Taxing Times for Congress, Janata Party

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MIRZAPUR, MAY 6 (UNI):- Congress Vice president Rahul Gandhi arrived from a chopper in election campaign rally in Mirzapur, Uttar Pradesh on Tuesday.UNI PHOTO-110U
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In a surprising development, the High Court here has slammed the Congress and the Janata Party for trying to evade income tax and asked them to cough up the required amount

By Jagdeep S Chhokar


In a surprising and rare development, a division bench of the Delhi High Court, passed strictures agai-nst two political parties—the Congress and the Janata Party—21 years after notices were issued to them by the income tax department for not filing their IT returns.

On March 23, 2016, a bench comprising of Justices S Muralidhar and Vibhu Bakhru, passed separate judgments on the same day against these two parties on this issue. Rarely are political parties pulled up by courts. The coincidences don’t end there.

LUCKNOW, MAY 16 (UNI):- BJP supporters celeberating party's victory in Lok Sabha elections near party office in Lucknow on Friday. UNI PHOTO-88U
LUCKNOW, MAY 16 (UNI):- BJP supporters celeberating party’s victory in Lok Sabha elections near party office in Lucknow on Friday. UNI PHOTO-88U

It was on September 20, 1995, that the Assessing Officer (AO) issued a notice to the Congress Party asking it to file its IT return for Assessment Year 1995-96. And it was on September 21, 1995, a day later, that the Janata Party case began with the AO issuing a notice asking it to file its IT return for Assessment Year 1995-96.

TAX EVASION

The notices by the AO were issued, presumably, after a PIL was filed by a civil society organization, Common Cause, in 1995 alleging that the political parties were not filing IT returns but were enjoying 100 percent exemption. The case was heard in 1995 and decided by the apex court on April 4, 1996.

The apex court had then passed critical observations about the functioning of the IT department. Inter alia, it said: “It is obvious that there has been total inaction 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.” One of its conclusions said “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”.

VARANASI, APR 24 - Narendra Modi, prime ministerial candidate for India's main opposition Bharatiya Janata Party (BJP), waves to his supporters as he arrives to file his nomination papers for the general elections in the northern Indian city of Varanasi April 24, 2014. Around 815 million people have registered to vote in the world's biggest election - a number exceeding the population of Europe and a world record - and results of the mammoth exercise, which concludes on May 12, are due on May 16. REUTERS/UNI PHOTO-25R
VARANASI, APR 24 – Narendra Modi, prime ministerial candidate for India’s main opposition Bharatiya Janata Party (BJP), waves to his supporters as he arrives to file his nomination papers for the general elections in the northern Indian city of Varanasi April 24, 2014. Around 815 million people have registered to vote in the world’s biggest election – a number exceeding the population of Europe and a world record – and results of the mammoth exercise, which concludes on May 12, are due on May 16. REUTERS/UNI PHOTO-25R

The Common Cause judgment describes the mechanics of the election in very realistic terms: “The general elections—to decide who rules over 850 million Indians—are staged every 5/6 years since independence. It is an enormous exercise and a mammoth venture in terms of money spent…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 permitted.”

IT DEPARTMENT    

It is likely that the Common Cause case stirred the IT department into action, resulting in it issuing notices to the Congress and the Janata Party. Both cases were heard over time and the respective Assessment Officers (AOs) passed their orders on March 21, 1997, for the Congress, and March 31, 1998, for the Janata Party. Appeals were filed to the Commissioner of Income Tax (Appeals) in both cases and rejected in July 1998 for the Congress and in February 2000 for the Janata Party. Both parties then filed appeals to the Income Tax Appellate Tribunal (ITAT). The ITAT upheld the appeals in April 2001 for the Congress, and in November 2001 for the Janata Party. The IT department then filed appeals in the High Court in January 2002 and January 2004 respectively for the Congress and the Janata Party. And the judgment of that was given this March.

http://www.indiatvnews.com/politics/national/narasimha-rao-used-to-rebuke-me-pranab-mukherjee-7484.html
http://www.indiatvnews.com/politics/national/narasimha-rao-used-to-rebuke-me-pranab-mukherjee-7484.html

The two-judge bench of the Delhi HC exhibited great sensitivity about the importance of the case and the issue, stating it clearly in the judgment itself: “The significance of this case, which has had a chequered history, lies in it being symbolic of the general lack of transparency and accountability of political parties in this country. By a separate judgment today the Court is disposing of a similar case involving the Janata Party for AY 1995-96.”

The 71-page elaborate judgment refers to some seminal cases and legislations on electoral reforms such as the KanwarLal Gupta vs Amar Nath Chawla (1975) case, the Common Cause (1996) case, the Guidelines on Transparency and Accountability in Party Funds and Election Expenditure issued by the Election Commission of India on August 29, 2014, and the 255th Report of the Law Commission of India submitted in March 2015. The judgment  opens with a quotation from the KanwarLal Gupta vs Amar Nath Chawla case: “More than four decades ago, while noting the distortion that large contributions of money made to political parties and candidates could bring about to the electoral process, the Supreme Court (made significant observation) in the KanwarLal Gupta vs Amar Nath Chawla case.”

TOUGH OBSERVATIONS

After going into the nitty-gritty of the current cases, pinpointing exactly how the political parties took shelter behind utterly irrelevant and baseless arguments and ambiguities, the Court ruled that the Congress and the Janata Party were liable to pay income tax on `25.12 crore and `1.23 crore respectively. The “Summary of conclusions” itself runs into 17 points!

The essence of the judgment is captured eloquently in its concluding paragraph: “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 [and] critical to the conduct of free and fair elections. The above recommendations of the LCI should receive serious and urgent attention at the hands of the executive and the legislature if money power should not be allowed to distort the conduct of free and fair elections. This will in turn infuse transparency and accountability into the functioning of the political parties thereby strengthening and deepening democracy.”

Whether this judgment will “receive serious and urgent attention at the hands of the executive and the legislature” is debatable though it seems reasonably clear that the issue will go to the Supreme Court as both the Congress and the Janata Party are unlikely to accept the verdict.

Notwithstanding that, the Income Tax department seems to have vindicated itself by persisting with these cases for over 21 years. Let’s hope they continue to persevere in their efforts to contribute to the “strengthening and deepening (of) democracy”.

The judiciary is equally worthy of commendation for upholding the rule of law, as clearly enunciated in the Common Cause case. “The political parties are not above law and are bound to follow the same,” said this judgment.

AUDITORS SLAMMED

The two-judge bench has also commented in some detail on how the chartered accountants who audited the accounts of the Congress and the Janata Party performed their jobs. These comments are far from laudatory and specific instances of dereliction of their professional duties have been pointed out. The judgment makes observations which need to be noted by the Institute of Chartered Accountants of India who need to take appropriate action.

While considering the estimation of the income of a political party “with a degree of certainty”, the bench observed: “This kind of an exercise would require collating a vast amount of data which as of now does not exist in the public domain particularly with political parties resisting attempts at bringing them within the ambit of the Right to Information Act, 2005.”

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This is a very significant observation given the fact that the Central Information Commission declared six national political parties to be public authorities under the RTI Act as far back as March 2013 but none of the parties complied with that decision. The matter is now under consideration of the Supreme Court.

On the whole, this is a very significant judgment. One hopes it will be upheld by the Supreme Court if and when it comes up there, and that the IT department will continue to perform its duty with the same diligence it has done in these two cases.

—The writer is a former Professor, Dean, and Director In-charge of IIM, Ahmedabad

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