1996 Supreme(SC) 722

1996(3) Supreme 281
SUPREME COURT OF INDIA
Kuldip Sfngh and Faizan Uddin, JJ
Common Cause, A Registered Society -Petitioner
versus
Union of India & Ors. -Respondents
Writ Petition (Civil) No. 24 of 1995
Decided on 4-4-1996
Counsel for the Parties :
For the Petitioner : H.D. Shourie.
For the Section Commission : Kapil Sibbal.

VERY IMPORTANT POINTS
1. In a democracy where rule of law prevails, naked display of black money by the political parties in their quest for power, by violating the mandatory provisions of law, cannot be permitted.
2. The political parties are under a Statutory obligation to file return of income in respect of each assessment year in accordance with the provisions of the Income Tax Act and it was mandatory for the income tax authorities to have put in motion the statutory machinery against the defaulting political parties as the political parties are not above law and are bound to follow the same.
3. 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 I to Section 77 of the Repesentation of the People Act, 1951.
4. Any expenditure in connection with the election 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 but the said presumption would be rebuttable.
5. 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 and an entry in the books of account of a political party maintained in accordance with law showing that the party has incurred expenditure in connection with the election of a candidate may by itself be sufficient to rebut the presumption.
6. Any expenditure incurred or authorised by a political party in respect of general propaganda or for the propagation of its election manifesto shall not be considered an expenditure to be incurred in connection with the election of the candidate/candidates belonging to the said party.
7. The, Election Commission is empowered to issue directions - in the process of the conduct of an election - to the effect that the political parties shall submit to the Commission, for its scrutiny, the details of the expenditure incurred or authorised by the parties in connection with the election of their respective candidates.
8. It was obligatory for the income tax authorities to have strictly enforced the statutory provisions of the Income-Tax Act relating to the filing of a return of income. by a political party.
9. Supreme Court of India has directed the Secretary, Ministry of Finance. Department of Revenue, Government of India to 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 and any officer/officers found responsible and remiss in the injury be suitably dealt with in accordance with the rules.

Headnote:(i) Election-Income-tax Act, 1961-Sections 139(4B), 142(1) and 276CC-Filing of a return of income by a political party-Political parties are under a statutory obligation to file return of income in respect of each assessment year-A political party not maintaining, audited and authentic accounts and not filing return of income cannot justifiably plead that it has incurred or authorised any expenditure in connection with election, of a party candidate-Expenditure incurred or authorised in connection with election of a candidate by a political party can only be the expenditure which has a transparent source. (Representation of the People Act, 1951-Section 77)

       Held : That the political parties who have not been filing returns of income for several years have violated the statutory provisions of Income Tax Act. The income tax authorities have been wholly re-miss 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 law and are bound to follow the same. (Para 9)

       Further Held: 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 the expenditure which has a transparent source. Explanation 1 to Section 77 of the In-come-tax Act does not give protection to the expenditure which comes from an unknown or black source. Bulk of 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 is exempt from income tax, only if a political party satisfies that (i) it keeps and maintains such books of accounts and other documents as would enable the assessing officer to properly deduce its income there from; (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. Sub-section 48 has been inserted in Section 139 of the Income-tax Act by Taxation Laws (Amendment) Act, 1"978 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 13A 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 return of income voluntarily arises. It is thus, obvious that Section 293A of the Companies Act read with Section 13A and other provisions of the Income Tax Act are with an 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 unaccounted money the said party, ordinarily, cannot 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 R.P. Act. (Para 10)

       (ii) Election-Income-tax Act, 1961-Sections 139(4B), 142(1) and 276CC-Filing of a return of income by a political party-Political parties are under a statutory obligation to file return of income in respect of each assessment year-Political parties failed to file returns for an years from 1.4.1979 till Assessment year 1990-91-It was obligatory for the income tax authorities to have strictly enforced provisions of Act-Non-enforcement of mandatory provisions-Income-tax authorities have been wholly remiss in performance of statutory duties-Secretary, Ministry of Finance shall have an investigation/ enquiry conducted against each of defaulter parties-An inquiring body to be appointed to find out why mandatory provisions regarding filing of returns by political parties not enforced-Any officer/officers found responsible and remiss in inquiry be suitably dealt with in accordance with rules.

       Held : 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 return 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 some time in the year 1990 calling for returns of income for the assessment years 1986-87 and onwords. 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 assessment year 1990-91 and thereafter till date. (Para 5)

       Further Held : 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 13A of Income-tax Act read with Section 293A 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. The political parties, therefore, are under a statutory obligation to funish 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. Subsection 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 of the Income Tax Act. It leaves no leeway. The mandatory provisions of the law have to be enforced. (Para 6)

       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 where rule of law prevails this type of naked display of black money, by violating the mandatory provisions of law, cannot be premitted. (Para 7)

       That the Income-tax authorities have been wholly remiss in the performance of their statutory duties under law. The said authorities have for a long period failed to take appropriate action against the defaulter political 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. (Para 16)

       (iii) Election-Representation of the People Act, 1951-Section 77, Explanation I-Benefit of-Claim of-Expenditure incurred and spent by a political party in connection with election of a candidate-Presumed to have been authorised by the candidate or his election agent-Presumption is rebuttable- Candidate shall have to show that the said expenditure was in fact incurred by a political party and not by him-Standard of proof-An entry in books of account of a political party showing that party has incurred expenditure in connection with election of a candidate-Sufficient to rebut presumption-Any expenditure incurred or authorised by a political party in respect of general propaganda or for propagation of its election manifesto-Not to be considered an expenditure to be incurred in connection with election of candidate.

       Held : That the expenditure incurred by a candidate himself would squarely fall under Section 77(1) of the RP Act. There can also be no dispute with the proposition that the expenditure actually incurred and spent by a. political party in connection with the election of a candidate, cannot be treated to be the expenditure under Section 77(1) of the Act. The question, however, for determination is what rule of evidence is to be followed to attract the provisions of Explanation 1 to Section 77 of the RP Act ? The said Explanation is in the nature of an exception to subsection 1 of Section 77. A candidate in the election who wants to take the benefit of Explanation 1 to Section 77 of the RP Act 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, poster, cut-out, hoarding, wall painting, advertisement and newspaper etc. that the same were issued by the political party may not by itself be sufficient to rebut the presumption. We, there-fore, hold that the expenditure (including that for which the candidate is seeking protection under Explanation I to Section 77 of RP Act) 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 any other association or body of persons or by an individual (other than the candidate or his election agent). (Para 11)

       Further Held: That any expenditure incurred or authorised by a political party in respect of general propaganda or for the propagation of its election manifesto shall not be considered an expenditure to be incurred in connection with the election of the candidate/candidates belonging to the said party. (Para 12)

       (iv) Constitution of India-Article 324-Expression conduct of election-Scope-Expression includes power of Election Commission to issue directions-In process of conduct of an election-to the effect that political parties shall submit-To Commission, details of expenditure incurred or authorised by parties in connection with election of their respective candidates.

       Held : 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 election" 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 scrutiny, the details of the expenditure incurred or authorised by the parties in connection with the election of their respective candidates. (Para 14)