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1996 (4) TMI 385 - SC - Companies LawCumulative effect of the three statutory provisions namely section 293A of the Companies Act 1956 section 13A of the Income-tax Act 1961 and section 77 of the Representation of the People Act 1951 is to bring transparency into election-funding Held that - Appeal allowed. The political parties are under a statutory obligation to file a return of income in respect of each assessment year in accordance with the provisions of the Income-tax Act. The political parties referred to by us in the judgment who have not been filing returns of income for several years have prima facie violated the statutory provisions of the Income-tax Act as indicated by us in the judgment. 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. 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 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 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 authorised by the political parties in connection with the election of their respective candidates.
Issues Involved:
1. Violation of statutory provisions by political parties regarding election funding. 2. Inaction by Income-tax authorities in enforcing tax laws against political parties. 3. Interpretation of Explanation 1 to Section 77 of the Representation of the People Act, 1951. 4. Powers of the Election Commission under Article 324 of the Constitution of India. Detailed Analysis: 1. Violation of Statutory Provisions by Political Parties Regarding Election Funding: The petition filed by Common Cause under Article 32 of the Constitution of India contended that political parties were violating the mandatory provisions of Section 293A of the Companies Act, 1956, Section 13A of the Income-tax Act, 1961, and Section 77 of the Representation of the People Act, 1951. The primary contention was that these provisions aimed to bring transparency into election funding, but political parties were spending crores of rupees without indicating the source of the money, often derived from black sources. The court noted that political parties were not maintaining accounts as required under Section 13A of the Income-tax Act and were not filing returns of income, thereby violating the law. 2. Inaction by Income-tax Authorities in Enforcing Tax Laws Against Political Parties: The court observed that most political parties had not been filing returns of income, and the Income-tax Department had been remiss in enforcing the statutory provisions. The court highlighted that the legislative scheme under Section 13A of the Income-tax Act and Section 293A of the Companies Act was intended to ensure transparency in the collection and expenditure of funds by political parties. The court criticized the Income-tax authorities for failing to enforce these provisions and directed the Secretary, Ministry of Finance, Department of Revenue, Government of India, to conduct an investigation and initiate necessary action against the defaulting political parties, including penal action under Section 276CC of the Income-tax Act. 3. Interpretation of Explanation 1 to Section 77 of the Representation of the People Act, 1951: The court held that a political party not maintaining audited accounts and not filing returns of income could not justifiably claim that it had incurred or authorized any expenditure in connection with the election of a candidate. The court clarified that any expenditure in connection with the election of a candidate, to the knowledge of the candidate or his election agent, shall be presumed to have been authorized by the candidate or his election agent. However, this presumption is rebuttable, and the candidate must show that the expenditure was incurred by the political party or any other association or body of persons or by an individual other than the candidate or his election agent. The court emphasized that the expenditure must have a transparent source, and any expenditure from an unknown or black source would not be protected under Explanation 1 to Section 77. 4. Powers of the Election Commission Under Article 324 of the Constitution of India: The court agreed with the contention that the Election Commission, under Article 324 of the Constitution, has the power to issue directions to maintain the purity of elections and bring transparency in the process. The court held that the expression "conduct of elections" is wide enough to include the power to issue directions that political parties shall submit details of expenditure incurred or authorized by them in connection with the election of their candidates to the Election Commission for scrutiny. The court cited the case of Mohinder Singh Gill v. Chief Election Commissioner to support its interpretation of Article 324, emphasizing that the Election Commission's powers are plenary and include the authority to ensure free and fair elections. Judgment: The court directed that: 1. Political parties are under a statutory obligation to file returns of income in accordance with the Income-tax Act. 2. Income-tax authorities have failed in their statutory duties and must take appropriate action against defaulting political parties. 3. The Secretary, Ministry of Finance, Department of Revenue, Government of India, shall investigate and initiate necessary action against defaulting political parties, including penal action under Section 276CC of the Income-tax Act. 4. An inquiry should be conducted to determine why the mandatory provisions regarding filing returns of income by political parties were not enforced, and responsible officers should be dealt with accordingly. 5. A political party not maintaining audited accounts and not filing returns of income cannot claim to have incurred or authorized expenditure in connection with the election of its candidates. 6. Expenditure in connection with the election of a candidate shall be presumed to have been authorized by the candidate or his election agent, subject to rebuttal by the candidate. 7. The Election Commission has the power to issue directions for political parties to submit details of expenditure incurred or authorized by them in connection with elections for scrutiny. The writ petition was allowed with costs quantified at Rs. 20,000 to be paid by the Union of India.
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