Act. 270, 273, 275 and 280 provide for the constitution of a finance commission to recommend to the president certain measures relating to the distribution of financial resources between the union and the states, for instance, percentage of the net proceeds of income tax which should be assigned by the union to the States and the manner in which the share to be assigned shall be distributed among to the states (Act. 280).
The constitution of the finance commission is laid down in-Act. 280 which has to be read with, the finance commission Act of 1957, which has supplemented the provisions of the constitution. Briefly speaking, the commission has to be reconstituted by the president, every five years.
The chairman must be a person having ‘experience is public affairs’, ‘and the other four members must be appointed from amongst the following (a) A High Court judge or one qualified to be appointed as such; (b) a person having special knowledge of the finances and accounts of the government; (c) a person having wide experience in financial matters and administration; (d) a person having special knowledge of economics., (e) a person familiar with measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats, in the state.
It shall be the duty of the commission to make recommendations to the president as to – (a) the distribution ‘between the union and the states of the net proceeds of taxes which are to be or may be, divided between them under this chapter and the allocation between the states of the respective shares of such proceeds; (b) the principles which should govern the grants-in-aid of revenues of the states out of the consolidated fund of India; (c) any other matter referred to the commission by the “president in the interests of sound finance.