is not in Consonance with the Principle of Co-Operative Federalism;

RBI also advised to keep a Note that Money from the Consolidated Fund of any State shall be Transferred/Withdrawn only after following the Constitutional and Legal Requirements.

After careful examination and consideration of issues connected, it has been decided that the deductions made by the Reserve Bank of India (RBI) of an amount of ₹ 1274.21 crores on account of State of Telengana in response to the Income Tax Notice, are not in consonance with the Principle of Co-operative Federalism and RBI has been asked to reverse the entry.

Since, the money in the principal account of Telengana held by the RBI, formed part of the Consolidated Fund of Telengana, 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.

The deduction by RBI of ₹ 1274.21 crores from the principal account of the State of Telengana held by the RBI, towards income tax liability of Andhra Pradesh Beverages Corporation Limited, 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. Further, RBI may keep a note that money from the Consolidated Fund of any State shall be transferred/withdrawn only after following the constitutional and legal requirements.

A letter has been issued by Dr. Rajat Bhargava, Joint Secretary (Budget), Ministry of Finance, Govt. of India to Deputy Governor, RBI and Chief Secretary, Government of Telengana in this regard.

**********

DSM/MAA/KA

Co-operative federalism: reversal of unauthorised debit from a State's consolidated fund required and constitutional process must be followed. The Ministry of Finance directed the Reserve Bank of India to reverse a deduction from the principal account of the State of Telangana as inconsistent with co-operative federalism, emphasising that funds in a State's principal account form part of the Consolidated Fund and may be debited only after the constitutionally and legally required appropriation process; reversal was ordered without prejudice to Income Tax rights and RBI was warned to ensure future transfers comply with constitutional and legal requirements.