Whether donations to political parties should be allowed as a business expenditure or not u/s 10(2)(xv) of the I.T. Act, 1961. - Income Tax - 423/CBDT

INSTRUCTION NO. 423/CBDT Dated: June 9, 1972 Section(s) Referred: 5(1)(xiv) Statute: Income - Tax Act, 1961 Attention is invited to the Instructions contained in Board's Circular No. 1-GT of 1960 dated the 5th January, 1960 stating that in cases where a gift to a political party was made by a company under the authority of a specific clause in its Memorandum and Articles of Association, the gift had to be held as having been made in the course of carrying on the business of the company and exempted from gift-tax. 2. The question as to whether donations to political parties should be allowed as a business expenditure or not u/s 10(2)(xv) of the I.T. Act, 1961 has since come up for consideration before the High Courts in a number of cases and the High Courts, even after considering the judgment referred to in the Board's Circular dated the 5th January, 1960, have held that donations paid to a political party are not allowable as a business expenditure. Further, the provisions of section 293A of the Companies Act, 1956 which permitted donations and contributions to political parties within the limits prescribed therein have also since been amended by the Companies (Amendment Act) 1969, prohibiting such contributions to political parties from 3rd April, 1970. 3. The Board have since re-examined the question as to whether contributions by the companies to political parties could be brought to gift-tax and they are not of the view that donations or contributions to political parties are taxable gifts as they are not made for the purposes of the business and they are merely voluntary payments without consideration for money or money's worth. It has, therefore, been decided that such contributions or donations should be brought to gift-tax. In view of the above the instructions contained in Board Circular No. 1-GT of 1960 dated the 5th January, 1960 are hereby withdrawn. 4. The above instructions may please be brought to the notice of all the assessing officers in your charge. The pending cases may be decided in the light of these instructions. In all cases in which action was not taken in view of the Board's earlier instructions referred to above, proceedings should be initiated under the G.T. Act, in the light of these instructions immediately.