Govt asks RBI to reverse I-T deductions of Telengana

Finance Ministry today asked RBI to reverse the Rs 1,274.21 crore income tax deductions it had made from the account of Telengana 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Bank has also been advised to keep a "Note" that Money from the Consolidated Fund of any State shall be Transferred/ Withdrawn only after following the Constitutional and Legal Requirements, the Ministry said in a statement.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 Telengana 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 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," it added.
The statement further said the deduction from the account of Telengana, 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"Further, RBI may keep a note that money from the Consolidated Fund of any State shall be transferred/withdrawn only after following the constitutional and legal requirements," the statement added.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 Telengana in this regard.