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Petitioner: COMMON CAUSE, A REGISTERED SOCIETY VS Respondent: UNION OF INDIA and others
Court Name: Supreme Court of India Judge(s): Kuldip Singh, Faizanuddin Title: COMMON CAUSE, A REGISTERED SOCIETY vs UNION OF INDIA and others Case No.: Writ Petition (Civil) No, 24 of 1995 Date of Judgment:1996-04-04 Reported As: 1997 PTD 1016 Result: Petition allowed
JUDGMENT
JUDGMENT ' KULDIP SINGH, J.---Common Cause---a society registered under the Societies Registration Act, 1860, which takes up various matters of general public interest/importance for redress before the Courts---through its Director, Mr. H.D. Shourie, has filed this public interest petition under Article 32 of the Constitution of India. The primary contention raised in the petition is that the cumulative effect of the three statutory provisions, namely, section 293-A of the Companies Act, 1956, section 13-A of the Income Tax Act, 1961 and section 77 of the Representation of the People Act, 1951, is to bring transparency into election funding. The people of India must know the source of expenditure incurred by political parties and by candidates in the process of election. It is contended that the mandatory provisions of law are being violated by the political parties with impunity. During the elections crores of rupees are spent by political parties without indicating the source of the money so spent. According to Mr. Shourie, 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 reelection. The vicious circle, according to Mr. Shourie, has totally polluted the basic democracy in the country. ' Section 293-A of the Companies Act, 1956 (the Companies Act), is as under: "293-A.--(1) Notwithstanding anything contained in any other provision 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,---( ) to any political party; or (ii) for any political purpose to any person.
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(2) A company, not being a company referred to in clause (a) or clause (b) of subsection (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 its average net profits determined in accordance with the provisions of sections 349 and 350 during the three immediately preceding financial years.... ' Explanation.---Where a portion of a financial year of the company falls before the commencement of the Companies (Amendment) Act, 1985, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning, and for the purposes, of this subsection: ' Provided further that no such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the board of directors and such resolution shall, subject to the other provisions of this section, be deemed to be justification in law for the making and the acceptance of the contribution authorised by it.... (4) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party or for any political purpose to any person during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party or person to which or to whom such amount has been contributed." ' Section 13-A of the Income Tax Act, 1961 (the Income Tax Act), is reproduCed hereunder: "13-A. Any income of a political party which is chargeable under the head ' Income from house property' or ' Income from other sources' or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party: ' Provided that--- (a) such political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom; (b) in respect of each such voluntary contribution in excess of ten thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution; and (c) the accounts of such political party are audited by an accountant as defined in the Explanation below subsection (2) of section 288. Explanation,---" ' Section 77 of the Representation of the People Act, 1951 (the RP Act), is in the following term: "77. Account of election expenses and maximum thereof.---(1) Every candidate at an election 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 ctecision 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, experiditure in connection with the election incurred or authorised by the candidate or by his election agent for the purposes of this subsection." ' It is averred in the petition that most of the political parties in the country---registered and recognized by the Election Commission---have, for many years, been flouting the provisions of the
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Income-tax Act, so much so that they have not been maintaining accounts as required under section 13-A of the Income Tax Act. Most of the political parties have not been filing returns of income in violation of the mandatory provisions of law. According to the petitioner, it is a matter of common knowledge that political parties receive large amounts of money by way of donations/contributions from companies on a quid pro quo basis. The companies invest to seek favours when the party is in power. Neither the companies nor the political parties show the contributions/donations in their account books. The donations and contributions received by the political parties are obviously out of account and in the nature of black money which would not figure in the balance-sheets of the companies concerned. There is, thus, patent violation of section 293-A of the Companies Act and section 13-A of the Income Tax Act. ' The Union of India has filed a counter-affidavit, dated October 7, 1995. The supplementary affidavit has also been filed on February 13, 1996. We, may, at this stage, indicate the position regarding filing of returns of income by political parties as disclosed by the Union of India in the two counter- affidavits. ' The All India Forward Bloc did not file any return of income. The Department served notices under section 142(1) of the Income Tax Act on the party on September 21, 1995, and November 30, 1995. The party has not filed any return despite notices. ' Bhartiya Janta Party did not file any return till December 28, 1995, when in response to the notice issued by the Income Tax Department on December 4, 1995, the party filed a return of income for the assessm ent year 1995-96. The party also furnished information as required by the Department for the accounting period ending March 31, 1993, and March 31, 