1975 (9) TMI 53 - SC - Income Tax

Whether politics of the socialist brand or otherwise is a profession or occupation? Whether the expenditure incurred by the assessee for the election of candidates set up by him as chairman of his party can be legitimately regarded as incurred wholly and exclusively for the purpose of his profession or occupation? Held that - It is thus clear without reference to the wealth of case law relied on by the High Court that politics has been a profession and indeed under modern conditions in India perhaps the most popular and uninhibited occupation with--its perils of course. Law cannot take leave of realities and therefore section 5(a) must bear the construction that politics is a profession or occupation. There is no suggestion nor evidence that any material return was in contemplation when he spent these sums. Being a politically important man with plenty of money and vitally interested in boosting his party s standing in the State he donated liberally for candidates set up by the party. In this view section 5(j) applies to these donations which earn exemption from the expenditure-tax. Wholly motiveless donation is rare but material return alone negates a gift or donation. We need not investigate the propriety of political donations unlimited and often invisible. All that we need consider is whether such sums are gifts and donations or are non-gratuitous payments with a tag of return. We have no doubt that on the question as framed and on the facts and circumstances present these sums were paid purely as gifts and donations to his party by the repondent. It is not surprising either because he was the chairman of the said party had a long and liberal purse from which to draw and a large circle of support to build up in the long run. The inevitable conclusion from our discussion is that both the heads of expenditure fall under section 5(j) of the Act and therefore flow out of the assessable zone. The High Court s conclusion is sound and the appeal deserves dismissed

Summary

Issues:
1. Whether the expenditure incurred for the benefit of other candidates for election is excludable from taxable expenditure under section 5(a) or 5(j) of the Expenditure-tax Act?
2. Whether the sum claimed as party expenses could be excluded from taxable expenditure under section 5(a) or 5(j) of the Expenditure-tax Act?

Analysis:
The judgment by the Supreme Court delves into the interpretation of section 5(a) and 5(j) of the Expenditure-tax Act, 1958, concerning the exclusion of certain expenditures from taxable expenditure. The case involved a wealthy individual, the respondent, who was the chairman of a political party and spent significant amounts on election-related expenses for other candidates and party expenses. The Tribunal referred questions of law to the High Court regarding the eligibility of these expenditures for exclusion under the Act.

The Court analyzed the provisions of the Act, emphasizing that expenditure wholly and exclusively incurred for the purpose of a profession or occupation carried on by the assessee is excluded from taxable expenditure. It was established that politics can be considered a profession or occupation, supported by historical and contemporary examples of political figures dedicating themselves to politics as a profession. The Court acknowledged the varied perceptions of politics, ranging from noble statesmanship to negative connotations, but ultimately concluded that politics qualifies as a profession under the Act.

Regarding the expenditure for other candidates' election campaigns, the Court determined that such expenses could be considered donations under section 5(j) of the Act. The respondent's contributions to other candidates were viewed as gratuitous payments without any material return, aligning with the definition of a donation. Similarly, the sums given to the political party were categorized as gifts and donations, devoid of any expectation of a quid pro quo. The Court highlighted the significance of motiveless donations and concluded that both categories of expenditure fell under section 5(j), thereby exempting them from the assessable zone for expenditure-tax.

In conclusion, the Court upheld the High Court's decision, dismissing the appeal and affirming that the expenditures in question were rightfully excluded from taxable expenditure under section 5(j) of the Expenditure-tax Act. The judgment underscores the distinction between legitimate professional expenditures and donations/gifts, providing clarity on the applicability of the Act to political activities and contributions.