26 Mar 2016

Urgently need to ensure transparently in publicly obtained funds of Political Parties: High Court

In its recent decision in Commissioner of Income Tax v. Indian National Congress [ITA No. 145/2001, decision dated 23.03.2016] a division bench of the Delhi High Court has delineated the need for urgent probity in affairs of political parties. The High Court made certain scathing remarks over the perceived sorry state-of-affairs in so far their non-transparent actions are concerned particularly in the manner in which they deal with contributions from the citizens. The High Court quoted with disdain the observations made by the Supreme Court four decades back on the conduct of political parties to rue that the practices unappreciated all the way back then continue to haunt the society. The Delhi High Court highlighted the need to urgently tackle the issue by quoting the Supreme Court - "The small man’s chance is the essence of Indian democracy and that would be stultified if large contributions from rich and affluent individuals or groups are not divorced from the electoral process."

The High Court was dealing with an income tax appeal filed by Indian National Congress against the decision of a tax tribunal which had found the political party ineligible for tax concession since it failed to maintain proper accounts of the money received as donation. The High Court not only endorsed the decision of the tax tribunal, it also cited (a) the Supreme Court's missive against failure of political parties to account for money; (b) the directions of the Election Commission of India; (c) the concern expressed by the Law Commission of India and (d) the publicly available figures on unknown sources of finance of political parties, to hold and adjudge serious introspection required on the part of the political parties generally in the country. 

The Delhi High Court noted the following to conclude against the political
  • Congress had failed to file the tax returns despite clear directions by the Gujarat High Court in an earlier case and that too since the year 1995. [para 11]
  • The Supreme Court had declared that Political Parties are not above the law. [Common Cause v. Union of India 1996-222-ITR-260-SC] [para 12]
  • Political parties do not carry out charitable activities. Their claim for exemption akin to one extended to charitable trusts is ill-founded. [para 69]
  • Receipts of Political Parties by way of voluntary donations are their "income from other sources" [para 80]
  • The income tax law grants exemption to a political party on the receipts by way of voluntary donation. However this exemption is subject to filing detailed and certified accounts. The statutory provisions reveal that "it was critical from the point of view of the legislature that political parties are made to disclose what their state of financial affairs is in any given financial year". [para 93]
The High Court even chastised the chartered accountant / auditor for having certified the books of accounts of Congress even though he specifically stated that he did not have all the figures and information for this purpose. On this count the High Court made the following observations;
103. It is also disconcerting to note that the same auditor has issued identical certificates for other AYs for which simultaneously accounts have been finalised. This kind of an auditor’s report, to say the least, leaves much to be desired. It does not comport with the degree of seriousness with which a duly qualified auditor is expected to discharge his statutory obligations. An auditor is discharging both the professional and a statutory duty. He is licensed under the expectation that he will faithfully discharge the above obligations. In the present case, the Court is constrained to note that the auditor’s report submitted before the CIT (A) on 4th November 1997 is woefully short of the requirement of the law.
The High Court concluded by declaring that the "case demonstrates the need for a slew of legislative measures that need to be put in place for an effective check on the influence of money on the electoral process". The High Court further held that "considering that political parties are an essential part of our democracy and are dealing in large sums of public money, much of which is unaccounted, the proper auditing of the accounts of the political parties is both imperative critical to the conduct of free and fair elections". And the reason for this all; to "infuse transparency and accountability into the functioning of the political parties thereby strengthening and deepening democracy".

We hope that this decision of the High Court will not just form another precedent consigned to the law reports but will be implemented in both spirit and form for the betterment of the democratic outlook of the country.

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