1994. According to the Department, the returns of income filed by the party suffered from infirmities as they did not include accounts of the State units. ' The Communist Party of India and the Communist Party of India kMarxist) have been filing their returns of income regularly. ' The Indian National Congress did not file any return of income. The Income Tax Department issued notice, dated December 3, 1995, and letters, dated November, 30, 1995, and January 17, 1996. Shri Sita Ram Kesri, Treasurer of the party, has filed an affidavit, dated February 16, 1996, stating that the returns of income relating to the assessment years 1993-94, 1994-95 and 1995-96 have been filed on December 14, 1995. ' The Janta 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 assessm ent 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 durjng 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 13-A 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 of income as required under law. Notices were issued to the political parties sometime in the year 1990 calling for returns of income for the assessm ent year 1986-87 and onwards. There is nothing on the record to show why the Income Tax Department did not issue notices to the political parties for the period prior to 1986-87. The political parties have failed to file returns for all the years from April 1, 1979, till the
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assessm ent year 1990-91 and thereafter till date. The reason given by the Union of India, in the counter-affidavit, for not taking any action against the parties is as under: "I submit that most of the State and national level political parties have not been filing their returns of income, and statutory notices issued have not been complied with as mentioned above. In some cases, in reply to statutory notices issued by the Assessing Officer, (i) where such person has not made a return within the time some political parties took a stand that they do not have any income which is liable to be taxed and their sources of income are only those which are specifically exempted by section 13-A of the Income Tax Act and that, therefore, they are not required to file returns of their income. In cases where notices were issued as stated above, since there was no definite information available to the Assessing Officer that the parties were having incomes above taxable limits as per the provisions of the Income Tax Act, the proceedings initiated by issue of statutory notices were dropped with the observation that in case any information or additional facts come to the notice of the authorities concerned, action under section 147 of the Income Tax Act would be taken." ' It is obvious that there has been total in action on the part of the Government to enforce the provisions of the Income Tax Act relating to the filing of a return of income by a political party. The provisions of section 13-A of the Income Tax Act read with section 293-A of the Companies Act clearly indicate the legislative scheme the object of which is to ensure that there is transparency in the process of fund collecting and incurring expenditure by the political parties. The requirement of maintaining audited accounts by the political parties is mandatory and has to be strictly enforced. It was obligatory for the income-tax authorities to have strictly enforced the statutory provisions of the Income Tax Act. We may refer to sections 139(4-B), 142(1) and 276-CC of the Income Tax Act, which are relevant: "139. (4-B) 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 (thf total income for this purpose being computed under this Act without giving effect to the provisions of section 13-A) 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 subsection (1). ' 142. Enquiry before assessm ent. ---(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 subsection (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified,--- under subsection (1) of section 139 to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or (ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or (iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require: Provided that,--- (a) the previous approval of the Deputy Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts; (b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.
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' 276-CC. Failure to furnish returns of income.---If a person wilfully fails to furnish in due time the return of income which he is required to furnish under subsection (1) of section 139 or by notice given under clause (i) of subsection (1) of section 142 or section 148, he shall be punishable,--- (i) in a case where the amount of tax, which would have been avoided if the failure had not been discovered, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine: ' Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of income under subsection (1) of section 139-- (i) for any assessm ent year commencing prior to the Ist day of April, 1975; or (ii) for any assessm ent year commencing on or after the Ist day of April, 1975, if--- (a) the return is furnished by him before the expiry of the assessment year; or (b) the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees." ' The political parties, therefore, are under a statutory obligation to furnish a return of income for each assessm ent year. To be eligible for exemption from income-tax they have to maintain audited accounts and comply with the other conditions envisaged under section 13-A 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 incident once or twice. The political parties have---in patent violation of law---neither maintained audited accounts nor paid tax since 1979- 80. Subsection (4-B) 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 276-CC of the Income Tax Act. It leaves no leeway. The mandatory provisions of the law have to be enforced. It is common knowledge that there is ostentatious use of money by political parties in the elections to further the prospects of candidates set up by them. Display of huge-cut- outs, etc., of political leaders on road-sides, crossings, street corners, etc., and setting up of arches, gates, hoardings, etc., at prominent places and