In this world nothing can be said to be certain, except death and taxes1

Chapter 2.
Meaning And Introduction Of Tax
2.1 Introduction
Regardless of the reasons or motivation for the imposition of tax, taxation has been
implemented by different empires in different places and time; perhaps like temple and
monument construction, taxation is a common phenomenon of human society 2. A review of the
history of taxation and a synopsis of its development in ancient economies provides a foundation
for the study and understanding of the reasons for the development of VAT. In turn, an
understanding of the motivation for the implementation of a new taxing system in the twentieth
century is essential to the argument for VAT as an effective taxing system. Furthermore, a review
of the history of tax through to the development of international tax promotes the understanding
of the necessity for taxation and international tax co-ordination.

2.2 Meaning
A tax is derived from the Latin term taxo it is a financial charge or other levy imposed upon a
taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund
various public expenditures3. A failure to pay, or evasion of or resistance to taxation, is usually
punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its
labour equivalent. Some countries impose almost no taxation at all, or a very low tax rate for a
certain area of taxation. Taxation is when governments require citizens to pay a certain amount
1 (Franklin, Benjamin Letter to Jean-Baptiste Le Roy, 13 November 1789. Available at
http://www.notable-quotes. com/f/franklin_benjamin.html [Accessed 12/10/16]) Benjamin Franklin
(170690).
2 Lymer, Andrew & Hasseldine, John The International Taxation System (2002) (International TaxSystem
2002), USA, p22

3 Charles E. McLure, Jr. "Taxation".

of money to help fund public institutions. Taxes are used to pay for things like public education,
welfare programs, transportation infrastructure, defense funds and libraries. The legal definition
and the economic definition of taxes differ in that economists do not regard many transfers to
governments as taxes. For example, some transfers to the public sector are comparable to prices.
Examples include tuition at public universities and fees for utilities provided by local
governments. Governments also obtain resources by "creating" money and coins for example, by
printing bills and by minting coins, through voluntary gifts for example, contributions to public
universities and museums, by imposing penalties such as traffic fines, by borrowing, and by
confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer
of resources from the private to the public sector levied on a basis of predetermined criteria and
without reference to specific benefit received.
Commissioner, Hindu Religious Endowments, Madras v Sri Lakshmindra Thirtha Swamiar of
Sri Shirur Mutt4
FACTS
The Madras Hindu Religious and Charitable Endowments Act, 1951 was enacted by the Madras
Legislature. State Legislature is competent to enact laws on the subject of religious and
charitable endowments which is covered by entry 28 of List III in Schedule VII of the
Constitution. Object of the legislation was to amend and consolidate the law relating to the
administration and governance of Hindu religious, charitable institutions and endowments in the
State of MadrasAt the centre of controversy was the Constitutional validity of s. 76 of the The
Madras Hindu Religious and Charitable Endowments Act, 1951, which reads as follows

76. (1) In respect of the services rendered by the Government and their officers, every
religious institution shall, from the income derived by it, pay (contribute) to the
Government annually such contribution not exceeding five percentum of its income as
may be prescribed.

4 AIR 1954 SC 282

The annual payments shall be made, notwithstanding anything to the contrary contained
in any scheme under this Act for the religious institution concerned.

Thus the section authorizes the levy of an annual contribution on all religious institutions,
the maximum of which is fixed at 5 per cent of the income derived by them. The section
expressly states that the levy is in respect of the services rendered by the Government and
its officers
Issues
The validity of the provision was challanged on a two-fold ground:

i) that the levy of contribution is really a tax and as such it was beyond the legislative
competence of the State Legislature to enact such provision. -

ii) The other is, that the contribution being a tax or imposition, the proceeds of which are
specifically appropriated for the maintenance of a particular religion or religious
denomination,

If the contribution payable under s. 76 of the Act is a fee, it may come under entry 47 of the
Concurrent List which deals with fees in respect of any of the matters included in that list. On
the other hand, if it is a tax, as this particular tax has not been provided for in any specific entry
in any of the three lists, it could come only under entry 97 of List I or art. 248(1) of the
Constitution and in either view the Union Legislature alone would be competent to legislate upon
it. On behalf of the appellant, the contention raised is that the contribution levied is a fee and not
a tax. However, the point is certainly not free from doubt as Art. 277 also mentions taxes, cesses
and fees separately.So the question consideration really is what are the indicia or special
characteristics that distinguish a tax proper from other aspects
A neat definition of what tax means has been given by Latham C.J. of the High Court of
Australia, in Matthews v. Chicory Marketing Board, 60 C.L.R. 263

A tax, according to the learned Chief Justice, is a compulsory exaction of money by

public authority for public purposes enforceable by law and is not payment for services
rendered.
Judgment
Therefore, the court after considering all perspectives of law held that in their opinion section
Sec 76(1) is void as beyond the legislative competence of the Madras State Legislature. And
Thus, the appeal will stand dismissed with costs to the respondent.
In modern taxation systems, governments levy taxes in money; but in kind and cash taxation are
characteristic of traditional or pre-capitalist states and their functional equivalents. The method
of taxation and the government expenditure of taxes raised is often highly debated in politics and
economics. Tax collection is performed by a government agency such as the Canada Revenue
Agency, the Internal Revenue Service (IRS) in the United States, or Her Majesty's Revenue and
Customs (HMRC) in the United Kingdom. When taxes are not fully paid, the state may impose
civil penalties (such as fines or forfeiture) or criminal penalties such as incarceration on the nonpaying entity or individual5.

5 26 U.S.C. 7203 in the case of U.S. Federal taxes.