TMI Blog1996 (4) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... l parties. The Secretary, Ministry of Finance, Department of Revenue, the Government of India, shall have an investigation/inquiry conducted against each of the defaulter political parties and initiate necessary action in accordance with law including penal action under section 276CC of the Income-tax Act. The Secretary, Ministry of Finance, Department of Revenue, Government of India, shall appoint an inquiring body to find out why and in what circumstances the mandatory provisions of the Income-tax Act, regarding filing of return of income by the political parties were not enforced. Any officer/officers found responsible and remiss in the inquiry be suitably dealt with in accordance with the rules. A political party which is not maintaining audited and authenticated accounts and has not filed the return of income for the relevant period, cannot, ordinarily, be permitted to say that it has incurred or authorised expenditure in connection with the election of its candidates in terms of Explanation 1 to section 77 of the Representation of the People Act, 1951. That the expenditure (including that for which the candidate is seeking protection under Explanation 1 to section 77 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the elections in this country are fought with the help of money-power which is gathered from black sources. Once elected to power, it becomes easy to collect tons of black money which is used for retaining power and for re-election. The vicious circle, according to Mr. Shourie, has totally polluted the basic democracy in the country. Section 293A of the Companies Act, 1956 (the Companies Act), is as under: "293A(1) Notwithstanding anything contained in any other pro vision of this Act, ( a )no Government company ; and ( b )no other company which has been in existence for less than three financial years, shall contribute any amount or amounts, directly or indirectly, " ( i ) to any political party; or ( ii ) for any political purpose to any person. (2) A company, not being a company referred to in clause ( a ) or clause ( b ) of sub-section (1), may contribute any amount or amounts, directly or indirectly, ( a )to any political party ; or ( b )for any political purpose to any person : Provided that the amount or, as the case may be, the aggregate of the amounts which may be so contributed by a company in any financial year shall not exceed five per cent of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall, either by himself or by his election agent, keep a separate and correct account of all expenditure in connection with the election incurred or authorised by him or by his election agent between the date on which he has been nominated and the date of declaration of the result thereof, both dates inclusive. Explanation 1. Notwithstanding any judgment, order or decision of any court to the contrary, any expenditure incurred or authorised in connection with the election of a candidate by a political party, or by any other association or body of persons or by any individual (other than the candidate or his election agent) shall not be deemed to be, and shall not ever be deemed to have been, expenditure in connection with the election incurred or authorised by the candidate or by his election agent for the purposes of this sub-section." It is averred in the petition that most of the political parties in the country registered and recognised by the Election Commission have, for many years, been flouting the provisions of the Income-tax Act, so much so that they have not been maintaining accounts as required under section 13A of the Income-tax Act. Most of the politi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Janata Dal did not file any return of income for all these years. Despite notices issued by the Department on September 21, 1995, and January 17, 1996, the return of income has not been filed. The Janta Party (JP) and the Revolutionary Socialist Party have not been filing returns of income. The All India Anna Dravida Munnetra Kazhagam (AIADMK) has filed returns of income for the assessment years 1979-80 to 1986-87. The party has not filed the returns for the years 1987-88 to 1995-96, however, the party has filed on January 10, 1996, a list of donations of Rs. 10,000 or more received during the period relevant to the assessment years 1988-89 to 1995-96. The Dravida Munnetra Kazhagam (DMK) has filed the returns of income from 1979-80 till 1995-96. Some of the returns, however, are not valid and some were filed belatedly. Section 13A of the Income-tax Act was introduced by way of amendment which came into force on April 1, 1979. The political parties were required to file returns of income for every assessment year from 1979-80 onwards. Except the Communist Party of India, the Communist Party of India (Marxist), the DMK and the AIADMK, no other party has been filing returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42(1) and 276CC of the Income-tax Act, which are relevant: " 139.(4B) The chief executive officer (whether such chief executive officer is known as Secretary or by any other designation) of every political party shall, if the total income in respect of Which the political party is assessable (the total income for this purpose being computed under this Act without giving effect to the provisions of section 13A) exceeds the maximum amount which is not chargeable to income-tax furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act, shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1)." "142. Enquiry before assessment. (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under sub-section (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified, ( i ) where such person has not made a return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three thousand rupees." The political parties, therefore, are under a statutory obligation to furnish a return of income for each assessment year. To be eligible for exemption from income-tax they have to maintain audited accounts and comply with the other conditions envisaged under section 13A of the Income-tax Act. Admittedly most of the parties have done neither. It is not a matter where the parties have overlooked to file a return of income by accident once or twice. The political parties have in patent violation of law neither maintained audited accounts nor paid tax since 1979-80. Sub-section (4B) of section 139 of the Income-tax Act makes it obligatory for the chief executive officer of every political party to furnish a return of income for each year in accordance with the provisions of the Income-tax Act. Section 142(1) provides for inquiry before assessment. It is not disputed that notices under section 142(1) were issued by the income-tax authorities to the defaulting political parties but despite that the returns of income have not been filed by the said parties. Failure to furnish a return of income has been made a criminal offence punishable under section 276CC o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the public cause. Armed with my bank pass book, I have discussed the question of elections and corruption with almost all important office holders since Jawaharlal Nehru. From these discussions, I have drawn the conclusion that most politicians are not interested in honest money funding for elections. Honest money entails accountability. Honest money restricts spending within legally sanctioned limits (which are ridiculously low). Honest money leaves little scope for the candidate to steal from election funds. Honest money funding is limiting. While the politicians want money for election, more importantly, they want money for the mselves to spend, to hoard, to get rich. And this they can do only if the source of money is black. The corruption in