printing of posters and pamphlets are some of the ways in which money-power is displayed by the parties. In many cases large-scale advertisements are also given in newspapers by political parties. ' The general elections---to decide who rules over 850 millions Indians-are staged every 5/6 years since independence. It is an enormous exercise and a mammoth venture in terms of money spent. Hundreds and thousands of vehicles of various kinds are pressed on to the roads in the 543 parlianentary constituencies on behalf of thousands of aspirants to power, many days before the general elections are actually held. Millions of leaflets and many millions of posters are printed and distributed or pasted all over the country. Banners by the lakhs are hoisted. Flags go up, walls are painted, and hundreds of thousands of loudspeakers play out the loud exhortations and extravagant promises., VIPs and VVIPs come and go, some of them in helicopters and air-taxis. The political parties in their quest for power spend more than one thousand crore of rupees on the General Election (Parliament alone), yet nobody accounts for the bulk of the money so spent and there is no accountability anywhere. Nobody discloses the source of the money. There are no proper accounts and no audit. From where does the money come nobody knows. In a democracy
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where the rule of law prevails this type of naked display of black money, by violating the mandatory provisions of law, cannot be permitted. ' Mr. R.V. Pandit---a writer, and an economic analyst---has intervened in this petition. Alongwith his intervention application, he has annexed an article written by him and published in the "Imprint" of September, 1988. In the said article, he highlights the corruption in this country in the following words: "I maintain a savings bank account, and from this account drew crossed account payee cheques of varying sums of money towards election expenses of candidates I felt would serve 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 monay 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 themselves---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 is at the root of the problem. Prices are high. Corruption is the cause. Quality is bad. Corruption is the cause. Roads are pockmarked. Corruption is the cause. Nobody does a good job. Corruption is the cause. Hospitals kill. Corruption is the cause. Power-failures put homes in darkness, businesses into bankruptcy. Corruption is the cause. Cloth is expensive. Corruption is the cause. Bridges collapse. Corruption is the cause. Educational standards have fallen. Corruption is the cause. We have no law and order. Corruption is the cause. People die from poisoning, through food, through drink, through medicines. Corruption is the cause. The list is endless. The very foundation of our nation, of our society, is now threatened. And corruption is the cause." ' According to Mr. Pandit, the above-quoted scenario has not improved, it has rather become worse. The general elections bring into motion the democratic polity in the country. When the elections are fought with unaccounted money, the persons elected in the process can think of nothing except getting rich by amassing black money. They retain power with the help of black money and while in office collect more and more to spend the same in the next election to retain the seat of power. Unless the statutory provisions meant to bring transparency in the functioning of the democracy are strictly enforced and election funding is made transparent, the vicious circle cannot be broken and corruption cannot be eliminated from the country. ' We have no hesitation in holding that the political parties who have not been filing returns of income for several years have violated the statutory provisions of the Income Tax Act. The income- tax authorities have been wholly remiss in the performance of their statutory duties under law. It was mandatory for the income-tax authorities to have put in motion the statutory machinery against the defaulting political parties. The reasons for not doing so---as disclosed in the counter- affidavits---are wholly extraneous and unjustified. The political parties are not above the law and are bound to follow the same. ' A political party which is not maintaining audited and authentic accounts and is not filing the return of income before the income-tax authorities cannot justifiably plead that it has incurred or authorised any expenditure in connection with the election of a party candidate. The expenditure "incurred or authorised in connection with the election of a candidate by a political party" can only be expenditure which has a transparent source. Explanation 1 to section 77 of the Representation of
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the People Act, 1951, does not give protection to expenditure which comes from an unknown or black source. The bulk of the income of apolitical party by way of contributions/donations is from companies. Section 293-A 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 13-A 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 political party are audited by a chartered accountant or other qualified accountant. Subsection (4-B) has been inserted in section 139 of the Income Tax Act by the Taxation Laws (Amendment) Act, 1978, under which every political party is obliged to file every year a return of total income voluntarily. The total income for this purpose is to be computed without giving effect to the provisions of section 13-A of the Income Tax Act. If such total income exceeds the maximum amount which is not chargeable to tax, the liability of the political party to file a return of income voluntarily arises. It is thus, obvious that section 293-A of the Companies Act read with section 13-A and other provisions of the Income Tax Act are with the avowed object of bringing transparency in the accounts and expenditure of the political parties. If a political party deliberately chooses to violate or circumvent these mandatory provisions of law and goes through the election process with the help of black and…
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