quest of political office and the corruption in the mechanics of survival in power has thoroughly vitiated our lives and our times. It has sullied our institutions...The corrupt politician groomed to become the corrupt minister, and, in turn, the corrupt minister set about seducing the bureaucrat... Think of any problem our society or the country is facing today, analyse it, and you will inevitably conclude, and rightly, that corruption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure "incurred or authorised in connection with the election of a candidate by a political party" can only be expenditure which has a trans parent source. Explanation 1 to section 77 of the Representation of the People Act, 1951, does not give protection to expenditure which comes from an unknown or black source. The bulk of the income of a political party by way of contributions/donations is from companies. Section 293A of the Companies Act makes it mandatory that such contributions/donations are made in a transparent manner as provided under the said section. Similarly, section 13A of the Income-tax Act lays down that all income derived from contributions/donations is exempt from income-tax, only if a political party satisfies that: ( i ) it keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom ; (ii) it keeps and maintains a record of each voluntary contribution in excess of Rs. 10,000 and of the names and addresses of persons who have made such contributions ; and (iii) the accounts of the political party are audited by a chartered accountant or other qualified accountant. Sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of an exception to sub-section (1) of section 77. A candidate in the election who wants to take the benefit of Explanation 1' to section 77 of the Representation of the People Act, 1951 in any proceedings before the court must prove that the said expenditure was in fact incurred by the political party and not by him. Any expenditure in' connection with the election of a candidate which according to him has been incurred by his political party shall be presumed to have been authorised by the candidate or his election agent. But the presumption is rebuttable. The candidate shall have to show that the said expenditure was in fact incurred by a political party and not by him. The candidate shall have to rebut the presumption by the evidentiary standard as applicable to rebuttable presumptions under the law of evidence. An entry in the books of account of a political party maintained in accordance with section 13A of the Income-tax Act- showing that the party has incurred expenditure in connection with the election of a candidate may by itself be sufficient to rebut the presumption. On the other hand, the ipse dixit of the candidate or writing at the bottom of the pamphlet, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown, in order that Explanation 1 may apply, that the source of the expenditure incurred was not the candidate or his election agent. What is important is to realise that Explanation 1 does not create a fiction. It deals with the realities of political situations. It does not provide that the expenditure in fact incurred or authorised by a candidate or his election agent, shall not be deemed to be incurred or authorised by them, if the amount is defrayed by a political party. That would be tantamount to creating a fiction. The object of the Explanation is to ensure that the expenditure incurred, for example, by a political party on its own, that is, without using the funds provided by the candidate or his election agent shall not be deemed to be expenditure incurred or authorised by the candidate or his election agent. If the expenditure is incurred from out of the funds provided by the candidate or his election agent, section 77(1) and not Explanation 1 would apply." (emphasis supplied). Before parting with the point under discussion, we make it clear that any expenditure incurred or authorised by a political party in respect of general propaganda or for the propagati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. After all, as Mathew, has observed in Indira Gandhi's case, AIR 1975 SC 2299 (at page 523) (SCC page 136, paras 335-336) : 'In the opinion of some of the judges constituting the majority in Bharati's case, AIR 1973 SC 1461, rule of law is a basic structure of the Constitution apart from democracy. The rule of law postulates the pervasiveness of the spirit of law throughout the whole range of Government in the sense of excluding arbitrary official action in any sphere.' And the supremacy of valid law over the Commission argues itself. No one is an imperium in imperio in our constitutional order. It is reason able to hold that the Commissioner cannot defy the law armed by article 324. Likewise, his functions are subject to the norms of fairness and he cannot act arbitrarily. Unchecked power is alien to our system. Even so, situations may arise which enacted law has not provided for. Legislators are not prophets but pragmatists. So it is that the Constitution has made comprehensive provision in article 324 to take care of surprise situations. That power itself has to be exercised, not mindlessly nor mala fide , not arbitrarily nor with partiality but in keeping wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and can be saved by article 324 provided it is bona fide necessary for the vindication of the free verdict of the electorate and the abandonment of the previous poll was because it failed to achieve that goal. While we repel Sri Rao's broad side attack on article 324 as confined to what the Act has conferred, we concede that even article 324 does not exalt the Commission into a law unto itself. Broad authority does not bar scrutiny into specific validity of the particular order. Our conclusion on this limb of the contention is that article 324 is wide enough to supplement the powers under the Act, as here but subject to the several conditions on its exercise we have set out." Superintendence and control over the conduct of election by the Election Commission include the scrutiny of all expenses incurred by a political party, a candidate or any other association or body of persons or by any individual in the course of the election. The expression "conduct of elections" is wide enough to include in its sweep, the power to issue directions in the process of the conduct of an election to the effect that the political parties shall submit to the Election Commission, for its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for which the candidate is seeking protection under Explanation 1 to section 77 of the Representation of the People Act, 1951), in connection with the election of a candidate to the knowledge of the candidate or his election agent shall be presumed to have been authorised by the candidate or his election agent. It shall, however, be open to the candidate to rebut the presumption in accordance with law and to show that part of the expenditure or whole of it was in fact incurred by the political party to which he belongs or by any other association or body of persons or by an individual (other than the candidate or his election agent). Only when the candidate discharges the burden and rebuts the presumption he would be entitled to the benefit of Explanation 1 to section 77 of the Representation of the People Act, 1951 7. The expression "conduct of election" in article 324 of the Constitution of India is wide enough to include in its sweep, the power of the Election Commission to issue in the process of the conduct of elections directions to the effect that the political parties shall submit to the Commission for its scrutiny, the details of the expenditure incurred or a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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